Operations and Logistics Management of Wal-Mart - Assignment Example

Operations and Logistics Management of Wal-Mart Introduction Globalization has risen to its peak in the last few decades and organizations are feeling tremendous pressure and heat of getting their processes rationalized in order to cope up with the juggernaut of globalization. In the list of critical success factors for any organization, operations and logistics management forms the cornerstone as it establishes the link between how demand is actually perceived and conceived and what ability the organization holds in fulfilling that demand. With globalization, fierce competition has also emerged and operations constitute all such decisions- both operational and strategic that provide a competitive edge to an organization against its rivals (Barnes 2008). With the help of this report, an attempt has been made to analyze the significance of logistics and operations management in an organization as a functional domain and its application to world’s biggest retail giant: Wal-Mart. Wal-Mart had been able to carve a niche for itself through its strategic operations and logistics management without which it would not have been possible to achieve this position. This report throws light on how different agents, processes and operation levels have contributed in the overall success of Wal-Mart. Insight is also developed into challenges being faced by Wal-Mart and subsequent recommendations for improvement (Wal-Mart Analysis. n.d). Role and significance of effective operations management A number of ways can be used to define operations management. In delivering a value proposition to customers, operations is the required channel because of the pivotal role that it plays in the delivery of any good or service, right from the point of production to the point of consumption. Operations management incorporates in itself manufacturing, designing and production to create an optimum mix of good and service offered by an organization. Even supplementary functions, namely the improvement required in systems- both external and internal, technology and resources is taken care of by operations management. Efficient and effective operations management is a triangular based framework with employees, customer and organization occupying the three vertices of the triangle. Operations deals with how effectively and closely customer requirements and demands are judged to particular specifications, how well and in proper way the policies and tasks to fulfill customer demand are being implemented, how prudently the guidelines and measures and framed and how judiciously the processes involved in distribution, production and warehousing of products and services are carried on (Productions and Operations management. n.d). For an organization, its employees are also its external customers. Operations management refers to all such processes which cater to both external and internal employees in transforming inputs into outputs. Operations management takes into consideration ten crucial decisions in an organizational environment, irrespective of it being a manufacturing or service firm. The designing of the product or service Quality control and management Process and capacity design Location Layout design Job and human resource design Supply chain management Inventory management Scheduling Maintenance Operations serves as a link between marketing and finance domain where marketing provides the required raw data and customer perceptions as inputs in manufacturing or producing the product or service and finance function provides funds and cash flows once operations in manufacturing and production start. Operations function aims at utilizing the resources optimally with least funds and maximum quality. In fact, the operations strategy alone provides the competitive strategy to an organization. This is because cost leadership and differentiation are the two basic rules to gain an edge over rivals which can be achieved by optimizing and rationalizing the operation processes. Wal-Mart’s operational objectives aligned with its organizational objectives Wal-Mart’s success and feat can be attributed to the way it had made use of operations management and defined new perspectives into putting operational objectives into reality by utilizing the efforts of employees, visionary attitude and technological marvels. Wal-Mart had been able to enjoy success in its operational activities due to the following three unique propositions (Strategic Management Report on Wal-Mart. n.d): Providing maximum value to the customer without differentiating in quality. Providing Uniqueness to the customer as value proposition by creating a differentiation between tangible product attributes and intangible service features. Providing flexibility by being proactive and responsive. The four strategic objectives which lay the foundation for operational objectives for Wal-Mart are as follows (Management Practices of Wal-Mart. n.d): Focus on improving sales Looking for opportunities of cost saving Developing efficient distribution and logistics systems Making use of high profile Information Technology tools to be faster and efficient in its operations. In order to realize its strategic objectives, Wal-Mart had laid emphasis on gauzing specific customer needs and passing on cost cutting benefits to its consumers so that they get low priced products without any compromise with quality. To weed out the competition, Wal-Mart had adopted cost leadership technique to attract its customers. Initially, Wal-Mart had targeted low income families by providing them goods at reasonable prices. Later in the operational activities, Wal-Mart realized the need of incorporating technology into its supply chain and distribution systems to become faster and reactive to market demand. This step of Wal-Mart resulted in cost cutting by eliminating redundant processes, thereby passing on the cost savings to customers in the form of low prices quality products. Wal-Mart also excels in its distribution processes by making use of a new technique called Cross-Docking where inventory and storage costs are minimized. Instead of storing or warehousing the inventory at different points, cross-docking allows Wal-Mart to load and unload shipping trucks within a time period of one day. This system has made possible the Wal-Mart philosophy of providing speedy deliveries and being responsive to customer demands. Wal-Mart also introduced the concept of “Every Day Low Pricing” where with the help of proprietary communication system and a real point of sale system in place, Wal-Mart had been able to reduce the prices of its products every day. In the light of the above discussion, Wal-Mart’s operational objectives can be summarized as below, which actually confirm to its strategic objectives and its competitive strategy too. Organization objectives Reducing customer response time Making merchandise available every time Lowering distribution cost Shrinkage Developing efficiency in executive time Partner collaboration Operation objectives The operation objectives of Wal-Mart are a combined effort of customer and partner objectives which work in tandem to produce desired results: Objectives pertaining to Customer Making available to the customer available, merchandise of his or her choice in terms of size, quality and budget. Merchandise is always ready before the customer enters the facility. Facilitating customer in identifying price tag and product related information. Point of sale entry and price tag always match to eliminate any error. Replenishing fast moving merchandise in time. Objectives pertaining to Partner Getting right quantities of orders in time from partners every time. Dealing in credit terms with partners. Information sharing and collaborative forecasting of stocks, sales and purchase orders with partners. Components of Wal-Mart business processes Wal-Mart is an entity operating in the retail segment and to survive in this segment, organizations have to personalize or rather institutionalize their strategic disposition to create a distinction element from that of the competitors (Lowson 2002, p. 226). Wal-Mart’s business and operational processes are divided into the following capabilities which form the major constituents: Process based capabilities In these capabilities, the information conceived and received from customers end is utilized as input in the transformation process of goods and services. This information provides advantage to Wal-Mart in the following listed ways: Flexibility in operations Responsiveness to market demand Actions becoming speedy Achieving low cost Delivering high quality due to specific details in place System or coordination based capabilities A network or system is an important element in the entire operations domain. In order to achieve strategic fit and an edge over rivals, coordination with suppliers, partners and even customers is imperative. Wal-Mart ensures its competitive advantage through the following: Reducing the lead times from suppliers Inventory being managed together with vendor (Vendor managed inventory) Huge variety and choice in goods and services Faster replenishment of goods Individual stores being customized to meet local demands and match local tastes and preferences Quick development of new products Capabilities based on organization Capabilities which emerge out of organizational policies and structure and taken care of by Wal-Mart are: Ability to come up with new products quickly Open to adopt new technologies Developing shorter life cycles in new product development Rolling out new stores Faster sourcing than competitors do Network based capabilities Networking and collaborative relationship with partners has been the cornerstone to the phenomenal success of Wal-Mart. Instead of traditional buyer-supplier relationship, Wal-Mart has developed supportive networks with its suppliers. With information sharing, joint planning and negotiation techniques, Wal-Mart enjoys the lion’s share of the global retail market. Wal-Mart’s work systems and activities Wal-Mart success is attributed to its integration approach in stores to inventory and from suppliers to main office building. Its cost leadership is supported by its philosophy of buying in bulk which reduces the cost and managing inventory by reducing intermediate points of storage. Wal-Mart’s work systems and activities are listed as below: Inbound logistics Wal-Mart has developed integrated communication channels with its key suppliers. Based on real time point of sales data and records, it communicates with its suppliers and determines the level of purchases and inventory so that stock is not stored any where and speedy replenishment of goods is ensured. Shipments in this case are timed beforehand and sorted according to place and merchandise. IT collaborations The concept of RFID or Radio Frequency Identification was the brain child of Wal-Mart and was experimented initially with 100 suppliers. In this technological marvel, Wal-Mart was able to save cost on traditional price tag system for identification where RFID facilitated quick and flawless identification of price tags along with related product details to customers as well as suppliers. Another innovative concept introduced by Wal-Mart in the domain of operations and logistics management was CPFR (Collaborative Planning, Forecasting and Replenishment). This technique calls for strategic relationship with suppliers and identifying key suppliers to reduce the bull whip effect. Due to mismatch in supply and demand, most of the retailers have to face stock –out conditions or greater inventory holding cost. Collaborative planning with suppliers reduces the chance of both these conditions, thereby providing cost advantage, which Wal-Mart utilized in its operations. With CPFR as a major operation tool, it had been able to be more responsive in its supply chain by an improved forecasting process in place. Supply chain collaboration at Wal-Mart Wal-Mart had been very visionary and innovative too in climbing up the ladder of collaboration evolution which its counterparts did not dare to perform, owing to no exemplary records available. However, Wal-Mart has always experimented with new means and techniques of institutionalizing its operations and had been successful due to the untiring efforts of its employees and well planned out strategies (Wal-Mart Case Study for Supply Chain Management. n.d). Observing collaborative relationship with its suppliers is the heart of Wal-Mart’s rational processes. How Wal-Mart stepped on different levels of collaboration is depicted through the COX Model (Fig. 1). Fig. 1 In the beginning when adversarial relationship existed, there was just profit motive between the retailer and the supplier with negligible trust on each other. The retailer wished to maximize discounts while the supplier wanted to get maximum sales. Later on, Wal-Mart identified some of the key suppliers denoted as “Preferred suppliers” who had been supplying low priced quality merchandise to Wal-Mart from a long time. 1995 onwards, Wal-Mart focused on its core competency and tried to develop relationship with suppliers who were important for it from strategic point of view. To streamline the operations, reduce costs on inventory handling and warehousing and achieve efficiency in operations, Wal-Mart collaborated with few of its key suppliers. For instance, 1995 saw the collaboration of Wal-Mart with P&G. Network sourcing allowed Wal-Mart to integrate all its suppliers into electronic network systems through satellite communication system which further reduced the costs significantly. However, instances of error in forecasting and planning still prevailed. Strategic alliance made Wal-Mart realize that the best way to reduce costs, ensure quality and be responsive is to include the supplier in decision making process right from the stage of product development and utilizing the synergies of the supplier in leveraging own strengths across the supply chain. Fig.2 Fig. 2 shows that Wal-Mart has moved far away from traditional modes of operating and managing its supply chain. It has progressed gradually from Type 1 to Type 3 where now its suppliers are partners in its planning, decision making and implementation process. This collaborative model has benefitted Wal-Mart in the following ways: Common interest is developed due to which both the parties have a stake in successful completion of operations and processes. Openness is observed in communication and sharing of information, making processes transparent. Mutual help renders cross company solutions to supply chain problems. Clear expectations from one another are developed. No chance of blaming one another when joint operations are done. Trust is developed at every functional and management level. Equal sharing of losses, risks and benefits is facilitated. Wal-Mart’s e-SCM Cunningham (2002) has defined e-business as “the transactions, processes and systems that support the act of doing business through electronic networks”. Wal-Mart had been a pioneer in applying the concept of modern electronic networks into its supply chain management objectives and become the world’s largest retailer. The company’s philosophy of selling high quality branded products at low prices has been achieved by its approach to incorporate electronic networks into its major processes. To achieve reduction in costs, the procurement function of Wal-Mart makes use of strategic relationship building with key suppliers that offer the most competitive price on products, ensuring the same quality level. Moreover, elimination of intermediaries in its procurement process further reduces the cost enhanced by means of commission and charges. Wal-Mart has a strong EDI (Electronic Data Interchange) system in place which keeps track of all orders, purchases, invoices, et cetera, thereby keeping Wal-Mart abreast of all the relevant information at one place. Wal-Mart segregates its suppliers in different levels based on purchases made, quantity orders, frequency of orders and other related heads. Once suppliers are identified, they are encouraged to participate in EDI transaction system and are allotted individual Supplier number to track specific supplier performance. In order to reduce unnecessary paperwork and track the location and status of merchandise accurately, the warehouse staff at Wal-Mart takes two product scans and gets hold of all information pertaining to packaging, storing or shipping of merchandise. With the use of RFID tags on products, Wal-Mart successfully reduced not only labor requirements for product and code checking, but also shrinkage likelihood. Through this technique, Wal-Mart had been able to achieve supply chain cost savings of around 6%. Logistics management at Wal-Mart An important aspect of Wal-Mart’s logistics is its fast and responsive network of transport and distribution. The hard core technique used by the company in this sub-domain is the concept of Cross Docking. This method is characterized by picking up the finished goods directly from the manufacturing point and delivering them to the end user without any intermediate storage point or agent. This method is supported by the company’s electronic systems where exact details about the quantity, place of shipment and place of procurement are made available to eliminate any hassles or errors. Through this system, Wal-Mart has ensured a constant flow of goods to and from distribution center. Perishable goods which are prone to damages can cost much for the company if supply becomes greater than demand or there is more inventory than needed. With cross docking, Wal-Mart ensures that whenever demand is there, exact requirements are fulfilled without any wastage. Suppliers can ship the merchandise in small lots and as electronic systems are already installed, order can be placed whenever required. This practice of Wal-Mart has not only eliminated the role of virtual intermediaries and distribution channels, but also reduced storage and handling costs. Inventory management With strategic use of its IT tools and capabilities, Wal-Mart has invented to make inventory available for urgent needs of customers instead of placing orders much before and bearing their handling and storage cost. This practice has reduced the overall inventory levels of Wal-Mart. It observes collaborative partnership with its suppliers where through an automated reordering system, all the stores and distribution channels and points and directly connected to the handheld system of its suppliers. As and when demand occurs, a re-supply order is requested with the supplier and the closest facility of the supplier fulfills the supply to the demanding store or distribution point. This model brings a win-win situation for both the entities in terms of inventory control and management and order replenishment too. With Point-of-sale software installed, Wal-Mart keeps track of its entire inventory located at either stocks or on-road. Radio frequency technology helps monitor the route and status of merchandise being loaded or shipped at any point of time. Moreover, there is a Massively Parallel Processor (MPP) computer system owned by Wal-Mart through which movement of all goods and levels of stocks is monitored by Wal-Mart in real time. Facility design @ Wal-Mart Wal-Mart has adopted a sustainable and environmental approach in designing its facilities- be it stores or cross docking centers or distribution points. Its new facilities incorporate a host of eco-friendly measures which boast of its ‘green supply chain’ initiative (A Case Study of Wal-Mart’s Green Supply Chain Management. n.d). The measures include collection of roof water, making use of non-conventional sources of energy like wind turbine, solar cells, photovoltaic panels, et cetera. Even recycled materials are used at various points and places wherever applicable. Information pertaining to water and energy savings, emission of carbon di-oxide and reduction and constantly displayed on monitors installed in warehouse. T5 energy saving lighting system is in place to provide lighting to the facilities throughout the day. It consumes lesser energy (approximately 20 percent) than normal bulbs. To save on energy consumptions, day lighting system is used with air-conditioning heat energy recycling system. Quality and performance management in Wal-Mart Quality has been the USP of Wal-Mart since its inception and is being followed till date. However, maintaining the quality standards was an uphill task for Wal-Mart amidst so many partnerships and collaborations with diverse suppliers and global operations. Enumerated below are the particular resources and attention points which have enabled Wal-Mart to confirm to the quality standards: Experienced, skilled and dedicated work force Technology intensive investments to make processes faster and responsive Identified and dedicated key suppliers Open attitude for partnerships and alliances Strategic location of stores at key places of geographical significance. Identifying problems and opportunities with systems and work activities in Wal-Mart For Wal-Mart, being Numero Uno poses multiple threats and opens up various areas for improvement to sustain the position. Wal-Mart can face problems in the following domains: Due to huge span of control, Wal-Mart might lose hold of some crucial areas. Selling products across many categories like grocery, clothing, stationery, et cetera, it may not gain flexibility in operations like its focused competitors. The company boasts of global presence, but till now, it has not registered itself in the major economies like India. Being a global retailer exposes Wal-Mart to many of the regulatory hassles prevailing in different nations. Price competition has increased manifold due to outsourcing and lower manufacturing costs which could prove to be a potential threat to Wal-Mart. Wal-Mart is intensifying its globalization spree but nationalism prevailing in countries may present hurdles in the way of Wal-Mart in the form of inability to gauze the local market and culture properly. Location opportunities might be destroyed for Wal-Mart due to late entry in strategic and emerging markets, where competitors had already gained first-mover advantage. Wal-Mart’s involvement in discriminatory practices and law suits against it are working against its ethical reputation. Recommendations for Wal-Mart Technology has no doubt brought multiple benefits for the retail giant but not isolated with challenges or problems. RFID initiative was implemented in 100 suppliers first, but to reap the maximum benefits, it has to be implemented across entire supply chain. For this, a review of strategic disposition with suppliers and partners is quintessential and also of the cost of implementation that would follow. In no way the costs should outweigh the benefits in this case. The corporate strategy of Wal-Mart has been to provide low cost quality products every time. To fulfill this objective, it needs to recall its supply chain collaboration model and identify once again its “preferred suppliers”. This is imperative because now its operations are not restricted to local markets but have to go way beyond boundaries. Robust information exchange centers are required to sustain strategic partnerships with its suppliers and partners. Warehouse club business is an emerging retail format which should be fully utilized by Wal-Mart and rural areas should be preferred to locate its warehouses. Competitors such as Carrefour, Costco and Price Club have already presented stiff competition ahead and the best way to weed out the competition is to build as many locations as possible in the shortest time span. Acquiring strategic valuable asset can help Wal-Mart in its cost leadership strategy by reducing acquisition and maintenance costs. Conclusion Wal-Mart is considered the largest retailer based on assets, revenues and market capitalization. However, it still had not been able to justify its globalization premise. Getting late in entering lucrative markets can make Wal-Mart devoid of many advantages and strategic benefits. Right from production to consumption, Wal-Mart has streamlined its processes and ensured efficiency in its operations without any trade-off with quality concerns and this is the major point of its success and growth. It is also the foundation stone for Wal-Mart’s successful entry in international markets and killing competition. It is critical for Wal-Mart to explore once again the opportunities in foreign markets and judging the local tastes and preferences well to adapt to the culture and survive in the market. Negotiating with the suppliers and passing on the benefits of drop-down prices to customers, aided by responsive networks and integrated technology gives a new and refreshing look to the customers. Reference A Case Study of Wal-Mart’s Green Supply Chain Management. n.d. A Case Study of Wal-Mart’s Green Supply Chain Management. 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