Walmart - International Logistics and Supply Chain Management - Case Study Example

Walmart-International Logistics and Supply Chain Management By of [Word Count] Introduction Wal-Mart was founded by Sam Walton in 1962 as WAL★MART and was incorporated on October 31, 1969. It first traded publicly at the New York Stock Exchange in 1972. The headquarters of the company is in Bentonville, Arkansas (Frank, 2006). Wal-Mart runs a chain of large discount department stores and warehouse stores all over the world and it is run by the Walton family, which owns 48% of Wal-Mart’s shares. Wal-Mart is conceivably one of the leading retail chains stores in the world. The chain store is renowned for its efficient supply chain management and control practices, which have enabled it to perform beyond the reach of its competitors in the consumer goods industry (Kallrath & Maindl, 2006). In particular, the company has employed state-of-the-art technologies in most of its operations to help improve service delivery. For instance, starting with bar coding to hasten its supply chain operations, Wal-Mart was among the first companies to follow up bar coding with RFID programs. Although the initial rollout of its RFID tagging programmes flopped, the current rollout, which started in 2010 is expected to be successful (Ingram et al., 2010). In fact, the latest rollout of Wal-Mart’s RFID program really excited its suppliers and vendors with the prospects of better and more efficient operations and increased profits. This paper explores Wal-Mart’s in-house fleet advantages and disadvantages, evaluates its state-of-the-art technologies and cross-docking operations. The Benefits of Cross-Docking to Wal-Mart In general terms, cross docking involves turning the demands from a company’s retail stores into purchase orders, which are then forwarded to manufacturers or suppliers (Kumar et al., 2009). The manufacturers then notify the stores about their capacity to produce and deliver the ordered goods in a timely manner. Once produced within the stipulated period, the goods are sent to a staging area where they are packed according to the procurement orders from different stores (Kumar et al., 2009). The goods are then delivered directly to the customers. The pre-requisites of docking are rather basic and easily monitored. The fundamentals pre-requisite are strong building foundations that support the entire cross docking process. The second pre-requisite is dedicated and experienced drivers who recognise and believe in prioritizing customer service above other things. Once employed, the drivers are filtered and assigned duties according to their capabilities. Further, the drivers’ reliability and competence to follow the laid down standards should be assessed. Wal-Mart also ensures that its drivers are committed to the standards set in the Private Fleet Driver Handbook. The drivers’ progress is then constantly monitored by the company so that the company is assured of the competence and reliability of its drivers. Fleet coordinators are also important in Wal-Mart’s cross docking operations as they inform drivers on expected time of arrival, departure and delivery of goods, which are quite precise according to Wal-Mart’s standards. Several changes had to be implemented in Wal-Mart’s managerial control if their cross-docking programmes were to be successful. Prior to the adoption of cross-docking, the company’s pricing, promotion and merchandising decision were centralised (Mentzer, 2001). However, with the implementation of cross-docking, focus was shifted to the “demand chain” instead of the common supply chain. That is, instead of allowing retailers to push goods into the company’s shelves; customers did more of the pulling, according to their demands, tastes and preference (Kumar et al., 2009). Cross-Docking Saves Companies Time and Money Savings on time and money are the two most obvious and far-reaching benefits that Wal-Mart enjoys from using cross-docking. First, the company has the capacity not only to receive goods immediately but also the ability to deliver them immediately without requiring warehousing services. Since the company begun implementing this technique properly, it enjoys quite a number of benefits from the practice, especially by saving on money and time among other resources. With regards to saving on money, the company often records a drop in its merchandise handling and operating costs. Second, there is a reduction in the storage inventory as well as reduced warehouse costs for the company. The third benefit of cross-docking is that it results in reduced fuel costs due to the consolidation of shipments into full loads (Wang et al., 2006). Fourth, cross-docking has enabled the company to streamline the supply chain, implying that its goods moved rather fast from manufacturers to their customers. Nonetheless, to maximize from cross-docking, Wal-Mart had to establish a large fleet of trucks and an adequate Information Technology system to manage this logistics technique (Larson & Halldorsson, 2004). Among the materials that are highly suited for cross-docking are perishable goods that require instant shipment, high-value/quality goods, which require little inspections on receipt, bar coded or RFID-pre-tagged products, pre-ticketed goods and promotional under launch (Kumar et al., 2009). The other suitable goods for cross-docking are staple retail products whose demand is constant, pre-picked and pre-packaged customer orders from different manufacturing plants or warehouses. There are several reasons and different circumstances in which Wal-Mart uses cross-docking. The first reason is for deconsolidation purposes. In this regard, the company could be involved in using large shipments that require to be broken into smaller ones to ease and quicken delivery. The second reason for the company’s implementation of cross-docking is for consolidation purposes during which smaller shipments may be combined to ease transport and to save on transport costs (Larson & Halldorsson, 2004). Hob/Spoke is the other reason for using cross-docking at Wal-Mart. Spoke/Hub refers to a situation in which goods are to be shipped to a central location for later delivery to other stores. The company however appreciates the importance of continuous communication among distribution centers, suppliers, manufacturers and consumers and other stakeholders in the supply chain for cross-docking to be effective. Consequently, these stakeholders need to integrate the necessary logistics systems such as software to connect suppliers, vendor and shipper and to track inventory in transit. The benefits of cross-docking are nevertheless dependent on factors such as the complexity of goods, the handling techniques applied, freight costs, inventory transit costs, the geographical location of customers/suppliers and the distribution of a company’s branches or stores (Hines, 2004). The challenges call for the use of the latest technology in supply chain management. The Use of “State- Of –The- Art Technology” in Wal-Mart The management and ownership of Wal-Mart recognises and appreciates the importance of incorporating and implementing the latest technological infrastructures such as state-of-the art communication and coding system in its operations. In fact, the reality that such technologies are core to the successful running of businesses in modern times implies that firms that integrate them in their systems are guaranteed faster logistics operations. Consequent to its use of state-of-the-art technologies in its logistics operations, Wal-Mart has been able to cater for the diverse and changing tastes, preferences and needs of its customers within the best period, thus attracting and retaining more customers (Vance & Scott, 1997). Wal-Mart has thus kept in pace with the rapidly changing customer needs, making sure they are satisfied, in the process reaching out for more customers and competing favourably. In Wal-Mart, state-of-the-art-technology is applied in the tracking down of sales and goods in all its stores worldwide. The need to expand its operations and communication systems to meet the growing need for efficient communication particularly prompted Wal-Mart to launch its own satellite communication in 1983. This installation of satellite communication is important for communication among the firm’s increasing retail shops and/or distribution centers (Haag et al., 2006). Significant in this communication system are the satellite rooms in which the company’s technicians use computers to communicate with their branches worldwide. The computer screens are also important in displaying each day’s bank credit sales as they occur. The company also has TV studios from where managers and other top managers get satellite communication. Besides communication, Wal-Mart also uses technology in its supply chain management, eliminating the manual method of handling inventory, which is quite costly and prone to errors by human beings. Wal-Mart thus uses Information Technology to make inventories accessible and available when required. Wal-Mart also uses state-of-the-art technology to network its suppliers through commuters. The company thus has a close communication and collaboration with its suppliers such as Procter and Gamble. The technologies at Wal-Mart also monitor the firm’s inventories and automatically update suppliers and manufacturers. This technology therefore benefits both Wal-Mart and its suppliers. It should be noted that Wal-Mart does not use technologies only for its executive; in fact, technologies are used even by the firm’s lowest ranking employees (Vance & Scott, 1997). Specifically, these technologies help the employees to work better with little or no stress at all. For example, all Wal-Mart’s employees have a hand-held computer referred to as the ‘Magic Wand’. These computers are linked to in-store terminals by a radio frequency network and they assist workers to track deliveries, inventory and back-up merchandise in stores and distribution centres (Kirklin, 2006). The other technology used at Wal-Mart is the Point of Sales (POS) System. The POS system monitors and tracks all the sales on a store’s shelves and also assists employees to track of the inventory, deliveries and to backup merchandise in stock at the distribution centers. The company also has a centralised inventory data system by which employees are able to know the precise status of their store’s inventory levels and locate each item as the system monitors the inventory progress. In addition to the mentioned technologies, Wal-Mart also uses a sophisticated algorithm technology that enables it to estimate the quantities of goods lacking in the shelves and the amount to be delivered to each of its stores. An advantage of this algorithm system is that due to its accuracy, only the right quantities of bulky goods are delivered to the stores where they are required (Cooper et al., 2007). This saves on the unnecessary movement of bulky goods from one store or distribution centre to another. Also applied to manage Wal-Mart’s inventories are the Universal Product Code (UPC) and the radio frequency identification (RFID) technologies, which are quite important in the management and handling of inventories. The RFID has however become more applicable for Wal-Mart as it seeks to meet the changing needs, styles and preferences of its customers. Unfortunately, privacy watchers have come out criticising the use of RFID, claiming it infringes in peoples’ privacy with regards to peoples’ location and tastes/preferences for specific products (Kumar, 2009). By using the bar coding technology, Wal-Mart allows its customers to pick and receive goods efficiently. For the company, bar coding and RFID promotes proper inventory control, order packing and the physical counting of the stock (Ketchen & Hult, 2006). Besides technology, in-house fleeting has also helped Wal-Mart create its niche in the retail market. The Advantages and Disadvantages of In-House Fleet One area in which Wal-Mart has used to surpass its competitors is in the need to constantly reduce its purchasing costs, thus selling to their customers at the lowest prices possible. To achieve this objective, the company used to procure goods directly from manufacturers without involving any middlemen. Thus, in its negotiations with suppliers, the firm always ensured the prices arrived at would allow them to sell at the lowest price, to have a competitive edge over its rivals (Simchi-Levi et al., 2007). The firm thus recognizes that negotiating with manufacturers and suppliers is not for their own benefit but for the good of their customers (Chicago Tribune, 2010). Logistics management, by in-house transportation is thus the other area in which Wal-Mart has done well over the years to stay ahead of other players in the industry. A unique feature in the company’s infrastructure is the efficient, fast, and responsive transport system. The thousands of company-owned trucks provided a dedicated fleet that came in useful in replenishing the firm’s at least twice a week. These trucks would be used to move goods from the company’s distribution centers to the various retail stores run by given distribution centres. In its endeavor to ease and quicken its distribution processes, Wal-Mart currently uses a logistics method referred to as cross-docking. Cross-docking refers to a logistics system in which goods are picked at the manufacturers’ premises, sorted and supplied to the firm’s customers directly. There are several benefits that the company derived from using this logistics technique. First, there is a reduction in the handling and storage of goods (Halldorsson, 2007). This advantage eliminates the need for many distribution points and stores. This is the reason Wal-Mart uses different types of cross docking in their operations. Thus an area of supply chain management that has greatly contributed to Wal-Mart’s success with regards to eliminating the intermediaries is the use of in-house fleet. There are several advantages and disadvantages of in-house fleet that Wal-Mart encounters in its in-house fleet operations. First, in-house fleet enables the company to enjoy low-cost benefits accruing from transportation from delivering of goods to its many stores and distribution centers. In-house fleeting has also hastened the company’s capacity to replenish its shelves; in fact, the rate at which Wal-Mart replenishes its stocks is almost four times that of its closest competitors (Zook & Mark, 2006). Second, Wal-Mart has established a strict code of conduct for its fleet drivers so that the company is confident in its drivers’ abilities to deliver good in time and in the right state. The disadvantages that Wal-Mart’s in-house fleet has are not easily noticeable given the positive public reputation the company has. The most common of these disadvantages is that this fleet requires constant repairs and maintenance, which are quite costly for Wal-Mart given that it is the company’s dole responsibility care for its fleet of trucks. Since the company must allocate some resources (money and labour) for fleet repair and maintenance, it will obviously incur additional expenditures. Nonetheless, the many advantages of in-house fleet the companies enjoy by far exceed the disadvantages (Halldorsson et al., 2003). That is, the additional cost incurred is surpassed by the increased easiness and effectiveness of Wal-Mart’s use of in-house fleet transportation. In fact, the success of Wal-Mart lies in its reliable and efficient supply chain management. Conclusion Effective supply chain management and good customer relationships are perhaps the two most central strategies in Wal-Mart’s success story. By adopting the use of state-of-the-art technologies in managing its supply and demand chains and for communication purposes, Wal-Mart has ensured that its customers’ demands, tastes and preferences are met. Besides, customers, Wal-Mart has also ensured it established good relationships with its suppliers and employees (Ylan, 2008). To stay ahead of its competitors, Wal-Mart is always on the lookout for any changes in store layouts and retailing techniques that would assist them add value to their services and improve customer satisfaction. Further, the company exploits any opportunities to cut costs. These savings on costs are subsequently transferred to the company’s customers who enjoy lower prices at Wal-Mart’s stores world over. In-house fleet is one of the cost-reduction strategies employed by Wal-Mart. Because of its in-house fleet, Wal-Mart incurs low transportation costs although it allocates some resources on fleet maintenance and repairs. Nonetheless, the benefits of Wal-Mart’s in-house fleet by far exceed the cost-related disadvantages. Specifically, in-house fleet enables the company to easily deliver goods to its many stores and distribution centres thus enabling it to restock faster compared to its competitors who do not use in-house transportation. Thus, the company’s supply chain management and practices could be cited as the reasons for its success in the consumer products industry as they have lead to faster inventory turnover, reduced lead time, accurate inventory level forecasting, and increased warehouse space. What is more, the use of technologies in the company’s supply and demand chain has resulted in better utilisation of working capital, efficient and fast communication and reduction in losses due to shoplifting and other crimes. References Chicago Tribune (2010) Wal-Mart Impact: Pop Price War Warns of Wal-Mart Impact for Chicago. 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