Wal-mart - Maria Daniela Ostos.pdf

Global Supply Chain Management March 30, 2019

Maria Daniela Ostos A.

HALF A CENTURY OF SUPPLY CHAIN MANGEMENT AT WAL-MART Case Questions 1. What is the analysis of Wal-Mart’s supply chain? Are the company’s supply chain capabilities still a source of competitive advantage? Why or why not? Wal-Mart’s supply chain, which was one of the main sources of its growth from the beginning, was also considered by many to be a mayor source of competitive advantage for the firm. And it was, indeed: Wal-Mart was one of the firsts firms to: • Wield enormous power over its suppliers. When negotiating with its suppliers they had to abide by Wal-Mart’s terms. With such expectations and pressure, it was not uncommon for a supplier to have several employees working full time to support the Wal-Mart business. • Have a “hub-and-spoke” design of high volume distribution centers serving a nearby cluster of stores. • Control its own trucks with the largest private truck fleet employee base of any firm, which delivered the majority of merchandise sold at stores. • Tailor its stores and their product mix to appeal to the distinct tastes of the community each store is located at. This store-wide template was created after analyzing historical store sales and community traits. • Implement an Every Day Low Price (EDLP) policy in which the demand was smoothed out to reduce the “bullwhip effect”, eliminating the need for huge inventory stockpiles derived from a “hi-lo” discounting environment. A researcher remarked: “Consumers certainly love Wal-Mart’s low prices, which are on average of 8 % to 27% lower than the competition.” • Install computerized point-of-sale systems that collected item-level data in real time which allowed Wal-Mart to rely on data in order to make operational decisions and: o Improve the accuracy of its purchasing forecasts. o Share sales data with suppliers in real time and expect them to monitor and replenish product on a continual basis. o Receive a category analyses and recommendations for how shelf space for competitors should be allocated. o Manage short-term inventory and discuss product trends with their suppliers. • Use bar codes to ensure that cases moved efficiently through the distribution centers (RFID tags). Thanks to Wal-Mart’s chain capabilities and its commitment to focusing in delivering products that its customers need in the most efficient method and process available, WalMart was able to fulfill its value proposal for every customer. As Johnnie Dobbs, WalMart’s EVP logistics, had stated: “Everyday low cost is the foundation for everyday low prices.”

Global Supply Chain Management March 30, 2019

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Maria Daniela Ostos A.

How does Wal-Mart compare to competitors?

As was mentioned before, Wal-Mart was one of the first firms to truly focus on strengthening its supply chain capabilities as a source of competitive advantage. And the results were not only about spectacular financial results vs. its competitors. Also, when you compared Wal-Mart’s distribution costs vs. its competitors, Wal-Mart’s were estimated at 1.7% of its cost sales while competitors’ such as K-Mart and Sears were 3.5% and 5% of total sales, respectively (1989). Also, Wal-Mart managed to achieved inventory turns of 11.5 times (2011), while other key U.S. competitors such as Target Corp., Amazon.com and Sears had inventory turns of 8.2, 6.7 and 4.7 times, respectively. It was clear that, even though competitors may have adopted many of Wal-Mart's management techniques, Wal-Mart had built up the most efficient logistics network of any retailer and continued to lead the industry in terms of supply chain’s efficiency. 2. A Johnnie Dobbs, Wal-Mart’s executive VP of logistics, where would you spend your money or focus your energy? If I were Johnnie Dobbs, I would certainly spend my money and focus my energy on strengthening my strengths, so I would remain focus on improving our supply chain. In that case, I would continue to aim at reducing the percentage of out-of-stock merchandise at stores by redesigning the network of distribution centers, especially when it comes to fastmoving merchandise, for this kind of merchandise should be shipped from dedicated “high velocity” distribution centers instead of the traditional general merchandise distribution centers, otherwise delays in restocking shelves of these fast-selling items may keep occurring. Also, I would put some energy on keep eliminating excess inventory and remodel stores in order to improve customer experience regarding checkout speed, customer services and store appearance. Last, but not least, I would pay special attention to the competition from online competitors such as Amazon.com and start to work on finding ways to leverage my strength in physical store locations to boost the online business (Multi-Channel Strategy). 3. Where do you see the opportunities for Wal-Mart in its global supply chain? As I was saying, I think there is a huge opportunity for Wal-Mart in its global supply chain when it comes to building a Multi-Channel strategy to leverage both its physical store and distribution center infrastructure in order to boost the online business. By doing so, WalMart would be able to offer a broader selection of items not available in stores and reach customers in urban areas that Wal-Mart has not yet penetrated. Also, with this online business Wal-Mart would have unlimited assets in one place and that combined with the fact of already having nearly 4,000 stores and over 150 DCs, would allow Wal-Mart to offer its customers best in class delivery options: the convenience of same day pickup in stores or have it delivered to home for free. Similarly, considering that Wal-Mart already posses a huge amount of information about historical sales and community traits, Wal-Mart would be able to tailor its ads and communication to customers in its database advertising its hottest assortment depending on product trends or their particular buying patterns.