Supply Chain Management of Wal-Mart Way - Essay Example

Supply Chain Management of Wal-Mart Way Abstract Wal-Mart is flagship company that has gained competitive advantage by its creative and dynamic supply chain management. By using technology extensively within its operations and supply chain, the company not only reduced its cost on slow inventory but has also been able to exploit the ‘demand’ of the customers. Wal-Mart’s phenomenal growth can be convincingly contributed to its judicious exploitation of technology within its various aspects of supply chain management vis-à-vis procurement, distribution, logistics and inventory management. It has facilitated wide merchandise across its shelves in its stores to meet customers’ requirements and ensured customer satisfaction. Indeed, its technology driven supply chain has made it possible to implement the corporate strategy of ‘everyday low price’ which has been its most appealing tag line. The company also needs to stringent in its implementation of sustainable business practices. Introduction In the highly competitive environment of global business, companies develop unique competencies to maintain strategic positioning within the industry. The various external paradigms and constantly changing environmental factors necessitate organizations to evolve new strategies and mechanisms to meet their challenges. Porter (1996) believes that doing business differently significantly helps companies to maintain leverage. Flexible approach to business strategies and plan hugely support organizational vision, mission and goals. Thus, strategies become critical element that promote creativity and provide them with competitive advantage. The paper would be analyzing and evaluating supply chain management of Wal-Mart US an effective tool of competitive advantage. Company profile Wal-Mart was established by Sam Walton as a small grocery store in 1962 in Arkanas, US. It was soon expanded as chain of stores finally setting up as a supermarket chain. Its wide ranging product is designed to meet the various needs of household. It is focused on the changing needs of the customers and therefore strives for flexible approach in its strategies and plans. It started expansion across the globe from 1991 and today boasts of around 1.8 million associates or workers in nearly 7000 stores across the world (walmart.com). The company extensively relies on technology to enhance its operational efficiency that significantly helps its goals of ‘every day low price’ on its various products. As the largest retailer in the world, Wal-Mart has been creatively exploiting logistics and supply chain for its niche market position. The effective supply chain and logistics help coordinate the organization’s various linkages with the external agencies and promotes efficient receipt and delivery of goods and services. It has judiciously used advancing technology to improve its operation efficiency in supply and distribution of goods. Data collection method The relevant data has been collected through secondary sources found through literature review, company website and internet. Review on supply chain management Situation analysis Effective supply chain management hugely facilitates smooth flow of information, goods and services and financial transactions at different levels of operations. In the current times, it is a critical element of competitive advantage because its main components like procurement, distribution, logistics and inventory are essential aspect of timely delivery of desired goods to the target segment. At the same time, they also help the companies to reduce cost of slow moving goods and meet the demands of products that are in high demand. The use of technology helps to evaluate and forecast demand and fill supply to meet the contingencies. The company has centralized its distribution system by creating ‘hubs’ or warehouses from where it dispatches all the goods to their respective customers/ retailers. The hubs are vital part of its effective supply chain as it also helps Wal-Mart to buy goods directly from the manufacturers. It therefore serves two purpose: delineates the need for mediators thus reducing cost of good; and by buying good in bulk, it significantly gains by bargaining the cost. The two fold cost cutting measures served by creating hubs, become major drivers of success for its policy of ‘Every day low price’. The company is able to develop direct relationship with vendors/ manufacturers so as to promote sustainable green practices. The company has developed its own logistic infrastructure of 3500 trucks as a response to fast and efficient transportation system. It uses experienced drivers who procure the goods/products directly from the manufacturers and deliver it to the distribution centers or hubs across America and finally take it to the retailers. It supplies nearly 80% of its inventory to the outlets by its own transport logistics. Hence, vhe viability and credibility of drivers are important aspects for the firm as they not only need to be skilled and experience but also trustworthy and reliant. The use of ‘cross docking system’ in its distribution was landmark strategic move in logistics. Cross docking system depends largely on low inventory and efficient distribution of truck load of goods from the warehouse or central hub to the points of sale or the retail outlets. The large part of goods are sorted out immediately at the warehouses as per the demands of the retailers and sent to different outlets without the need for long term storage. The huge fleet of trucks therefore became the vital mechanism that enabled Wal-Mart to distribute the products speedily to its various outlets. Most importantly, Wal-Mart’s increasing use of technology was an intrinsic part of its logistics and supply chain management (Daudelin, 2001). It heavily invested in refining its IT capabilities to improve its logistics, supply chain and store inventory. Initially it used EDI system whereby Wal-Mart stores were linked directly to the vendors who were able to anticipate the demands and sale of their products. The use of communication and technology helped it to reduce slow moving products and increase availability of products that were in demand across the regions. Centralizing its operations also enabled Wal-Mart to move inventory from one store to another. At the same time, it also empowered stores to discount further the slow inventories at individual store level and thereby reduce inventory. Interestingly, one of the features of its supply chain was PDQ or pretty darn quick displays model of delivery that matched the store display format. In recent times, it has switched over to using RFID technology within its logistics and supply chain. It uses its own satellite system to monitor inventory across its various stores. It helps to track inventory at stores, deliveries and anticipated demand at the stores. It was an important breakthrough technology that replaced barcode system and helped the company to integrate various processes at various levels. The top suppliers were asked to adopt the technology to improve efficiency and outcome. It significantly improved information flow and helps to track procurement, delivery, and counting. Supply chain as well as inventory was better managed by using RFID tags on the products. Critical evaluation of situation analysis Slater and Narver, (1995) assert that organizations constantly need to process knowledge and exploit changes vis-à-vis technology, changing preferences of people, products and business process to improve efficiency and productivity. Wal-Mart’s phenomenal growth can be convincingly contributed to its judicious exploitation of technology within its operation, especially in its supply chain to gain competitive advantage. Time and flexibility has been the highlight which has enabled it to meet the changing preferences of people. Indeed, its people centric policies have been important paradigms that have encouraged it to experiment with new technologies and succeed. Technology has been the mainstay of its business strategy which it has used across its business and incorporated within all aspects of supply chain management: procurement, distribution, logistics and inventory management. Technology driven effective supply chain management has facilitated wide merchandise across its shelves in its stores to meet customers’ requirements and ensured customer satisfaction. Indeed, it has made it possible to implement the strategy of ‘everyday low price’ which was highly appealing. The business compulsions for ‘value creation’ through products and services to meet the challenges of time were critical factors that considerably shifted the spotlight from the manufacturer and suppliers to the people and their changing preferences (Gronroos, 2000; Korkman, 2006). Collaboration, partnership, acquisitions, mergers etc. are vital linkages that facilitate higher level of efficiency and organizational growth (March, 1991; McEvily and Zaheer 1999). Wal-Mart’s strategy to encourage long term relationship with its manufacturers and suppliers like Nestle, Proctor & Gamble, Unilever, Johnson & Johnson, Kraft, Gillette etc. are important examples is an exemplary example that has contributed to its success and expansion across the globe. Cooper et al. (1997) have described logistic as information flow through the organization that helps promote network of solution for supplier and customers at competitive price. Wal-Mart’s innovations in logistics have been hugely popular and were later adopted by other enterprises to improve supply chain. Lee (2002) says that fast transforming business dynamics like globalization, short product life, wide range of products and product lines etc. make logistical operation very demanding. It helps to integrate and coordinate the networking of externalities within the desired operational imperatives and promote efficient delivery of goals. By developing its own fleet of transport, it helped to eliminate not only the middlemen but also significantly helped expedite the responsiveness to the supply chain management. The cross docking system was highly creative in its approach to meeting the needs of the customers. It shifted focus from the manufacturers to customers (Rowat, 1998). It was, in fact, the winning strategy for Wal-Mart because it helped customers to get quality product at highly competitive prices. Indeed, it underpinned the emphasis on customers who had forced the various managerial decisions like merchandising, pricing etc. from corporate level to directly customer demand. Most importantly it also helped eliminate the unnecessary stock at stores and focus on fast moving products that were controlled by the customers changing preferences. The use of technology to monitor inventories at stores and through various mechanisms like: barcode; MPP or massively parallel processors which helps track movement of inventory at distribution hubs, stores etc.; POS or point of sales which helps in fulfilling the requirement of goods at the stores’ shelves; and RFID or radio frequency identity device which are used as tags on the products and serve as integrated systems to track inventory at various levels of supply chain management. At the same time, it also helps to forecast the demand and supply of products. Indeed, it is largely due the satellite communication system that Wal-Mart operations are linked to its business partners, suppliers and customers across its various stores. But it also reveals Wal-Mart’s excessive reliance on technology primarily used to enhance its revenues through improved efficiency. While these are important business imperatives, the need for sustainable business practices have become hugely critical issues in the contemporary times. The social consciousness of the organizations has increasingly become vital ingredient of corporate governance. People increasingly prefer goods and products that are backed by sustainable business practices. While Wal-Mart has started using green technology, it has yet to implement strict mechanism of sustainable development across its supply chain. Recommendations Wal-Mart needs to focus on increasing its efficiency of its wide network of product groups by introducing value added services which can meet the changing demands of the people. While getting a huge fleet of trucks is highly commendable, in the recessive times, the increasing cost of fuel and gas significantly impacts on its revenues. In the current times of financial crisis, Wal-Mart needs to focus on economy of scale vis-à-vis supply chain, logistics etc. through outsourcing, especially in its global business. The company can also test new approaches by using ERP and SAP to streamline processes on global basis. It would promote uniformity in processes to improve operational efficiency in its stores across the globe rather than within America. Emphasis on RFID system for its suppliers is also not a cost effective proposal, especially in contemporary recessive environment. Hence, the company must be flexible and give them financial and technical support. The company must initiate green practices within its supply chain management and ensure that goods bought from various suppliers strictly endorse sustainable development practices. It should also promote green technology within its transportation logistics and use renewable energy. The company has achieved leadership position in its technology driven supply chain management. It can use its knowledge and information to start consultancy on effective supply chain management. The company must now give the refurbished technologies like barcode to its counterparts in under developed countries at very low cost. This way they would be able to use new technology to improve their operational efficiency. It needs to focus on training and development of the workforce by providing them with continuous learning environment so that they are empowered to make decisions based on informed choices. The company must also evolve an effective feedback system within its operating divisions so that it becomes more transparent in its operations and help the corporate managers to identify the issues and factors that adversely impact growth. Wal-Mart must promote schemes and programs for its supply chain to endorse sustainable practices and award them with incentive. Conclusion Indeed, the efficacy of supply chain management becomes the major driver of competitive advantage within the industry, as shown by Wal-Mart. By using technology extensively within its operations and supply chain, the company not only reduced its cost on slow inventory but was able to exploit the ‘demand’ of the customers. The understanding of the compulsions of the emerging new dynamics in the global businesses makes it necessary for the companies to become people-centric. The effective supply chain management becomes desirable for meeting the needs of the people timely and efficiently. The need to become more creative in its green approach has become important issue both for the company and the world at large. Wal-Mart’s assertion for zero waste and using renewable resources must be backed by strong will and deep sense of social consciousness rather than profitability. (words: 2164) Reference Cooper, M.C., Lambert, D.M. and Pagh, J.D. (1997). Supply Chain Management : More Than a New Name for Logistics. International Journal of Logistics Management, 8 (1), 1-14. Daudelin, Alexandre. (21 April 2001) Supply Chain Management the Wal-Mart Way. Supply Chain and Logistic Journal. Retrieved from: http://www.infochain.org Lee, H. (2002). Aligning supply chain strategies with product uncertainties. California Management Review, 44, (3), 105-119. 2002 Grönroos, C. (2000). Service Management and Marketing. A Customer Relationship Management Approach. Chichester: John Wiley. Korkman, O. (2006). Customer Value Formation in Practice: A Practical-Theoretical Approach. Helsinki: Hanken Swedish School of Economics, Finland. March, James G. (1991). Exploration and Exploitation in Organizational Learning. Organization Science 2: 71-87. McEvily, William J. and Akbar Zaheer. (1999). Bridging Ties: A Source of Firm Heterogeneity in Competitive Capabilities. Strategic Management Journal 20: 1133-56. Porter, M. (1996) What is Strategy. HBS. November-December, 61-78. Rowat, Christine. (August 1998) Cross Docking: The move from supply to demand. Retrieved from: http://www.dmg.co.uk Wal-Mart. Retrieved from: http://www.walmart.com Read More