Solving the Problem of Purchasing and Sourcing Knowledge Management - Case Study Example

With reference to at least one online business, assess the business strategies and processes as compared to traditional "bricks and mortar" businesses. Evaluating and improving the Supply chain management of an Ebusiness, The case of Walmart April, 2009 Table of Contents 1.0Introduction 1.1Overview of Supply Chain Management 2.0Managing the Problem of Supplier Quality Management at Sport Direct 2.1 Solving the Problem of Supplier evaluation and Selection at Sport Direct 2.2Solving the Problem of Purchasing and sourcing knowledge management 2.3 Developing World Wide Sourcing Strategies at Wal-mart 3.0Application and analysis Porter's Competitive advantage 3.1 Managing Existing Suppliers and Suppliers Development at Wal-Mart 3.2Performance Management System and Evaluation at Sport Direct 4.0 Conclusion and the Way Forward 1.0Introduction Forecasts for electronic commerce over the next few years are in the trillions. In the United States, Forester Research forecasts US$2.7 trillion in sales from electronic commerce in 2004. International electronic commerce is also expected to experience explosive growth in the future (Bodkin & Perry 2001). Businesses in general and retailers in particular are experiencing varying degrees of success as they strive to incorporate Internet technology into traditional retail formats (Little et al. 2002). E-marketing is the antithesis of bricks and mortar of retailing. Hoffman & Novak (1996:51) described the internet as a "phenomenal marketing opportunity". This same definition was later echoed by Palmer & Griffith (1998:45) when they state that, the internet has created a new revolution in marketing by providing much more than just a new medium through which organization communicate to the public. E-marketing has become an important phenomenal for Business to Business, Consumers to Consumers as well as Business to consumers marketing. As the fight of market shares and quest for product success continue, e-strategy has offered marketers and businesses all the necessary tactics, and methods to give their product a break through, or remain competitive (Frost et al. 2001). This assignment examines and evaluates the supply chain management functions of an ebusiness. Using Wal-Mart as a case study, the paper examines the electronic business platform of the organisation with attention on the supply chain. 1.1Overview of Supply Chain Management Supply chain management (SCM) is a tactical and management tool employed by present day business to efficiently integrate suppliers, manufacturers, warehouses, and customers so that a company's merchandise is produced, distributed at the right quantities, locations, and the right time (Cheng, Lai & Gunasekaran 2006). This is to minimize system wide costs while satisfying service-level requirements (Cheng, Lai & Gunasekaran 2006). Today, SCM gained momentum and received due attention from practitioners and researchers. It has become present day managerial competitive weapon for improving performance (Ramsay 2000). To minimize wastages and meet up with customers demand. Customers and suppliers are important stakeholders. "Stakeholders are those individual or groups who depend on the organisation to fulfill their own goals and on whom, in turn, the organisation depends" (Johnson et al 2005:179). An organisation SCM set the pace and the platform for this to take place. Wal-mart is the largest grocery retailer in the United States with estimated 20% of the retail grocery and consumable business as well as the largest toy seller in the States having 22% share of the market, and the highest private employer with about 1.9million workers and employees. The company had a net income of US$11.3Billion in 2007. Thus, this study was initiated to investigate the application of supply chain management strategy in Wal-mart in its electronic business platform. Using Porters competitive advantage, Porters value chain framework, and the SWOT analysis, the company was diagnosed. Value drivers, core competences and competitive advantage were identified. Having suppliers dotted all over areas of it stores, Wal-mart has successfully adjusted Porters value chain to suit its needs. This has been effectively implemented in its electronic business platform. 2.0Managing the Problem of Supplier Quality Management at Wal-mart Figure 1Wal-mart and Porter's Value Chain adapeted from Porter (1990) Primary Activities Secondary Activities Thus, an analysis of Wal-Mart value chain will show that at the level of the secondary activities, Wal-Mart lean manufacturing technology, internet marketing technology, production technology, the just in time production line, customer relationship management (CRM) represents a big source of Wal-Mart competitive advantage. This is because it will cost time and money for a competitor to replicate these activities. Wal-Mart farmers are dotted all over the globe, with majority of its other production coming from China. An efficient and effective network of partners and suppliers has been put in place to facilitate the efficient and effective flow of its resources. At the level of the primary activities, the relationship existing between Wal-mart and its suppliers is a strategic and competitive advantage. They own most of the suppliers thus given room for just in time production manufacturing method, Total quality management etc. they have cost advantage, exhibited in the form of lower prices. Thus a key advantage is source by the inbound and outbound logistics and the marketing information technology. It involves the length of time taken to convert inputs and other raw materials from their suppliers and stakeholders to final product. Relating to the four Ps, this is the product component. Thus the setup times, Walmart human, material and financial resources involved to realize this. These are all value creating activities on the value chain. This has been efficiently defined in its e business platform. 2.1 Solving the Problem of Supplier evaluation and Selection at Wal-mart Planning for the future is an important strategic decision for any organisation if it has to cope with the pressure of competition and expansion. Strategic choices mean finding alternatives solutions to the problems faced by the business unit. The problem of supplier quality management requires seeking solution to customer's loyalty, creation of long-term relationship with suppliers and stakeholders, collaboration with other dealers and not competition, creating an organizational structure and developing operational procedures. To solve this at its electronic business, Wal-Mar management has created a vertical relationship with suppliers, retailers and customers, retailers are prevented from selling competitive product. John (1991) refers to this as a key element in present day business strategy. However, such a vertical relationship must be developed with Just in time production methods and continuous improvement. As a solution to its supplier quality management for its e business Wal-Mart could be facilitated with an Electronic data interphase, through which suppliers become responsive in just in time and continuous improvement. Electronic business has become one of the world fastest and best modes of business transactions. This is as a result of its accessibility and speed of transaction. A business deal that was to be done face-to-face will take more time than a business done through the internet or other electronic form of business like the cell phone. In Jobbers "Principles and Practice of Marketing" (2007) he outlines the advantages of using E-business by most companies. He sites that for a company to be considered as successful, it must use the internet to advertise its products and business transactions. This is because the internet has become the fastest means through which customers can search for and buy a product. 2.2Solving the Problem of Purchasing and sourcing knowledge management In selecting and evaluating suppliers, Wal-Mart company seeks suppliers who value and leverage technology to create business advantage. This is based on mutual trust, merit and more importantly how the suppliers will benefit their customers and not the company. Wal-Mart has instituted suppliers rating systems that are easy to understand and that give immediate feedback to suppliers have been installed to encourage competition amongst suppliers Karimi et al., 2007. It should be used as a tool for improvement not to pernalise, for best practice suggests that companies should make great effort to avoid duplication of activities between their suppliers (Cheng, Lai & Gunasekaran 2006, and Ramsay 2000). Karimi et al., (2007) argue that, procurement encompasses a broader scope of the supply chain as it includes not only the scheduling, but also the crude selection and purchase decision-making. 2.3 Developing World Wide Sourcing Strategies at Wal-Mart Poor supply management and purchasing is responsible for the series of delays that have caused many e businesses money. According to Ramsay (2006:1) the relationship between a buyer and a supplier can be defined as "an ongoing relationship between two organizations' which involves a commitment over an extended time period and a mutual sharing of interest and a reward of the relationship". The merits involve in such a partnership has been generally argued by a handful of researchers to include:- reduction in uncertainty, managed dependence, exchange efficiency, social satisfaction, economies of scale & scope, cost reduction and as a strategy to bid out competition (Qiao et al., 2006, Ramsay 2006, Cheng and Gunasekaran 2006, Ford 2006). No wonder many observers have been pushed into recognising long-term relationship management as management best practices. Wal-mart has a system for translating Customer requirements, marketing requirements, quality requirements and engineering requirement at every stage from research through product design and development. According to Qiao et al., (2003), sourcing knowledge management requires collaborative way of working. Collaborative form of working involves more interaction (e.g. close monitoring, exchange of resources, cost and forecasting information) as both buyers and suppliers can significantly invest time and resources towards the activities, with priority geared towards reducing cost and improving. 3.0 Application and analysis using Porter's competitive advantage model Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors will do thereby increasing its market share and profit potential (Blocher et al. 2005). Competitive advantage is determined by the core competencies of the firm, which are the particular skills and techniques as well as staff and suppliers achieved by the firm which are otherwise not available to other firms in the industry (Blocher et al 2005). In discussing Walmart competitive advantage, I have analyzed it with respect to Porters competitive advantage framework. Considering the strategic capabilities of the company, Walmart competitive advantage will be analyzed with respect to its strength. This is based upon Porters argument that, a firms position itself by leveraging it strength. Lower Cost Differentiation Cost leadership Low product system Low life cycle cost for Walmart product High reliability of Walmart product and non intrusive serviceability for Walmart electronics. Walmark unique resources, trademarks, proprietary know-how, uninstalled and installed customer base Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the product Equity of Walmart brand Cost focus Differentiation focus Figure 2Porters Competitive advantage Porter (1990) Looking at the overall strategy of Walmart, one will not hesitate to conclude that Walmart has a broad target. Here Walmart is able to bring its product faster to the market than some of the competitors. Thus the company is focused on cost leadership and differentiation. Michael Porter states that a company can get a competitive advantage by undergoing key internal activities in the value chain using lower cost and better quality than competitors. The two generic strategies employed in Wal-Mart's approach were cost leadership and product differentiation within one niche, or market segment. The low cost high quality product was cost leadership strategy, while incorporating the customer in the distribution process was the differentiation strategy. Fjeldstad and Ketels (2006:123-125) identify the following from a case study of a Swedish Insurance firm Fo''renade Liv identify a good number of other strategies that service and manufacturing firms can adopt to achieve, maintain, sustain and developed competitive advantage within the strategic fit which include: Analyzing competitive advantage and not operational efficiency; Considering effects on the attractiveness of the network when assessing customer value; Emphasizing activities and choices that affect the composition of the customer set; Identifying potential markets with value configuration analysis; and From the analysis made on A and B above, one will see that the corporate image of Walmart, trademarks, proprietary know how, staff, relationship with it customers and suppliers represent key areas and the key success factors for Walmart as a low store supermarket. Unlike the manufacturing industry where product advantage has been found to be the most important factor in determining the competitive position of a firm in the industry, the case of a supermarket is different. The competitors in the former industry can easily replicate the important elements of a firm's new service (Storey and Easingwood (1998: pp. 335-336) It is against this backdrop that Walmart's managers in order find the key to new service success must look to factors other than sustainable product advantage (Storey and Easingwood (1998: pp. 335-336). Storey and Easingwood assert that the totality of the service offering must be understood from the perspective of the customer. Thus, I will recommend Walmart to pay greater attention on this. 3.1Managing Existing Suppliers and Suppliers Development at Wal-Mart Wal-Mart seeks suppliers who value and leverage technology to create business advantage. This is based on mutual trust, merit and more importantly how the suppliers will benefit their customers and not the company. In-house and in system supplier's rating systems should be put in place for suppliers to be able to rate themselves. These systems should be systems that are easy to understand and give immediate feedback to suppliers. Attention should be driven by the need of the customers. Wal-Mart considers it suppliers as strategic partners for to remain competitive in this line of business requires establishing a long term relationship with these strategic partners. No wonder, Jack. (2002p.1) argues that, "organisation that develops strong partnering with suppliers and customers will enjoy enormous returns for their courage and vision" (Jack. 2002p.1). According to Qiao et al., (2003) argue that, attention should be paid on the scarcity of resources being offered, availability of substitute, threats of new entrants. From the perspective of the rational underlying best practices, best practices involve looking for measures to curb down uncertainty, improve on product lead time, and reduce cost while maintaining product quality. Vakharia et al (2006) took this stance when they argue that successful relationship management necessitates an effective sourcing strategy to combat uncertainties in both supply and demand. 3.2Performance Management System and Evaluation at Sport Direct In order to develop and keep the process feasible for its supply chain, the management of Wal-Mart, must develop effective information and communication technology (ECT). Fit in an electronic data interchange (EDI). This technology will "process orders, track and trace progress and provide timely and real-time visibility (Christopher 1992). In order for Wal-Mart to effectively develop ECT, they must first divide the supply and the demand, and subsequently integrate them together so as to not make them mutually exclusive, therein shoring up their issues with the supply chain. In the supply cycle, the information loop covers: forecasts buying purchase order and transactions Through this a self evaluation performance system will be created for suppliers, customers and employees. This system will encourage competition and pave the way for best practises. I will recommend the creation of a common electronic data interphase system to facilitate procurement from different suppliers and interactions with the company's management. Such a system will have a monitoring system to safeguard against just in time procurements and flow of resources. Such a system will encourage a smooth flow of resources and component parts, as stakeholders within the chain become more responsive and competitive. Such a system will become best practise which mean anything in a buyer-supplier kind of a relationship involves with "doing what is appropriate in a given situation" (Qiaol et al., 2003:2). However, what is clear here is management of Wal-Mart Company to avoid institutionalized practices that may create over dependence of one company to the other in such a way that one party reduces its own cost at the expense of the other party or failure at one end of the chain pushing the whole system to a halt (Ford 2006). Ford (2006) further argues that, the provision of a cross platform data exchange system which facilitate the formulation of customer driven supply chain network thereby enhancing the competitive edge of companies on a local and global basis is primary for today's competition. Figure 3my own development Application of the SWOT Matrix to Walmart Strengths Better Value, in the form of lower prices. Fresher merchandise and wider assortments. Superior Locations Better physical appearance of the stores themselves. Good will, exclusive rights with some of their suppliers. Maximisation of the four Ps of Marketing at all front. High capital and a pool of reserves, and cheap credit facility offered to some items. The Employees, 1.9million and more than 3,000 stores around the world. cheaper, better products and providing more choice 2,000 own-brand primary suppliers in more than 98 countries. Best overall benefits package in the industry charitable giving and community-based education programmes Net income in Billions of US$ Opportunities A pool of cheap credit facilities The US is an open economy welcoming all sorts of businesses. Is still the land of opportunity. China is a big trading partner of the US, an alternative and better source of cheaper items. The impact of Wall-Mart has not been felt in all the states. Many small groceries stores are closing down. The growing pool of technology. The heavy investment on Research and Development (R&D) by the US government Fall of the US Dollars, will mean cheaper operational cost within the US. Threats Anti Grocery stores campaign Loyalty of some consumers to old established merchant and grocery stores. The likelihood of terror attack of some Walmart locations in the US. Natural disaster such as the hurricanes, tornadoes, tsunamis, are now on the rise Exclusive rights enjoyed by TESCO with some of its suppliers Difficulties finding their own suppliers, or owning their own farms. Weaknesses Some dissatisfied customers Sole right to some products by competitors Key Niche players Dissatisfied workers and employees The lack and absence of unique product with total differentiation from those of competitors. The lack of ownership of exclusive Patents. Dropped and sold of many products that have not delivered reasonable profits 3.0 Conclusion and the Way Forward Walmart is a very successful multinational corporation, which indicates that earlier generic or long-term strategy of cost leadership and product differentiation has served it well. Walmart has hundred of suppliers dotted allover the globe, with subsidiaries. So, the company benefits from economy of scale and scope. Because of its efficient transportation systems and network dotted all over the globe, most of its production is sourced from China and India because of cheap labour. To the company, it will be very profitable to hire local population to do just what it can't be outsourced. For example, total labour force is about 1.9 million people. Because of its modern equipped warehouse, just in time production method, total quality management, and other supply chain management tools are effectively applied. Thus, Walmart has been furnishing the customers with a quality product, grocery items with components derived all over the world utilizing multi-level competitive advantages, low-cost logistics, large simple retail outlets in dotted all over the States and other countries. A general low-cost-leadership strategy will only work effectively when the organization can provide products or services at a lower cost than the competition. This is an area of core competence for Walmart. Because suppliers are dotted all over, the existing supplier value chain, the company is able to deliver product or services different from the product mix of competition. To strengthen their hold of existing suppliers and customer's network we will recommend the following. McMullen & Adobor (2007) offer a number of guidelines regarding how corporations can increase the chances of building a mutually beneficial relationship to secure a steady flow of resources and curb uncertainties. According to the researchers, an understanding of the nature of the relationship that exists between large corporations and minority suppliers may provide clues as to how to structure and manage supplier relationships effectively (McMullen & Adobor 2007). The following points are the guidelines provided by McMullen & Adobor (2007) for developing successful supplier's partnership The need for integrating supplier diversity into business goals to build competitive advantage so as to avoid conflict of interest as much as possible; The importance of top management support; this is so because most relationship has fail due to lack of management support and champions to champion the idea; The necessity of building a supportive organizational culture and significance of relationship building; Wal-Mart through changes in the value chain, where consumers become Pro-sumers and suppliers are turned into consumers, the concept of marketing high quality products at low cost through a focused generic strategy, intended for the global -market has served Wal-Mart well. Wal-Mart e business platform is a successful because of its efficient supply chain management References Agrawal,V., Arjona, L., &Lemmens,R., (2001). "E-Performance: The part to rational Exuberance,". The Mckinsey Quaterly, January, 31-43 Bodkin, D. C., & Perry M (2002). Fortune 500 Manufacturers websites.Innovative Marketing strategies or Cyber brochures. Industrial Marketing Management 31,133- 144 Blocher E., Chen K. Gary C., Lin T. (2005). Cost Management A Strategic Emphasis. Third Edition. McGraw-Hill. Cheng E, Lai K, Gunasekaran A., (2006). Responsive supply chain: A competitive strategy in a networked economy Omega,Volume 36, Issue 4,August 2008, Pages 549-564 Chong, U. C., Dumas, M., Edmond, D. & Si, W., (2006).Strategies in supply chain management for the Trading Agent Competition. Electronic Commerce Research and Applications Volume 6, Issue 4, Winter 2007, Pages 369-382 Choy, K. L., Lee, W. B. &LO, V., (2002). Development of a Case Based intelligent customers- Suppliers relationship Management system. Expert system with application. 23(3) 281-287 Christopher, M. (1992), Logistics and Supply Chain Management: Strategies for Reducing Costs and Improving Services, Pitman, London Chun-Hung, C., Houmin, Y. Duan, L. & Tsang-Ming, C., (2006)Channel coordination in supply chains with agents having mean-variance objectives. Omega, Aug2008, Vol. 36 Issue 4, p565-576, 12p; David, A. and John, G., (1993). Harnessing the Power of your Suppliers. The McKinsey Quarterly, No. 3, 1993. Page Number: 63 copyright 1993 McKinsey & Company, Inc Ellram, Lisa M., (1995). Partnering Pitfalls and Success Factors. International Journal of Purchasing and materials management Vol. 31 Issue2 Pp. 35, 10pgs Ford, D., (2006). The Developments of Buyers-Sellers Relationships in Industrial Markets. European Journal of Marketing 14/5/6 339-354 Ghemawat, P., Mark, K., Bradley, S.P., (2003), Wal-Mart Stores in 2003 Harvard Business School Case Study 9-704-430, October Huat. Low. K. B., (1998) Long term relationship in industrial marketing. Reality or Rhetoric North Holland Johnson G., Scholes K., Whittington R. 2005, Exploring Corporate Strategy. Prentice Hall, Financial Times Karimi et al., (2007).integrated refinery supply chains art 2. Design and operation. Computers and Chemical Engineering. Lee, W.B.On a responsive supply chain information system; Lau, H.C.W.; International Journal of Physical Distribution and Logistics Management; 2000 Vol. 30, p598-610 McCutcheon, D. & Stuart, F. I., (2000). Issues in the choice of supplier alliance partners, Journal of Operations Management 18 (2000) (3), pp. 279-301 McMullen, R. & Adobor, H., (2007). Supplier Diversity and Supply chain Management. A strategic approach. Business Horizons. Volume 50, Issue 3, May-June 2007, Pages 219-229 Qiao, H., Watson G., Lonsdale C., & Cox A., (2003). Supplier relationship Management: A framework for understanding managerial Capacity and Constraints. European Journal of Business Ramsay (1996). The case against purchasing partnerships", International journal of purchasing and materials management, No.4 1996. Fjeldstad D., Ketels C. H. M. (2006). Competitive Advantage and the Value Network Configuration Making Decisions at a Swedish Life Insurance Company Long Range Planning Journal Vol. 39, pp. 109-131 www.lrpjournal.com Lee, W.B.On a responsive supply chain information system; Lau, H.C.W.; International Journal of Physical Distribution and Logistics Management; 2000 Vol. 30, p598-610 McMullen, R. & Adobor, H., (2007). Supplier Diversity and Supply chain Management. A strategic approach. Business Horizons. Volume 50, Issue 3, May-June 2007, Pages 219-229 Shaw, R., (1999), CRM Definition- Defining customer's relationship Management: The ultimate guide to the efficient use of CRM. http://www.hottguide.com Ramsay (1996). The case against purchasing partnerships", International journal of purchasing and materials management, No.4 1996. Storey C., Easing wood C.J. (1998). The Augmented Service Offering. A conceptualization Study of Its Impact on New Service Success. Journal of Product Innovation Management, vol. 15, pp 335-351 Shaw, R., (1999), CRM Definition- Defining customer's relationship Management: The ultimate guide to the efficient use of CRM. http://www.hottguide.com Vakharia, J. A., Carrillo, E. J. & Burke, J. G., (2006). Single Versus Multiple Suppliers sourcing Strategies. European Journal of Operational Research. Volume 182, Issue 1, 1 October 2007, Pages 95-11 Read More