International Purchasing and Supply-Chain Management - Essay Example

?  International Purchasing and Supply-Chain Management Essay Contents 2 Contents 2 Introduction 3 Discussion 3 Conclusion 18 References 19 Introduction Wal-Mart is a giant in the retailing industry. Over the past few years, the company has established itself as the largest and most powerful retailer in the world. The company is acclaimed for maintaining the highest inventory turnover, the highest sales per square foot and the highest operating profit margin in the retail industry since the last ten years. The transition of Wal-Mart from being a local retailer to a global retail giant has been largely driven by the unique and excellent supply chain management of the company. Wal-Mart has implemented a low cost strategy in its business and makes profit through large volume sales. The company is characterized by advanced inventory management systems, aggressive pricing policies, a unique retail and supply chain distribution system and has needed very less promotion and advertising in its journey to become one of the biggest private companies in the world. Wal-Mart is a retailing giant famous for its innovative business practices and is one of the first businesses to implement a centralized distribution system. The company has been renowned for continually integrating the latest technologies into its supply chain processes. Discussion The efficient supply chain management system of Wal-Mart is a major driver for the success of the company as a leading retail giant. The supply chain model of the business is formed by the effective integration of the purchasing, manufacturing, warehousing and distributing processes (Lysons and Farrington 2005, p.90). The supply chain of Wal-Mart implements four main strategies: technology, cross docking, vendor partnerships and distribution management and integration. Wal-Mart operates both retail outlets and distribution centres constitute its supply chain network. The supply chain of Wal-Mart comprises of 95 Distribution facilities and around 1500 stores operating all across the world. The distribution centres hold different types of merchandising goods varying from eatables to clothing and accessories. Procurement and Distribution The supply chain of Wal-Mart starts with the process of strategic sourcing to identify the proper suppliers who can provide the products at the best possible prices and can meet the huge demand level of the retail giant. Wal-Mart has entered into strategic collaborations with a major number of suppliers and has guaranteed sourcing products at lowest possible expenses by providing the suppliers with opportunity for high volume sales over a long period of time (Martin, 2006, p.156). The company maintains a strong logistics network comprising of the largest employee base for fleet of private trucks consisting of around 8000 drivers who were involved in the delivery of the goods from the distribution centres to the stores of Wal-Mart. The distribution centres of Wal-Mart comprised of general merchandise, as well as food and clothing distribution centres. The products are picked up from the warehouse of the suppliers by the trucking division of Wal-Mart and then transported to the distribution centres of Wal-Mart. Wal-Mart has formulated standardized labelling and consignment sizes to ensure that the shipments were easily transferred across the distribution centres. The consignments are cross docked to the inbound trailers. The supply chain follows a uniform operating and distribution process throughout its supply chain. Each of these distribution centres are designed in a way to provide maximum support to the stores with similar kinds of merchandise being stacked together Hub and Spoke Design The establishment of Wal-Mart’s stores was directly driven by the distribution strategies of the business. The opening of the first distribution centre of the business was a significant investment strategy of the company and was aimed at attaining economies of scale. So the location of the stores was selected such that the distance could be covered within one day. The company started its hub and spoke design for the warehousing with single huge volume distribution facilities fulfilling the inventory requirements of a number of stores. This expansion strategy was a very successful distribution strategy used by the business for more than two decades and many competitors trying to adopt this strategy (Meindl, 2007, p.79). Inventory Management The Company follows a vendor financed inventory policy. Under this method, the trucks of P&G carrying the goods are unloaded in the distribution centres of the company directly to the trucks routed to the Wal-Mart store. This results in less consumption of the warehouse space and a faster inventory cycle. The vendor financed inventory ensures that the company sells off the goods before they have to make payments to the suppliers. A major threat faced in the retail business is unaccounted for inventory loss like theft of the stocks. Wal-Mart implemented an effective strategy in its inventory management policies by rewarding the associates in the stores for maintaining a shrinkage level lower than that set by the company. This policy was extremely beneficial and till date maintains the shrinkage of Wal-Mart at a percentage which is half of the average shrinkage level in the retail industry. An efficient inventory management system needed a strong information technology backup. Wal-Mart has made maximum utilization of information technology in its inventory management system resulting in the reduction of unproductive stock, package sizes and price markdowns. The company has efficiently managed its inventory across all its operational regions by monitoring the whole process and the stock levels in the distribution centres and individual stores effectively. Wal-Mart works in close cooperation with its suppliers to ensure that the company can access useful information to take decisions on every stage of the supply chain. The company also encourages the suppliers to put efforts towards continuous improvement of the supply chain processes. Since the company operates with a large number of suppliers and conducts large volume transactions it is necessary for the company to ensure effective collaboration with each of their suppliers (Harland, 1996, p.191). The degree of communication is dependent on the volume of transactions, the amount of capital invested and the type of merchandise involved. Cross Docking Wal-Mart uses minimum inventory storage by delivering the finished goods directly to the stores without maintaining them in the warehouses. This decreases the warehousing costs as well as decreases the inventory management cycle. Cross docking also depends heavily on a high technology platform to enable effective communication between the suppliers, vendors, distribution centres, stores and the company headquarters. The process of cross docking in Wal-Mart is more facilitated by the use of Wal-Mart’s own satellite network system (Harrison, 2010, p.141). The satellite network enables a continuous communication between the company, its stores and its huge number of suppliers. The process of cross docking was taken up in the early phases of the company and is still used in its current operations. The distribution facilities perform two major functions in the supply chain of Wal-Mart. The major function of the distribution centre is to provide for quick replenishment of the stock levels in the stores by maintaining the storage of products near the stores. Another function of the distribution centre is to serve as cross docking terminal to ensure the transportation of products without the need of them being stored in a warehouse. The establishment of distribution facilities are done based on the analysis of the demand levels for Wal-Mart stores in the particular region and the cost incurred to establish a distribution facility in that area. The supply chain process of Wal-Mart has been shown in charting as follows: Figure 1: Supply chain of Wal-Mart through Charting Information Systems The Wal-Mart supply chain process makes an extensive use of the latest technologies. Technological factors form the base of the Wal-Mart’s supply chain process. The company is equipped with the largest information technology infrastructure in the retail segment (Mentzer, 2001, p.24). The excellent use of technological methods make the company capable of predicting and tracking the inventory levels, forecasting demand levels accurately, manage effective service response logistics and develop highly robust transportation methods and routes (Remk, 2008, p.3). Information Technology in Wal-Mart supply chain process involves the use of Inventory Tracking and Electronic Data Interchange (EDI), RFID technologies, Artificial intelligence system for merchandising, management information systems in the distribution centres and Quick-Response (QR) systems to facilitate direct ordering from stores to suppliers. Electronic Data Interchange (EDI) The EDI systems are used for the electronic transmission of point of sales data, invoices, shipment notices, and purchase orders between the headquarters, the suppliers, distribution centres and the individual stores of Wal-Mart. The company uses an artificial intelligence system is implemented to segregate the vendor merchandise assortments on the basis of the stock requirements of each store. The company also makes use of a high technology satellite communication network supporting data, voice as well as video transfers. The satellite communication network is an integral element of the supply chain management system of the company. The management information systems established in the distribution centres are used to identify and locate the products in the warehouses. The company was an early identifier of the necessity of timely information to maximize the revenue and minimize the costs. The smooth flow of information within the supply chain of Wal-Mart ensures that the company has a clear idea of the stocks and sales in every store and based on that information the company is able to balance the appropriate inventory levels according to the requirements. The company is hugely secretive about the information system used in its business processes and uses customized systems built by the employees and maintains strict non-disclosure policies in their agreements with the vendors of both hardware and software (Emmett and Crocker, 2010, p.11). The cost of goods for Wal-Mart is 10% lesser than that of its competitors like Tesco, Metro, Carrefour etc. The competitors of Wal-Mart started following the same technological processes as Wal-Mart like the Electronic Data Interchange (EDI) and the wireless barcode scanner yet they could not match the productivity of Wal-Mart due to its excellent and robust supply chain management system (Chan, 2005, p.32). The Wal-Mart supply chain is majorly driven by the extensive use of information technology, alliances with the suppliers, alliances with the employees and cost effectiveness. Continuous Replenishment System The continuous replenishment system is an important part of the supply chain management process of Wal-Mart. The system directs the orders for the goods o the suppliers as soon as the entry for payment is done in the cash registers. The point of sales counters scans the barcodes for each of the merchandise passing out of the counter and delivers a purchase order directly to the central computer installed in the headquarters. The main computer located in the headquarters collects all the orders from the different stores and sends the orders to the suppliers so that they can immediately replenish the sold inventory. The vendors and suppliers also have access to the inventory and sales records through the use of a shared web technology. The continuous replenishment system enables the company to save a lot of expenses on the maintenance of a large stock of merchandise by restocking the inventory immediately when the merchandise is sold (Christopher, 2010, p. 118). The system also makes the company efficiently stock their goods in the stores according to the demand levels of the customers. The continuous replenishment system works with the objective of replenishing the inventory on a daily basis or hourly basis and maintaining a smooth flow of information between the company and its suppliers and customers (Hines, 2004, p.5). The continuous replenishment system depends on the maintenance of updated point of sales information, shipping and inventory data and a proper product demand forecasting to maintain a rigid control over the inventory and distribution management system (Sanders, 2012, p.31). The continuous replenishment system is implemented in the stores as well as the distribution centres of the business. Radio Frequency Identification The company replaced their traditional barcode technology with the RFID technology in an attempt to increase the efficiency of the business and reduce the supply chain costs. The implementation of the RFID technology has helped save labour cost as well as time by getting rid of the process of physical scanning of the barcodes in the goods. The benefits of this technology were many including the decrease in stock out levels in the stores. The suppliers of Wal-Mart are also RFID compliant and have implemented the latest technologies in their supply chain management software (Crocker, 2011, p.19). Bullwhip Effect The bullwhip effect is a popular phenomenon in the distribution channels which are heavily driven by demand forecasts. The process uses forecasting the fluctuating customer demand levels by the use of analytics and statistical processes (Compton and Jessop, 2003, p.89). The company effectively uses this process to stock its inventory and stores appropriately. During the times of high demand, the company encourages an increase in the orders of the downstream participants of the supply chain and during low demand periods, the orders are decreased to reduce the inventory levels. Additionally, the company also maintains a safety stock to provide for the varying demand levels. The company has successfully reduced the bullwhip effect by the implementation of the EDLP pricing strategy (Murphy and Wood, 2010, p.127). Retail strategy The retail strategy of Wal-Mart started with the purchase of merchandise in bulk. The company effectively recognized the upcoming popularity of discounted merchandise. Thus, the company has attracted a wide range of customers through its everyday low pricing (EDLP) schemes. The company sources a wide range of merchandise in bulk from a huge network of suppliers and sells them in its stores at a discounted price than the retail prices. The company has implemented the best practices of other retail companies majorly by observing the trends (Chopra and Meindl, 2007, p.59). Wal-Mart successfully uses price rollback strategies to increase the product sales as well as stockpiles in the warehouses. Wal-Mart ensures efficiency in the store operations as well as logistic operations. The company makes a continuous effort in reducing the operating costs. The Wal-Mart distribution centres use real time information to maintain their stock levels and monitor the stocks in the stores due to which the goods are automatically pushed into the stores. The information systems in the stores ensure that the stock levels are communicates as soon as the items are sold. The executives are given the power to manually input orders and deliveries in response to the fluctuating demand of the customers. The merchandise is displayed using the same template across all the stores which are designed by thoroughly analyzing the buying patterns of the customers. The purchasing decisions of the company are made on store levels rather than regional levels (McGuffog, 2009, p.64). Figure 2: Retail link database of Wal-Mart shown through Charting Value Chain Analysis of Wal-Mart Purchase, supply and Logistics: Wal-Mart uses last in first out (LIFO) in their individual stores. For their international businesses they use the cost LIFO system of retailing (Branch, 2000, p.41). The company operates in a hub and spoke design in which one distribution centre serves a number of stores. The transfer of goods is done directly from the suppliers to the stores to ensure minimal inventory usage (Booth, 2010, p. 163). The international segment of Wal-Mart runs several facilities for export consolidation for flow of merchandise into the Latin American and Asian markets. The distribution centres established in China, Mexico and Canada deals with transporting both local and imported goods to the operating facilities. The operations of the supply chain are based on maintaining lowest possible inventory. The company avoids dependency on a small number of suppliers and operates with a huge network of vendors and suppliers for sourcing their goods. The largest supplier of Wal-Mart accounts for 2.5% of the total sourcing in the supply chain. Operations: Wal-Mart uses recycling as a major part of their supply chain system. The company has well designed processes for waste management as well as recycling of paper products, cardboard, aluminium batteries and plastics. The company ensures the reduction of packaging system by the suppliers to reduce wastage in the supply chain. The stores of Wal-Mart use advanced energy conserving systems to save energy in their processes. The company also maintains a safe supply chain for the environment and a safe workplace for its employees. The company maintains a low cost for all its stores and has a high selling rate per unit area facilitated by the excellent operations of the business (Bozarth and Handfield, 2013, p.114). Since the sourcing and distribution process is very strong, the company has an advantage of high sales based on value sourcing. The sustainability factor is high due to the streamlined supply chain operations running smoothly from the sourcing process to the sales in the stores. Sales and Marketing: Wal-Mart sells both licensed brands and their in-house products in their stores. The major part of revenue comes from the sale of nationally advertised goods. The company sources these products from local suppliers in bulk quantities. Wal-Mart implements an effective process of risk identification and risk management throughout the whole process from sourcing the products to selling them in the stores (Blanchard, 2010, p.145). The company is committed to buy from the regional vendors rather than sourcing the goods from other suppliers at cheaper prices. Service: The service hours of Wal-Mart are maintained on all seven days of the week and the company uses the same pricing schemes across all its stores. Sometimes, the stores offer lower prices to compete in the local markets. The sales are done mainly on cash and carry system and the company operates its stores with an objective to maximize the inventory turnover and the profits while lowering the operational costs. The replenishment system is implemented in all the stores to respond to the varying customer demands. Infrastructure: Wal-Mart is equipped with an excellent infrastructure with a number of supercenters and units operating under the business. There are almost 2500 stores of the business all across the globe. The company has a centralized order maintenance system and dedicates each local store to satisfy the customer base in that area. The company encourages all its employees towards reducing the costs of operation and supply chain management (Johnson, 2006, p.21). Ordering: The Company operates on a centralized system monitoring all the ordering activities for the business. The barcodes of all the goods are stored in the computer in the headquarters and all the orders are collected by this computer and then delegate these orders to the different distribution facilities and stores. Wal-Mart works closely with its vendors and suppliers to make the business high performing and cost effective. The proper flow of information between the company and its suppliers ensure a streamlined supply chain system. The ordering system of Wal-Mart is extremely efficient with large volume of transactions resulting in the scale of economies. The deliveries are super fact ensuring a very fast moving inventory cycle and minimum storage in the warehouses. The operations are highly sustainable because of the efficient and unique distribution systems and ordering processes (Plambeck, 2011, p.41). Human resources: Wal-Mart encourages its employees to communicate, suggest and work towards excellence while maintaining a perfect work life balance. The company is considered as one of the major private employers in the world and is one of the best American companies to work for. The company gives comprehensive benefits to their employees that include holiday pay, scholarship programs, profit sharing and private counselling. The recruitment programs of the company are comprehensive and convenient. Technology: The Company is a competent user of high end technology in its supply chain and business processes. It uses efficient inventory management techniques, latest technologies like RFID, EDI, and Just in Time (JIT) and Quick response (QR) mechanisms in its processes. Wal-Mart uses its own satellite networks for speedy flow of information between the different functionalities of the business (Cousins, 2008, p.181). The success of the supply chain of Wal-Mart is majorly driven by the use of innovative technologies in every step of the supply chain process. Conclusion Within ten years of its starting, Wal-Mart had built up the most robust logistic network in the retail industry. The supply chain of Wal-Mart is one of the best supply chains existing in today’s business world. The supply chain of Wal-Mart is designed to meet the potential challenges in the future of supply chain management and logistics. The major challenges that the company meets with in its operations are effective collaboration between the suppliers and the retail stores, availability of products on-shelf in the stores, lowering the costs of inventory replenishing and implementing the innovative supply chain into the business. The company faces a critical challenge of placing the right products in the stores at the correct time and with the correct pricing schemes. The company is well equipped with an efficient replenishment system in the stores as well as the distribution centres. The company needs to maintain its collaboration levels with the suppliers and implement the green supply chain strategies taken up recently to improve the sustainability factor of the business. The company should provide an effective balance in its alliances with the suppliers as these alliances are based on high volume transactions. Wal-Mart also faces a challenge of educating the participants in all the levels of the supply chain about the technological aspects. It is critical for Wal-Mart to assess the effects of the decisions taken in every step of the supply chain process as the supply chain of Wal-Mart is huge and complex involving a large base of suppliers, stores and a variety of merchandising goods. ReferencesBottom of FormBottom of Form Blanchard, D. 2010. Supply Chain Management Best Practices, 2nd. Edition. New Jersey: John Wiley & Sons. Booth, C. 2010. Strategic procurement: organizing suppliers and supply chains for competitive advantage. Stamford: CIPS Publications. Bozarth, C. and Handfield, R. 2013. Introduction to Operations and Supply Chain Management, 3rd Ed. Harlow: Pearson Education. Branch, A. 2009. Global supply chain management and international logistics. New York: John Wiley. Chan, K. 2005. Successful strategies in Supply Chain Management. Pennsylvania: Prentice Hall. 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