Logistics and Supply Chain Management at Wal-Mart - Coursework Example

Logistics and Supply Chain Management at Wal-Mart Table of Contents Table of Contents 1 Introduction 2 Background Information 2 Market Position and Operation 2 Positioning 3 Market Overview 4 Logistics and Supply chain management at Wal-Mart 5 Radio Frequency Identification Device (RFID) 6 Electronic Data Interchange 8 Cross Docking 9 Voice Based Order Filling 10 Collaborative Planning and Forecasting Replenishment 11 Summary 11 Marketing Channels of Wal-Mart 11 Conclusions and Recommendations 12 References 15 Introduction Twenty first century has been often cited as the age of globalisation. Globalisation has turned the entire world into a virtually boundary less land mass. Corporate organizations across the world are trying to capture every possible consumer market. This has highlighted the need to bring in efficiency in their business processes. Supply chain and distribution strategy assume greater importance in the success of any organization. Firms have coupled technology with their business processes to generate competitive advantage for their organizations. The present study would focus on the aspects of supply chain and logistics management at Wal-Mart. The choice of the firm assumes significance considering the fact that Wal-Mart is the largest retailer of the world. The study would analyse the functioning of marketing channels of the organization. Background Information Market Position and Operation Wal-Mart is the largest retailer of the world and is headquarters are located in Arkansas, USA. The firm was established in the year 1962 as Walton’s. The company was renamed as Wal-Mart in 1969 and is presently listed on the bourses of the New York Stock Exchange. Wal-Mart has expanded itself in these years which are evident from the fact that it operates in more than 8,692 retail outlets under 55 wide banners having its foothold in 15 diverse markets across the globe. The fame of the organization can be derived from the fact that Wal-Mart was named as the most admired company of 2010 by the Forbes magazine (Wal-Mart, 2010). Positioning Wal-Mart is known for its price leadership strategy and strives to provide customers with quality products and services at the cheapest possible price which is in tune with its famous strategy of ‘Every Day Low Price’ (Popularly referred as EDLP). The strategy of low price is in turn aligned with Sam Walton’s (founder of Wal-Mart) strategy of helping people save money. Wal-Mart presently provides goods at the cheapest possible price and has positioned itself as a price leader in the mind of the customers (Wal-Mart, 2010). Against the backdrop of this bold positioning strategy lies an efficient and technology driven logistics management which has provided the firm with advantages like cost reduction to an extent that it is able to provide the best quality products at the cheapest price in the market. Logistics forms the USP of Wal-Mart. Its supply chain initiatives involving the latest technology like RFID, cross docking aided by an efficient integration of all its business processes using Enterprise Resource Planning have created benchmarks for the company. The efficiency of logistics management of the firm could be analysed from the fact that its logistics management model has become the benchmark in the global retail and logistics industry. The distribution centres of Wal-Mart which are the backbone of its supply chain management strategy are considered to be the most advanced technologically. Presently Wal-Mart has more than 40 regional centres for distribution with each centre spreading over one million square feet on an average. These centres operate round the clock throughout the year and move around in more than 9000 distinct units on an average in a single day. Wal-Mart also has separate logistic management cell for different product categories. Recently the firm has also started its online channel where customers can shop in the comfort of their homes using a mouse and keyboard (Wal-Mart-a, 2010). Market Overview The retail industry is one of the most thriving businesses of the world. However, the market is also characterised by fierce competition which pressurises the profit and revenue margins of the players in the industry. Numerous opportunities also exist for market players in emerging economies like China for organizations like Wal-Mart to expand their businesses. Retailing began in the early ages as Barter system where goods were exchanged for other goods and services. Present day retail market is dominated by presence of supermarkets and hypermarkets which sell every item right from needle to apparels and electronic items. Globalisation has a significant contribution towards the growth of retail industry. Globalisation has resulted in diversification and expansion which have led to growth of retail sector; this is in addition to the high levels of disposable income available to consumers which have also been attributed towards globalisation (Sushma, 2008, p.1-4). Figure 1: Top Retailers of the world (Source: Delloite, 2010, p.14) It is very clear from the figure that Wal-Mart is the largest retailer and has been the market leader since 1996, the sustainability of Wal-Mart is derived from its efficient management of logistics and supply chain. Managing logistics and supply chain are the two aspects that form the key success factor for the market players in the retail industry. The following sections of the study would involve an analysis of the strategies taken by the market leader (Wal-Mart) with regards to management of its logistics and supply chain. Logistics and Supply chain management at Wal-Mart Logistics and supply chain management at Wal-Mart have become the USP of the company. The entire logistics management strategy of Wal-Mart is based on ERP implementation. ERP is a high end technologically driven process which involves integration of different department and stakeholders using web based interfaces. This helps in real time information sharing which reduces the time taken to complete a business process and also helps in generating greater efficiency in the business process of the organization. ERP implementation and logistics management at Wal-Mart is based upon the following technologies and processes, 1. Radio Frequency Identification Device (RFID) 2. Electronic Data Interchange (EDI) 3. Cross Docking 4. Voice Based Order Filling 5. Collaborative Planning and Forecasting Replenishment Radio Frequency Identification Device (RFID) RFID is an acronym for Radio Frequency Identification Device; this is a device which has revolutionised supply chain and logistics management of firms across the world. An RFID device is basically a white tag which comes with an embedded microchip which contains the information about a product. This information can be accessed by using a radio device whose frequency matches that of the device that is being fitted on a product. Fixing a particular product with a RFID helps to keep track of the product and its movements on a real time basis (Narsing, 2005, p.75). Figure 2: Framework of RFID (Source: Narsing, 2005, p.76) The logistics management at Wal-Mart is based on using a hub and spoke model in which the distribution centres act as hubs and the retail outlets acts as end points. In a typical set up each of Wal-Mart’s stores and suppliers have been interlinked by suing ERP programs that help in getting access to real time information sharing. Under the hub and spoke system goods are ordered centrally and are generally collected at large warehouses which are named as distribution centres, these centres act as hubs. Goods are sourced and procured from the suppliers and collected together at the distribution centres. The goods are then sourced directly to the retail outlets which are also referred as the spokes. This has helped the firm in large scale cost reductions as well as time taken to transport goods from suppliers to the stores. Another imports aspect in Wal-Mart’s logistics strategy is that the firm directs procures the goods from the original manufacturers thus bypassing all the intermediaries. This leads to cost advantages as margins are increased. The benefits of cost reduction are passed on to the consumers who get products at extremely cheap rates. Presence of economies of scale and scope has also led to greater bargaining power for the firm. This is evident from the fact that Wal-Mart has made it compulsory for all its vendors to undertake business process re-engineering to implement ERP in their business processes. Wal-Mart makes a final decision on selecting a supplier only when it is fully sure that the vendor is providing goods at the cheapest possible price (University of Nevada, 2010). Electronic Data Interchange Electronic Data Interchange is a technique that helps in getting access to real time information sharing among the different units and departments in an organization. Under this system Wal-Mart has integrated and interconnected all its suppliers through ERP. In a typical scenario suppliers would be able to estimate the actual number of goods sold. This would help in forecasting the demand. Replenishments can be immediately sent without any formal intimation from the stores as the vendors would have actual real time information based on the rate of sale of a particular good. Demand forecasting would help in supplying the goods at the shortest possible time according to the buying trends of the consumers. This aspect helps in ensuring that the shelves of the stores are never empty, moreover demand prediction based on actual sales trends would also minimize chances of surplus inventory. This reduces the cost of inventory which leads to cost benefits for Wal-Mart. The company then passes this to its customers thus helping it achieve its mission of providing ‘Everyday Low Prices’ (EDLP) to its customers. The procurement strategy of Wal-Mart also has a unique aspect wherein the firm also spends its resources towards analysing the cost structure of its vendors. This helps in procuring materials at cheaper prices. Wal-Mart’s logistics management also plays considerable importance to transportation of goods. The firm has a large number of trucks which are also fitted with device that helps in keeping an actual track on their movements (RFID Technology). On an average each distribution centre has approximately 3500 trucks. The firm also has rigorous selection criteria for selecting drivers as it selects only those who have an experience of driving more than 300000 miles which should be free from any major traffic violations and accidents (University of Nevada, 2010). The basic aim behind these policies is to achieve cost benefit advantage which can be passed on to the customers. This is in tune with its positioning strategy of being a price leader providing everyday low prices to its customers. Cross Docking Cross Docking is another innovation strategy that has been incorporated in the supply chain management of Wal-Mart. Under this strategy goods procured from the suppliers is immediately transported to the retail stores which are the end points in the supply chain network. Under this technique Wal-Mart has changed the role of distribution centres from being a storage point to a coordination point. In this system goods arriving at the distribution centres are immediately shifted to the trucks which lead to the retail stores. The maximum time that a good spends in the distribution centre is less than 12 hours. This strategy provides two advantages firstly it reduces the time taken for a good to reach the shelves of the stores from the suppliers. Secondly it minimizes the inventory holding costs as the goods are immediately shifted to their final destinations. It also ensures that the stores never run out of stock for a particular item. Using aspects like RFID and real time information sharing accurate demand forecasting can be done by taking real time sales data which is available to all the stakeholders. It ensures customer satisfaction as they always find the product of their choice. Similarly goods not in demand can also be predicted which again minimizes the aspect of holding surplus inventory in the warehouses or distribution centres. This aspect involves considerable importance to a retailer like Wal-Mart whose business model is based on an EDLP (Every day Low Price) strategy. According to a study inventory carrying and storage cost constitutes approximately 44 percent of the total cost of logistics borne by a firm in USA (National Centre for Freight and Infrastructure Research and Education, University of Wisconsin, n.d., p.14). Incorporating a cross docking strategy helps Wal-Mart in reducing its operating expenses by a large percentage which is used to provide goods to customers at cheap rates. This strategy of Wal-Mart has given a distinct competitive advantage over its rivals and has also created entry barriers for new player which assumes significance considering the large number of firms and globalisation. Voice Based Order Filling Voice Based Order Filling technique was introduced in Wal-Mart in 1998 in its distribution centres. Under this system each individual at the distribution centre was given a speaker which was connected to a hand held computer device which was normally worn on the waist belts of the employees. Coupled with real time information sharing and RFID any individual could be automatically guided to a location where a particular good was stored. This assumes quite significance to the firm with regards to time reduction and efficiency as most of the distribution centres at Wal-Mart are between 40,000 to 200000 square feet in area. Moving goods and people at rapid rates is another aspect that determines the success of a cross docking strategy. This strategy has enabled the employees at the distribution centres to locate and find good at such large distribution centres very easily (University of Nevada, 2010). Collaborative Planning and Forecasting Replenishment Collaborative Planning and Forecasting Replenishment popularly referred as CPFR is defined as a strategy where organizations and business partners share demand forecasts through a web based platform. This helps in reducing inventory carrying costs as well as ensuring availability in the entire supply chain. Wal-Mart has effectively used ERP to share demand forecasts based on real time data. Presently every supplier linked to Wal-Mart has a regular update about the level of sales of a particular product. Wal-Mart has reportedly spent approximately $ 4 Billion to create a Retail Link System that would integrate all the suppliers of the firm through a single common database. Under this system transactions worth 10 Million Dollars a day were processed and trend analysis prepared and shared with the suppliers on a day to day basis (University of Nevada, 2010). Summary The analysis of logistics management at Wal-Mart reveals the level of innovation that is present in the organization. The firm’s success over the years in highly competitive markets could be attributed to the supply chain management of the organization which has made the organization to set a trend in the entire retail industry. It shows how the organization has effectively used technology to derive cost benefits so as to be a price leader in the industry. Marketing Channels of Wal-Mart Marketing channels assume significant importance for an organization with regards to the achievement of their long term strategic goals. Wal-Mart operates through hundred percent company owned outlets. These outlets are entirely sun and managed by the firm. The firm does not have a franchising strategy and all its outlets across the worlds and wholly owned by the firm. Online marketing channel has been adopted at the organization. This enables shoppers and consumers to shop goods from the comfort of their homes without actually visiting the stores. This has become popular among the customers considering the busy and hectic schedules of the in day to day lives. It also leads to cost saving for the company as storage and display at the shelves also require considerable man power and resources. The cost savings incurred by adopting such strategies could be actually passed on to the customers that would help the firm to realise and fulfil its aims of providing goods at cheaper rates to the customers. The most important marketing channel of Wal-Mart is it’s in store media channel. In this form of marketing information and publicity of goods are present inside the retail store itself. Products that are kept in top shelves have greater profit margins, in addition information is also provided to the customers about how to derive the maximum value from their purchases. This provides the firm with cost reductions as they do not have to spend additional amounts as advertising expenses. The main theme behind every marketing activity of Wal-Mart is to convey its strategy of providing products at everyday low prices. Conclusions and Recommendations Retail industry offers some of the widest scope available to the business houses across the world. Twenty first century is characterised by presence of organized retail sector. Wal-Mart has become the undisputed leader in this category. This aspect is governed by the efficiency by which the firm manages its logistics and supply chain activities at the organization. Wal-Mart has coupled its aspects of economies of scale and scope with technologies like RFID and cross docking to create sustainable competitive advantage. Use of technology in supply chain has enabled Wal-Mart with large scale cost reductions which are being ultimately passed on to the customers. Real time information sharing with the different vendors and stakeholders has led to better management of the inventory in the organization. Techniques like CPFR and cross docking have helped the organizations to minimize the inventory costs. Use of CPFR has enabled real time demand forecasting and sharing the results with the suppliers which has eliminated aspects like stock outs and idle inventory. The cost advantage that is derived from these aspects has been passed on to the customers that have helped the firm to retain its positioning of being a price leader which provides everyday low prices to its customers. Efficient management of marketing channels have contributed towards creating an efficient positioning of the firm in the mindset of the customers. The firm has also established an online marketing channel which has provided greater value proposition to its customers. The logistics and supply chain activities of Wal-Mart also pose certain challenges. The most prominent among these lies in the huge cost that is required for implementing ERP. The large scale operations of the organization have further compounded this problem as huge funds are required for maintenance and implementation of ERP in the entire supply chain. In addition to this suppliers may not want to resort to business process reengineering as they would have to bear huge costs, this serves as the formidable challenge to the organization towards bringing the suppliers on a single common platform. The organizations must effectively convince the suppliers about the potential long term benefits that can be brought about by implementing these technologies in their business process. To sum up the study its can be easily stated that the success for Wal-Mart lies in its ability to continuously evolve its logistics strategy which would help in exploring different markets of the world and emerge as the global leader in the retail business arena. References Delloite. 2010. Emerging from the downturn. Global Power of Retailing 2010. [Pdf]. Available at: http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Consumer%20Business/dtt_globalpowersofretailing2010.pdf [Accessed on November 29, 2010]. Narsing, A. 2005. RFID And Supply Chain Management: An Assessment Of Its Economic, Technical, And Productive Viability In Global Operations. [Pdf]. The Journal of Applied Business Research – Spring 2005 Volume 21, number 2. Available at: http://www.cluteinstitute-onlinejournals.com/PDFs/2005242.pdf [Accessed on November 29, 2010]. National Centre for Freight and Infrastructure Research and Education, University of Wisconsin. No Date. SUPPLY CHAIN STRATEGIES. [Pdf]. Available at: http://www.wistrans.org/cfire/Research/MVFC/02/Part_II.pdf [Accessed on November 29, 2010]. Sushma, T. 2008. Retailing Industry. VOl 1. [Pdf]. Available at: http://www.ibscdc.org/businesscasebooks-pdfs/Retailing%20Industry%20vol.%20I.pdf [Accessed on November 29, 2010]. University of Nevada. 2010. Wal-Mart’s Supply Chain. [Ppt]. Available at: http://faculty.unlv.edu/npomirleanu/2-Wal-Mart%20Supply%20Chain-short.pptx [Accessed on November 29, 2010]. Wal-Mart. 2010. About Us. [Online]. Available at: http://walmartstores.com/AboutUs/ [Accessed on November 27, 2010]. Wal-Mart-a. 2010. Logistics. [Online]. Available at: http://walmartstores.com/AboutUs/7794.aspx [Accessed on November 27, 2010]. Read More