Supply Chain Management Techniques at Wal-Mart Stores - Case Study Example

Supply Chain Management Techniques at Wal-Mart Stores Faculty This paper is on the Supply Chain management techniques at Wal-Mart stores. Wal-Mart is largest retailer in the world and its success is due to focused approach at each level of organization’s functions. It has adopted appropriate strategies and new technologies to meet its organizational objectives and improved its relationship with its customers, suppliers and employees. Table of Contents Abstract I. Introduction II. Wal-Mart Stores III. Supply Chain Management IV. Supply Chain Management in Wal-Mart Stores V. Conclusion VI. Reference I. Introduction Wal-Mart is the largest retailer in the world with consistent ranking in fortune 500 lists on top 5 from last many years. Wal-Mart is known for its tough bargaining strategies among the supplier while on the same time providing best prices options to its customers. It has posed tough competition for its competitors for each of its functions starting from procurement to the delivery of products. One of the reasons behind Wal-Mart’s huge success is its effective supply chain management strategy. From the procurement to distribution of products Wal-Mart ensures that the cost is managed and the distribution is on time. It has adopted new technologies to meet its supply chain management requirements. It has worked on human resource to prepare them for achieving the organizational goals. The first section of the paper briefly outlines the company background. In the next section supply chain management is explained. This section is followed by the supply chain management in Wal-Mart stores. Here different strategies adopted by walmart at different functions of supply chain management are discussed in detail. Paper ends with conclusion. II. Wal-Mart Stores Wal-Mart stores are the household name in US and many other countries today. Wal-Mart is largest retailing organization in the world and is listed on fortune 500 companies. It ranks two in the list with $315,654.0 million revenue. It ranks first in general merchandise group. As of September 30, 2006, the Company had 1,123 Wal-Mart stores, 2,142 Super centers, 570 SAM’S CLUBS and 109 Neighborhood Markets in the United States. Internationally, the Company operated units in Argentina (12), Brazil (296), Canada (279), China (66), Costa Rica (133), Germany (85), Guatemala (125), Honduras (38), Japan (391), Mexico (845), Nicaragua (36), Puerto Rico (54), El Salvador (59) and the United Kingdom (326).1 The number of stores and the operations of Wal-Mart are spread across various nations. This indicates the complexity of operations and the importance of supply chain management into it. Supply chain management is very important for Wal-Mart stores to ensure availability of goods on its stores. It is also important to control cost and operations through this particular function. It is one of the most important functions in Wal-Mart stores which have been managed well by Wal-Mart from the past. III. Supply Chain Management Booz Allen Hamilton in 1982 coined the term supply chain management. It is a cross functional approach to manage the movements of raw materials and finished goods in and out of the organisations. The focus of supply chain management process is to make the products avaialble to the customers on time. A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.2 As indicated above the complexity of the supply chain management varies from industry to industry and so is the cost. Supply chain management is one of the cost centers for the organizations. The decision making is very crucial because it impacts the delivery of goods and services to the final consumer. As each phase or level of the supply chain management process organizations try to keep its inventory low in the warehouses and at the same time to an optimum level so that there is no situation of shortfalls. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory.3 Supply chain is a network of facilities aimed at delivering products to the customer through a distribution system. The supply chain management is very crucial in the sectors like retailing, manufacturing, automobiles and others where the size of inventory and goods transporting from one location to another is considerably huge. Decision making becomes crucial at each level of management for the supply chain management issues. The major decisions areas in Supply chain management are as follows: Location, Production Inventory Transportation (distribution) Time The levels of decision are strategic and operational for each of these areas. Figure 1: Decisions in Supply Chain Management4 Location The decision related to the location of transportation can be tactical or operational. The management may decide to introduce or promote certain product in a particular location and can supply that to particular store at that location adopting push strategy. At the same time operational level staff can fulfill the requirement chart based on the demand of the consumer of that area for a retailing organization. Production The production decisions are also based on consumer demands or organizations strategy. The production of particular product may rise during the festival season creating more demand of effective supply chain management during this period. The management has to be prepared for seasonal variations in the production and take medium term decisions. Inventory Inventories have been one of the most crucial aspects of decision making as to decide level of inventory is highly critical issue. The high level of inventory can result in increasing cost of keeping inventory while the low level has risk on the affecting the production or selling process. The management has to take care of it by deciding the optimum level of inventory based on the time taken to fill up the inventory, demand pattern and cost incurred. Transportation (distribution) The transportation decision involves deciding on various factors from the way goods and inventory can be transported, route timings and many others. Time This is one of the most crucial aspects. The supply chain management has to take care of this factor at each and every stage of its decision making process. The raw materials should reach to the production site when it is required and the products and finished goods should reach the market when it is demanded. IV. Supply Chain Management in Wal-Mart Stores Wal-Mart stores run on a basic concept of low price. To keep the prices low Wal-Mart has cut down the intermediaries and adopted a strategy to buy products from the manufacturer directly. It is a hard bargainer and had been criticized for its hard bargaining strategy from time to time. It also focuses on keeping cost low at various level of its organization. This includes cost cutting in Human resource department, cost cutting by keeping low inventory and operational costs. Even after that Wal-Mart has been more effective to replenishments from its competitors who do it in 5 days while Wal-Mart takes only 2 days for that. Sam Walton had always promoted the adoption of new technologies. Wal-mart has changed its technological platforms time to time for the improvement of its processes. The overall supply chain management strategy of Wal-Mart can be divided into 3 areas: Inventory Management Logistic Management Procurement and distribution management Inventory Management One of the reasons of the success of the largest retailer of the world is its effective inventory management strategy. Wal-mart has adopted latest technology for communication and placed inventory tracking systems on its various stores. These help in effective communication across the stores and know the level of inventory. The inventory can be replenished on time as it goes below certain level to keep the supply maintained according to demand. Wal-mart has also given its store to choose from number of delivery plans matching their individual stores needs. Wal-mart has adopted various inventory management strategies time to time. It has reduced pack size across various product categories, managed its own stock and organized the stock according to the consumer demand patterns. It also integrated its suppliers to its information technology system. As soon as they received the signal of low inventory of goods from any particular supplier they send signal to that supplier to deliver the product or item to the respective store or Wal-Mart distribution centers immediately. Apart from these it provided proper training and adopted human management skills to train the employees to respond to customer needs quickly and effectively. The coordination among the supplier, Wal-Mart and its stores have supported in managing inventory in Wal-Mart. Logistic Management The logistic management of Wal-Mart is characterized by its fast and responsive transportation system. Company owns number of transportation vehicles to ship goods from its distribution centers to respective stores within two days of time. The main transportation vehicles are Trucks fleets with committed and experienced drivers. There is effective time management strategies adopted to upload or unload trucks at distribution centers and stores. All the concerns related to security and safety of the products being transported are taken care by the drivers as well as respective in charges. Wal-Mart has adopted cross docking logistic technique in which finished goods are directly picked up from the manufacturer plant of a supplier and sorted out from their only to supply to the customers. This technique has helped in reducing handling and storage of finished goods and inventory levels. There are different types of cross docking strategy adopted by Wal-Mart: Opportunistic Cross docking Manufacturer Cross docking Distributors cross docking Pre-allocated cross docking Flow through Cross docking Procurement and distribution management Wal-Mart always has focused on reducing the cost of procurement to offer best prices to its customers. It is a tough negotiator and buys only when it is confident of getting lowest possible price offer. Company prefers local suppliers but do not even spare big manufacturers like Procter and Gamble and any other for the lowest prices. Inventory turnover is high in Wal-Mart distribution center and no inventory is kept for a long period of time. It has established long term relationship with its vendors and suppliers. Wal-Mart has also invested to fulfill various infrastructure needs of distribution centers at various locations. Each distribution center is subdivided into various sections in which goods are placed based on type, category, quantity, storage requirements and demand pattern. Wal-Mart has also worked on reducing its shipping cost. Wal-Mart has adopted various technologies like barcode technology and integrated various information technology systems and computers with it. It has supported the employees for their jobs in ensuring that right product is in right place and the level of inventory. All the data is stored and updated in main server besides the individual computers which can be shared by the packaging department and as well as other concerning departments. Wal-Mart emphasizes on the strengthening relationships with its customers, suppliers and employees. It has customer focused approach and all of its strategies are directed towards reducing cost effectively in order to provide customers the best offer at lowest price. V. Conclusion Wal-Mart is one of the most successful organizations in the world. One of the reasons behind this huge success is its effective supply chain management strategy. Wal-Mart has been able to cut cost and replenish inventory in shortest possible time. It has its own fleet management facilities for the distribution of goods. It has adopted various strategies according to the requirements of effective supply chain management. VI. Reference Hau L. Lee, and Corey Billington. The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard. Interfaces 25 (pp.42-63): 5 September-October, 1995 Haskins (2006) Wal-Mart CIO Reaffirms Commitment to RFID retrieved on 26 October 2006 from http://www.cio-today.com/news/For-Wal-Mart--Full-Speed-Ahead-on-RFID/story.xhtml?story_id=0030001SDKDU Zeithaml Valarie A. and Mary Jo Bitner, 2002 ‘Services Marketing-Integrating Customer Focus Aross the Firm’. 2nd Ed., New York: Tata McGraw-Hill Kotler, Philip: 2000 Marketing Management, New Jersey: Prentice-Hall Inc., 10th Edition http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=326 accessed on 26 October 2006 http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=340&contId=4443 accessed on 26 October 2006 http://money.cnn.tv/magazines/fortune/fortune500/snapshots/1551.html accessed on 26 October 2006 Revolutions in the Warehouse: Information May Be Power, but Information without Timeliness Puts Business at a Disadvantage. Nowhere Is That More Evident Than in the Supply Chain, Particularly in the Warehouse. Magazine Title: African Review of Business and Technology. Volume: 41. Issue: 6. Publication Date: June 2005. Page Number: 42. COPYRIGHT 2005 Alain Charles Publishing Ltd.; COPYRIGHT 2005 Gale Group Wal-Mart Supply Chain management retrieved on 26 October 2006 from http://icmr.icfai.org/pdf/Operations Case Study - Wal-Marts Supply Chain Management Pr.pdf Read More