Wal-Mart Supply Chain Management System - Case Study Example

Supply chain management Name Course Institution Professor Date 1.0 Introduction Supply chain management involves management of activities within a supply chain in order to maximise customer value and earn the business a sustainable competitive advantage. Supply chain firms present their effort collectively to create and run products supply chain in the most efficient ways possible. Comprehensive supply chains cover every aspect of product from development stages, sourcing, production, the logistics involved and all information flow within the firms involved in the supply chain. Firms within a supply chain link through physical flow of goods and information. Information flows forms the most critical part in all supply chains. Information flows enable firms in the supply chain to coordinate and control the flow of products in the supply chain network. Supply chain management philosophy is pegged on the system view approach rather than a set of fragmented parts. This translates to the fact that supply chain management extends the concept of partnership into a multiform effort to manage the total flow of goods from the supplier to the ultimate customer. Thus, each firm in the supply chain directly and indirectly affects the performance of all other supply chain members, as well as ultimate, overall channel performance (Mentzer, 2001, p.9). Wal-Mart has the most advance supply chain operated by the largest IT systems ever owned by a private company in the world. Wal-Mart has made a significant investment in their supply chain management system. The key to Wal-Mart’s success is how well the giant retailer has successfully minimised costs from its supply chain and increased efficiency (Ketchen et al, 2008, p.365). The goal of the paper is to examine how improvement in the performance of the supply chain processes could assist a company in becoming innovative by using Wal-Mart as a case study. 2.0 Improvement of Supply Chain Process and Innovation The concept of supply chain management is tied on the premise of improving performance across the entire industrial logistics network. The motivation is on the notion that companies that have already streamlined their internal business process should optimize their external relationship with their business partners (Hieber, 2002, p.1). In a simple overview, supply chain relates to a network of facilities and distribution option. These networks perform the functions of procurement of materials, value addition, and distribution of these finished products to clients. A key to improved supply chain management lies in the new trend of integration and coordination rather than competition (Cousins, Lawson and Squire, 2006, p.757). In addition, much of the theory in supply management is based on idealized schemes of optimal routes and quantities for demand fulfilment when considered from a whole-network or chain perspective (Cousins, Lawson and Squire, 2006, p.760). One way in which a firm can increase their profitability and market leadership is by reduction of operating cost through cost cutting measures. One key area of cost cutting measures is by concentrating on core functions of the firm. This can only be achieved by efficiently integrating suppliers, manufacturers, warehouses, and stores so that merchandise is produced and distributed at the right quantities to the right location and at the right time (Simchi-Levi, Kaminsky and Simchi-Levi, 2004, p.2). However, this kind of arrangements normally faces numerous challenges which are dynamic and complex (Simchi-Levi, Kaminsky and Simchi-Levi, 2004, p.5 & 6). According to Simchi-Levi, Kaminsky and Simchi-Levi (2004, p.7), in the 1980, companies discovered new manufacturing technologies and strategies that allowed them to reduce costs and better compete in different market segments. However, in the recent there has been a paradigm shift towards supply chain management so as to increase profit and market share. 3.0 Supply Chain Process Improvement through Lean Management as Innovation A few major principles can be helpful with regard to streamlining operations, creating additional capacity, cost reduction as well as enhancing the bottom line is concerned, whether the task to be accomplished is managing the operations of an individual warehouse or establishing an international supply chain (Gibson, 2007). Waste decreases the performance of the entire supply chain. Lean manufacturing principles provide fundamentals that can be of much application in refinement of any logistics operation. Those responsible for designing, managing and improving supply chain can rely on the guidelines to boost the performance of the general supply system (Godsell et al, 2011). Organizations should carry out evaluations and enhancements on a continual basis to ascertain the effectiveness of their operations, logistics and supply systems. When making use of Lean management guidelines, inventory reduction is obvious (Markovitz, 2011, p.3). This means that less capital is devoted to inventory since the quantity of inventory in storage is reduced. In addition, lesser plant and equipment space for holding and managing inventory is required. The overall effect as a result of reduction in inventory is that the amount of inventory turn is increased and hence a decrease in overall expenses (Gibson, 2007). The first Lean principle is measuring operations. It is a cause-and-effect relationship which appears to be simple enough. The starting point is validating current systems and knowing a precise measurement of operations (Gibson, 2007). Those in charge of supply chain operations should commence by underlining the entire system together with the activities that encompass the chain. It is also important to put in place valid performance benchmarks so as to make sure that supply chain managers have the exact evaluation of the processes they are measuring. Coming up with the suitable performance measures is adequately significant and sophisticated with many supply chain specialists dedicating much of their studies to how they can be founded as well as what they should entail (van Hoek, Godsell & Harrison, 2011). Measurements are however inadequate if they solely address individual operations or processes within an integrated chain of supply. The major question is thus how the management can enhance supply chain using measurements (Gibson, 2007). Take for instance a simple criterion that can be used to establish the quantity of a certain item that a manager should hold in the inventory. Usually, this amount is arrived at by determining a quantity to stock that mirrors other major variables. In other words, this refers to the amount of a particular item that should be held at hand as operational stock to last until the item is restocked (Emberson et al, 2006). This value is established by determining the amount of stock required on hand in addition to the amount required during the time needed to receive the item plus some considerable amount of safety stock. Adding safety stock makes sure that enough quantities of stock are held on hand to meet demand by customers in case of changes in shipping times or predicted trends in customer consumption (Juttner, Christopher & Godsell, 2010). An evaluation of most supply systems indicates that stock tends to be dependent on processes within various geographic zones at areas where multiple activities are concentrated (Ruffa, 2008, p.196). Operations that occur at a single node of the system, influence activities within other nodes and hence the general performance of the supply chain is enhanced. Just like an integrated system, a supply system operates like soldiers during a military formation. When the parade ignites its running movement, every soldier knows the direction and the intended speed and is able to see the activities of those in their immediate front (Johnson et al, 2010). However, with all this information the outcomes of the formation are very much predictable. When a soldier in the front row takes off, this activity is immediately transmitted throughout all rows and columns and the effect increases as it moves from the front column to back (Gibson, 2007). Commercial supply processes achieve control by incorporating point of sale information throughout multi-linked supply chains. These supply systems continuously deploy usage trends to better expect consumer demand, manufacturing as well as distribution requirements. A good example of a business organization where this approach has been successful is Dell Computers where manufacturing requirements are updated every two hours (Gibson, 2007). Ensuring inventory accuracy is another Lean principle that can be used to develop effective supply chains. When the time needed to integrate knowledge of demands is reduced, the amount of time required to incorporate that information into replenishment predictions consequently reduces (Gibson, 2007). Reliable information with regard to the location of stock in the supply system facilitates accurate determination of the status and availability of inbound restocked goods by supply chain managers. This information together with the above mentioned criteria for measuring operations results to decreased safety stock requirements, reduction in overall stock on hand, decrease in storage space requirements, higher inventory turn ratios as well as substantial cost savings (Gibson, 2007). Maintaining the preciseness of inventory on hand is of course an essential precondition for any approach to boost inventory management. Establishment of inventory accuracy facilitates tracking and measurement of transit times of stock as it moves from a node to the other since more than just transit times between nodes can be revealed (Juttner, Godsell & Christopher, 2006). Failing to address all aspects of operations can result to one link in the process being more efficient with no regard to the effect of that link to other links. This is referred to as sub-optimization which should be avoided by evaluating individual operations and how they interact with each other (Gibson, 2007). Internal warehouse activities such as the manner in which items move through a given warehouse have the capacity to reduce the average customer wait time. For instance, inventory picking, consolidation, packaging as well as preparation for shipment can take days at a particular warehouse. Internal warehouse enhancements aimed at boosting speed at one node may actually result to addition of more time to another node. In the case of selection and packing of similar items, the velocity at which they transit through the warehouse may increase (Gibson, 2007). The items, however, require separation at another location and transfer to a different mode of transport before reaching the ultimate destination. This is likely to slow down the overall operations since the burden of separation is transferred to another node within the system (Gibson, 2007). These challenges can be multiplied by inaccurate inventories, redundant operations, unskilled inventory managers, excessive nodes of activity and discrepancy in transit modes, operations or schedules. All these problems add to supply chain inefficiencies. Thus, the underlying challenge becomes to craft an integrated supply system that gets goods from point of manufacturing or processing to point of consumption within the minimum amount of time possible (Storey et al, 2006). There are numerous opportunities of enhancing the performance and velocity of a given supply chain. Some can be implemented on short-term basis to offer cost reduction with regard to personnel requirements and amount of stock held which results to overall reduction in workload (Gibson, 2007). Other enhancements call for additional investment in information systems. Lean manufacturing entails a combination of diverse manufacturing and industrial engineering practices in an effort to get rid of waste systematically (Coyle et al, 2009, p.599). One of the easiest means of eliminating waste is of course to do away with irrelevant activities or operations in the supply chain. This can easily be done by mapping the process using some sort of a network diagram (Gibson, 2007). After mapping the entire process, the system designers align tasks with regard to how they relate with other required operations with an aim to reduce the time required by the entire system. After establishing the optimal cycle of processes as well as relationships, the focus shifts from critical path management to system crashing which involves cutting down the process times linked to each operation within the critical path (Gibson, 2007). Reducing the number of tasks or communication channels rather can have an overall positive impact as far as enhancing system effectiveness and quality is concerned. Each additional communication channel within the supply system means an additional opportunity for more errors to occur (Godsell, Birtwistle & van Hoek, 2010). The overall supply chain can continually be refined through identifying redundant processes with each node and their relationship so as to cut down the overall process time within that node (Godsell et al, 2006). The same approach can be deployed in developing large supply chains. With supply chain operations, eliminating a single node can result to saving on unnecessary infrastructure as well as overhead. This leads to creating more space for other uses, reducing personnel requirements in addition to creating extra system capacity (Gibson, 2007). 3.1 Supply Chain Process Improvement in Helping Walt-Mart Attain Lean Management as Innovation Wal-Mart is a retailer based in the U.S retailer that has been in operation since the 1980s. In 2006, Wal-Mart earnings revenue exceeded $312 billion giving it a lead in the global Fortune 500 list. Wal-Mart became the world leading retailing company. Wal-Mart operates over 6,500 stores worldwide and has stores in over 50 countries. The Company has over 1.3 million employees in the US and 1.8 million worldwide. Wal-Mart bases its operations on low costs and continuous improvement on customer service. Wal-Mart way of logistics, distribution network and technology in place is undisputed. Wal-Mart adopts a low price strategy business model which ensures low transportation and distribution costs. Wal-Mart supply chain fully integrates with all its 40 years old retail and information systems. Wal-Mart has a legendary supply chain technology which has broken the most used traditional three-day barrier system. Wal-Mart can replenish items in its stores shelf immediately passed through the POS system as sold. It takes 2 days turn-around time to replace stock items on shelves directly from the –manufacturer (Chandran, 2003, p.4). The success behind Wal-Mart supply chain is its distribution strategy. Wal-Mart a large number of stores spread across the U.S distributing merchandise to thousands of its stores. Wal-Mart has the largest private truck fleet employee’s base that makes distribution much easy. The firm has real-time retails systems which take real time records in all stores. This allows immediate notification to suppliers and manufactures upon registering any purchase. Wal-Mart has the best information systems in place that run under a centralised database. The system comprises of store level POS’s and satellite networks (Heying, 2009, p.237). Wal-Mart plays a significant role in its supply chain by controlling the product life cycle and technological life cycle. Wal-Mart influences suppliers manufacturing processes and product life cycle right from raw material distribution to processing and manufacture. Wal-Mart has allowed Suppliers to access its data so that they can continuously monitor and replenish products. Wal-Mart has adopted the Collaborative planning, forecast and replenishing strategy (CPRF). This is a planning model forecast at sharing vital information with the supply chain. Wal-Mart shares all information on promotions, inventory level and daily sales with its suppliers, in a real time basis (Safizadeh, Ritzman and Wood, 2002, p.1577). The Wal-Mart vendor managed inventory (VMI) enables suppliers to monitor inventory at each distribution centres. Suppliers and manufacturers have access to these data to enable them make proactive decisions in a continuous basis. Wal-Mart’s facilitating goods are merchandise goods such as households, electrical appliances, vehicle parts, foods and drinks that are available on display shelves. Wal-Mart’s explicit services include its well structured chain supply system. This ensures customers get goods and services in a timely manner with most competitive market prices. When Suppliers have inventory records, they are able to minimize any supply chain problems. Coordination and flow of products from manufacturers ensure that products manufactured is in time and picked by Wal-Mart’s trucks and arrange for the return of defected products. Wal-Mart works closely with suppliers on long and short term supply chain strategy. Wal-Mart plays a significant role in determining where specific supply factories are to be located. The firm determines the type of raw material used for most some of its products. Wal-Mart maintains balance in coordinating raw material suppliers and the forecasting on production volume (Bicheno and Elliot, 2003, p.25). Conclusion Wal-Mart supply chain management system enables the firm to have full control on product flow throughout the supply system. This enables Wal-Mart to coordinate automatically with specific suppliers, and constantly maintain its inventory levels in all distribution stores. Wal-Mart ensures maximum value addition to its gods and services in all the stores worldwide. This includes timely delivery, longer product life cycles and high quality standards. References Bicheno J. and Elliot, B. 2003. Operations Management. New Jersey: John Wiley and Sons Inc. Cousins, P. D., Lawson, B. and Squire, B. 2006. Supply chain management theory and practice: the emergence of an academic discipline. International journal of operations and production management. Volume 26 Number 7, ISSN 0144-3577. Coyle, J. J. et al. 2009. 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