Global Supply Chain Management: of Wal-Dart - Case Study Example

Global Supply Chain Management Wal-Dart Supply Chain Analysis Table of Contents Executive Summary 2 Introduction 4 Wal-Dart 4 Global Supply Chain Management 5 Supply Chain and Market Requirements 6 Figure 1: Wal-Dart analysis using Fisher’s (1997) model 7 The Supply Chain 12 Design 12 Manufacture 13 Distribution 14 Sale 16 A Comprehensive Approach 17 Conclusion 18 References 20 Executive Summary This report sets out to analyse the current supply chain problems facing Wal-Dart, to determine possible approaches and solutions. It provides a brief overview of the organisation and its operations together with an introduction to global supply chain management to set the context for the analysis that follows. The problems encountered by Wal-Dart appear to be caused by what is known as a bullwhip effect, which affects the whole supply chain. The importance of linking the supply chain to organisational objectives and purpose is highlighted as it is the supply chain that allows the achievement of business objectives, before an attempt is made to determine whether a lean approach or agile approach to manufacturing and supply chain management is most appropriate for Wal-Dart. However, the analysis using Fisher’s (1997) model proves inconclusive, although Singh and Sharma’s (2009) definition of lean manufacturing appears to describe the outcome desired by Wal-Dart, and Bruce et al (2001) find that, in the fashion and textile industries, aspects of both lean and agile approaches, that they termed “leagility”, can be appropriate. A more radical approach to Wal-Dart’s problems is suggested by Lee (2010) who considers that the whole of the supply chain should be reviewed and revamped if necessary, which allows a holistic view to be taken and also provide an opportunity for Wal-Dart to introduce a more sustainable supply chain. A more detailed analysis is undertaken using Slack et al’s (2009) four stages of a fast fashion supply chain: design, manufacture, distribution and sales. Several issues are considered that fall across the different stages, including information supply from the retail outlets, the inability to change the manufacturing locations in the immediate short term, the possibility of setting up distribution service centres with their own transport service, and using enterprise resource planning to integrate the whole supply chain for more immediate, accurate provision and use of information. The overlaps of these areas across the four stages supports the idea of a holistic approach to resolve the problems. This idea is further supported by Lubowe (2009) who finds that senior management support, organisational structures and technology are key ingredients to a successful global integration strategy involving three key elements of repeatable processes, optimised assets and integrated operations. Overall, there is no one best solution to the problems Wal-Dart is experiencing revealed by this analysis. The only clear recommendation that can be made is that the whole supply chain is thoroughly analysed to clearly identify the problems and their causes. Once this is done, the purpose and objectives of the business can be used to provide a guide to designing a supply chain that delivers competitive advantage for the business and a good customer service that generates revenue streams and profits. Introduction This report considers the fashion manufacturer and supplier Wal-Dart and issues associated with their supply chain. It firstly provides a brief outline of the nature of the business, what it is aiming to achieve and the presenting problems. It then sets out the purpose of global supply chain strategies and analyses the situation using selected strategies to determine potential solutions to the problems. Finally the report summarises the key findings in the conclusion. Wal-Dart Wal-Dart is a manufacturer and retailer of fashion clothes driven by local culture and style. They supply clothes from their main manufacturing plants in India and Sri Lanka to their retail stores in Asia and Europe. Supplies to the stores are determined by demand information supplied by them to the manufacturing plants. Wal-Dart hopes to supply up-to-the-minute fashions in short runs to avoid excess stocks, while supplying customer demand. Their current issues relate to stock control and supplying goods from the manufacturing plants to the retail stores in a timely fashion to avoid over- and under-stocking. These issues are interlinked and require a solution that allows Wal-Dart to achieve its chosen strategy while maintaining an efficient global supply chain that delivers new fashions on time and in the right quantities to the right stores. Global Supply Chain Management Global supply chain management is a key business operation, which has undergone significant change in the last decade. Butner (2010, p.22) identifies five key challenges facing supply chain management: cost containment, visibility, risk, customer intimacy and globalisation. These issues are viewed as strategically important to organisations. Wal-Dart appear to be facing all of them. Krajewski and Ritzman (2005, p.395) describe the purpose of supply chain management as seeking “to design a firm’s customer relationship, order fulfilment and supplier relationship processes and to synchronise these processes with the key processes of its suppliers and customers in order to match the flow of services, materials, and information with customer demand”. They indicate that retailers and manufacturers have different supply chain strategies, which indicates a potential problem when analysing Wal-Dart’s situation as it is both a manufacturer and retailer. They identify a phenomenon known as the “bullwhip effect”: for Wal-Dart, this means as demand at the retail outlets changes, a ripple effect runs back through the supply chain to the manufacturing plant, causing a mismatch between supply and demand patterns. Stocks can accumulate in some stores while shortages occur in others. Krajewski and Ritzman identify four areas that cause this ripple effect: stock management policies, actual stock held, customer demands and the degree of accuracy of the information supplied. For Wal-Dart, each store will have its own stock management policy, resulting in the stock that is held. The orders are placed to meet anticipated customer demand, and it is based on this information that the manufacturing plants produce the clothes. If customer demand is not as anticipated, there will be overstocks and shortages. As the company cannot control customers and their demands, they must be prepared for some disruptions to the supply chain and should design the supply chain to take account of this. Thus, on the face of it, Wal-Dart are suffering from a bullwhip effect caused by inaccurate forecasting of customer demands causing inaccurate stock ordering, inaccurate clothing manufacture and problems with stock levels in retail stores. To remedy this, Wal-Dart needs to re-evaluate its supply chain, to determine what configuration would best suit its strategy and its customer demands, providing the correct amount of stock at the right time to the right store without increasing costs to an unacceptable level. Supply Chain and Market Requirements Many commentators stress the need to align the supply chain with organisational goals because supply chains are of strategic importance and can confer competitive advantage for an organisation (see, for example, Stavrulaki and Davis 2010). Getting the supply chain configuration right for the organisation becomes critically important. Fisher (1997) devised a framework to help determine whether an organisation should follow lean or agile principles – efficiency vs. responsiveness and flexibility (Slack et al, 2009). Fisher (1997) distinguishes between functional products with predictable demand, and innovative products with unpredictable demand, arguing that functional products require efficient supply chains (lean) and innovative products, responsive supply chains (agile). Slack et al (2009, p.219) have condensed Fisher’s model into a diagnostic diagram to allow easy assessment of an organisation’s products and apply Fisher’s model to their situation. Figure 1: Wal-Dart analysis using Fisher’s (1997) model (based on Slack et al 2009 p.219) What this analysis reveals is that the different dimensions within supply chain objectives and nature of demand appear to pitch the ideal supply chain environment against what is not ideal. A manufacturer would state that they wanted such things as predictability, few changes, low variety, stable prices and long lead times when considering product demand, and low cost, high utlisation, minimal stocks and low-cost suppliers when looking at their supply chains. The implication of the model is that you can have functional products or innovative products, but not both, and a responsive supply chain, or an efficient one but not one that is both efficient and responsive. Wal-Dart will want an efficient supply chain that responds to fluctuations, and a predictable demand that they can satisfy while commanding high margins. In addition, although the model claims to point organisations towards either agile or lean approaches to supply chains, the Wal-Dart analysis leans towards an agile approach, yet does not demonstrate a clear answer to the question, leaving Wal-Dart with a mismatch, despite following the model. The model is somewhat old, and when Fisher devised it, the type of organisation represented by Wal-Dart would not have existed and globalisation was in its infancy. For Wal-Dart, the model has minimal use, except to identify certain criteria that they wish to achieve. Using these criteria will help Wal-Dart decide what they really want the supply chain to achieve and this may require some reconsideration of overall business objectives and strategy. Assuming that the current business strategy and objectives remain the same, the supply chain objectives can be considered using the ideas from the Fisher analysis as a starting point. According to Singh and Sharma (2009, p.58), lean manufacturing aims to “become highly responsive to customer demand while producing quality products in the most efficient and economical manner by reducing various waste in human effort, inventory, time to market and manufacturing space”. Although the Fisher (1997) analysis indicated a preference for an agile approach, this definition of lean manufacturing would suit Wal-Dart as it highlights those areas that need to be addressed, within an idea that covers the whole supply chain approach. Singh and Sharma (2009, p.58) identify significant improvements in lead time, work-in-progress and manpower requirements obtained by a manufacturing firm in India which applied lean techniques to its plant in a planned way using value stream mapping. As Wal-Dart has a manufacturing facility in India, the findings of this research may be easy to recreate, using value stream mapping techniques. Singh and Sharma state that the purpose of value stream mapping is to eliminate waste. They also include inventory management within the lean approach and this would also fit with the requirements of Wal-Dart. To determine whether such an approach would be right, Wal-Dart would need to analyse the manufacturing processes, including control mechanisms and information flows, another issue identified as a problem for Wal-Dart. Value stream mapping might be an ideal technique for them to use to identify the different processes within the manufacturing plant, the impacts of the information flows both within and from outside of the plant, and how these can be improved to avoid stock problems at the retail stores. As a word of caution, however, Wal-Dart need to be aware of potential issues with using value stream mapping to help redesign their systems to meet the lean approach. Lasa et al (2008, p.39) undertook an evaluation of the technique and, while they stated that value stream mapping is a valuable tool, consideration needed to be given to “the time and training resources spent, the use of suitable information systems and a suitable management of the application process”. If Wal-Dart wish to use value stream mapping, they will need to take account of these factors if they do not already have individuals trained in the use of value stream maps, appropriate information systems and project management skills. To provide some support for the findings of the Wal-Dart analysis using Fisher’s (1997) reference can be made to Bruce et al’s (2001) research, which examined the fashion industry in terms of both lean and agile approaches, deriving the word “leagility” (ibid, p.151) to describe instances where a combination of the approaches is appropriate. On this basis, it is not surprising that the Fisher analysis of Wal-Dart was inconclusive and apparently contradictory. Lee (2010) advocates a somewhat more radical approach to supply chain problems. Rather than making piecemeal changes, he recommends a total overhaul from start to finish. A premium shirt-maker in Hong Kong faced the problem of providing more environmentally-friendly, sustainably-sourced shirts when the supplier of their cotton was in no position to make the necessary changes and changes required during the manufacturing process actually involved more environmentally harmful chemicals that were more expensive. Increasing pressure on all manufacturers of fashion garments to run their businesses sustainably will be affecting Wal-Dart: the current problems with its supply chain give them an opportunity to reconsider not only the supply chain, but its environmental impact. Creating more environmentally friendly garments would provide an additional marketing tool to increase sales and profitability in the retail stores. As long as costs can at worst be kept at existing levels, the company benefits as does the environment and customers can boast of their contribution to sustaining the environment. Lee (2010, p.64) suggests organisations “should take a holistic approach to sustainability and pursue broader structural changes than they typically do”. Piecemeal changes, he argues, can have unintended consequences in several macro-environmental areas as well as direct impact on the company. Taking a holistic approach can result in “a greener supply chain that requires less capital, has much lower operating costs and provides a competitive advantage” (ibid, p.65). As Wal-Dart has problems in several areas of its supply chain, Lee’s idea has some appeal, requiring a thorough analysis of the current situation, identifying where improvements can be made that meet a sustainability agenda and then implementing the changes. The problem with such a wholesale change is that if there are any problems, the whole organisation may find itself unable to trade due to no manufacturing, no goods being shipped and/or no stock available in-store to be sold. Such a large change requires thorough planning with full contingency back-up plans in place to avoid loss of trade in the event of problems. The Supply Chain Assuming that wholesale supply chain reconfiguration is not possible, a more targeted approach will be required. For this, an analysis of the existing supply chain is required. Slack et al (2009) identify four stages in a fast fashion supply chain: design, manufacture, distribution and sale. All four of these are under the control of Wal-Dart. This framework will be used to consider the issues they face within each area, although in reality, no single area can be separated from the others; there are interdependencies such as information flows between them. For the purpose of this analysis, this interdependency will be ignored. Design Within design, Wal-Dart are focusing on unique designs produced in what Slack et al refer to as “seasonless cycles” (ibid, p.239). Designers learn from retail stores how customers react to designs and then incorporate this feedback into future designs. Many items will only have a single run, and be available for a short time, which can save costs as stock will be sold quickly leaving no out-of-date stock to destroy, but does assume that the customer will like the design and purchase it. Wal-Dart have issues with very popular items selling out quickly, which in itself is not a problem as another garment run could be instigated to meet the unmet demand. The overstocks, however, are a different problem as it is these designs that have not sold and are unlikely to do so. It is possible that these designs are more popular in another retail store and consideration should be given to transferring unsold stock from one store to another store where the design is popular. Such information can be fed back to the designers who can modify their designs, and also to the logistics team, who can supply design styles to those areas where they are more popular. The store managers would need to be included in such communications, as they are the ones who order for the stores. If they can see the preferences of their customer base, they can order accordingly, minimising overstocks and maximising sales and customer satisfaction. Manufacture Wal-Dart’s manufacturing capability is located in India and Sri Lanka. The appropriateness of this location should be assessed, however, it cannot be viewed as a short-term fix to acquire new manufacturing capability (Kumar et al, 2010), even if such acquisition is through outsourcing. Maintaining quality of the finished goods and ensuring timely supply must come first. Assessing an outsourcing partner takes time and is a risky undertaking, purchasing new manufacturing capability even more so. In the immediate short term, location of manufacturing facilities cannot be changed. Distribution For Wal-Dart, facility location is complicated by supplying clothing across Europe and Asia to multiple retail stores, with individual demand profiles. One solution to the inability to relocate or acquire new manufacturing capacity is to set up distribution centres in strategic positions that enable timely supply of products to retail stores (Benjaafar et al 2008). Such a strategy would involve manufacturing a greater number of garments per run, to allow the distribution centres to hold stocks to supply retail outlets on demand. This is a cost that, to date, Wal-Dart has not had to face. When assessing the option of setting up distribution centres, the costs of holding stock, together with the additional manufacturing costs, will need to be compared to the costs of lost sales due to under-stocking of in-demand items and over-stocking of non-demand items. The other cost trade-off to consider is that of transportation and inventory (ibid, p.43). Wal-Dart does incur transportation costs at present. These need to be analysed and compared with those involved in setting up distribution centres. This will also depend on how many distribution centres are needed and their locations relative to the retail network. A few distribution centres “allows a firm to pool inventory in a few locations and therefore reduce risk from fluctuations in demand” (ibid). However, the fewer distribution centres, the greater the possibility of being left with unsold stock at those centres, which requires accurate information from the retail network about customer demand for different items, and perhaps a change in policy by Wal-Dart to one of deliberately creating new fashions that are only available for a few weeks, meaning customers in the retail outlets “avoid delaying a purchase and [to] revisit the store frequently” (Slack et al, 2009, p240). Wal-Dart rely on third party logistics providers to get their products from airports to retail outlets. There is always a risk that the local delivery service breaks down, causing knock-on effects for those outlets within that area expecting deliveries. If Wal-Dart introduce retail distribution centres, there is an opportunity to review how stock gets from these to stores. Wal-Dart could set up its own delivery service, but that represents a significant capital investment in addition to the distribution centres, and assumes that such a venture would be cost effective in comparison to the current use of local transportation providers. An alternative is to set up a collaborative transportation arrangement (Tyan et al, 2003) which would outsource the distribution of garments to a global third party logistics provider (3PL), from the airport to the retail outlet. The benefits of such an arrangement are shared between the 3PL provider and Wal-Dart. Wal-Dart achieve a more cost-effective, faster delivery service to stores, while the 3PL provider uses capacity more effectively, increasing profits (ibid, p.283). There are also environmental benefits in using a service that is already set up and travelling to the same destination, an advantage that Wal-Dart can highlight to demonstrate their green credentials. The disadvantage to Wal-Dart is reliance on a single provider to get stocks from A to B in all eventualities. If the provider continually failed to deliver stock to outlets as needed, not only would Wal-Dart lose in terms of lost sales, but would also have to pay additional costs to arrange alternative transportation of the stock, which is likely to be expensive if it is required without warning. The terms and conditions agreed between Wal-Dart and any supplier would need careful consideration to ensure that, in the event of delivery failure, any financial and/or material losses were compensated, such that Wal-Dart were not disadvantaged. This, however, would not compensate for a poor customer experience at the retail outlet. Such damage to the company’s image would require careful management to restore its good standing with customers. Sale Wal-Dart own its own retail network, so do not have to liaise with external retailers. However the retail network exists across a large geographical area with different requirements in different areas. Each outlet manages its own stock levels, providing information to the manufacturing plant that generates further stock supply. It is assumed that each outlet uses electronic point of sale (POS) equipment, and that they can accept credit and debit cards as well as cash. The system appears not to be integrated, and this may be behind the variable stock levels. The information system upon which Wal-Dart relies needs to be accurate at all points of use. If there is no integration, then an overview of the whole operation cannot be seen. It is possible that an enterprise resource planning (ERP) approach might bring benefits across the organisation. ERP “considers all relevant enterprise resources beyond the manufacturing realm, such as distribution, warehousing, human resource functions and financial management” (Raturi and Evans, 2005, p.230). As such it would allow stock levels at outlet level to be aggregated and reported centrally based on POS information. The manufacturing systems would be linked to allow sale information and manufacturing information to be viewed at the same time, increasing accuracy of ordering of raw materials for the plant and supply of finished goods to the outlets. Several clothing manufacturers/retailers have reported improved operations along the length of their supply chains following implementation of ERP. Jordache, for example, had implemented some aspects of ERP, then expanded their use of the system and have delivered benefits including “significant reductions in chargebacks and integration of multiple companies and business partners into a single ERP system” with “the benefits of RLM also extend[ing] to our warehouse and distribution processes” (Apparel Magazine, 2009, online). Such an approach would benefit Wal-Dart in dealing with its inventory management issues. A Comprehensive Approach Lubowe (2009, p.22) has devised a framework for operationalising global integration of supply chains, the R-O-I framework, which identifies three elements that must be addressed concurrently: repeatable processes, optimised assets and integrated operations. His research revealed “a set of clear, replicable strategies for operationalising global integration” (ibid). Strong leadership was also a requirement, as was appropriate organisational structures and technology. Like Lee (2010), Lubowe found a holistic approach to operations and supply chain management was essential to achieve “truly globally integrated operations” (Lubowe, 2009, p.23). Based on this, Wal-Dart’s approach to their problems needs to be supported and championed by senior managers, and involve a comprehensive review of the whole supply chain, to identify the best solution to the problems that exist. Conclusion Although this report set out to analyse the situation within which Wal-Dart finds itself, no clear conclusion can be drawn as to either the causes of the problems or the nature of the ideal solution. The use of different models relating to global supply chain management have been used to attempt an analysis of the situation, but Fisher’s (1997) model did not provide any clear pointers for Wal-Dart to follow, although other writers identified that both lean and agile approaches to manufacturing and supply chain management are worth considering when solutions are evaluated. A holistic approach to the supply chain situation proposed by Lee (2010) would allow a full analysis of the supply chain to lead to a total reconfiguration of the supply chain aimed at delivering the organisation’s objectives. As Lee was also considering the sustainability issues that are now extremely important for organisations to incorporate into their everyday operations, such an approach would give Wal-Dart the opportunity to reconsider their approach and introduce a more sustainable, environmentally friendly supply chain that would give them both a competitive advantage and an angle for future marketing promotions. Slack et al’s (2009) four stage model of design, manufacture, distribution and sale was used to consider the individual problems that appeared at these stages of the supply chain. Although several issues were considered, it was clear that most involved more than one stage, meaning that a much more comprehensive investigation is required to determine what is causing the problems and from that, to generate a solution that allows the bullwhip effect to be minimised and Wal-Dart to benefit from a supply chain that provides customers with high fashion at affordable prices, and Wal-Dart with increasing revenue streams and profits. References Apparel Magazine (2009) ‘Jordache reports business improvements from RLM ERP implementation’ Apparel Magazine June Vol. 50 No. 10 Benjaafar, S. Li, Y., Xu, D. and Elhedhli, S. (2008) ‘Demand allocation in systems with multiple inventory locations and multiple demand sources’ Manufacturing and Service Operations Management Vol. 10 No. 1 pp.43-60 Bruce, M., Daly, L. and Towers, N. 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