Essay
Introduction
The headquarters of Wal-Mart are located in Bentonville, Arkansas. Sam Walton, the founder of the company, launched a variety store in Newport, Arkansas in 1945. His brother, James 'Bud' Walton, opened an identical store in Missouri in 1946. Until the 1960s the enterprise was focused wholly on variety stores (Brunn, 2006). The original Wal-Mart Discount City was launched in 1962, which became the original discount store of Wal-Mart. The original Sam's Clubs were then launched in 1984, which was followed by the opening of the original supercenter in 1988. The original neighborhood market was launched in 1999. In 1988, Sam Walton retired as the company's CEO (Brunn, 2006). His remarkable leadership transformed a single store Wal-Mart into a globally prominent retailer with a huge number of stores and billions of dollars of sale revenues worldwide. This paper discusses and analyzes the supply chain and operational management of Wal-Mart.
The business model of Wal-Mart involves two major sectors-- Sam's Clubs and Wal-Mart Stores. Sam's Clubs, which are intended for members of warehouse clubs, are tasked to offer special value on branded products at prices intended only for the members for both personal use, nonprofit groups, and small businesses. The Wal-Mart Stores, on the other hand, are classified into three-- neighborhood markets, supercenters, and discount stores (Sonderquist, 2005). At present, Wal-Mart runs its venture through three sectors-- Sam's Club, Walmart International, and Walmart U.S. Sam's Clubs provide branded products, including exclusive private-label goods, soft and hard products in several merchandise groups-- health and wellness, home and apparel, office and entertainment, technology, fuel, and grocery (Brunn, 2006). The Wal-Mart International sector involves various arrangements of retail stores-- wholesale clubs, restaurants, retail stores, and a variety of retail websites that can be accessed across the globe. The Wal-Mart U.S. sector provides financial services and associated goods, such as bill payment, check cashing wire transfers, prepaid cards, and money orders (Sonderquist, 2005). The following discussion shows how these business formats contributed much to the unparalleled success of Wal-Mart.
Supply Chain Characteristics
The remarkable success of Wal-Mart is widely attributed to its capability to streamline costs and encourage its suppliers to follow their steps. The 'just-in-time' supply mechanism is one of the systems that Wal-Mart has established. Their supply tracking program is computerized, giving them the ability to monitor goods sold and inform merchants everytime it is time to restock (Basker, 2007). Such tracking system enables more rigid and thorough monitoring of inventory. As the company expanded from the 1960s to the 1980s, it considerably profited from better road systems and the failure of its competitors to respond to reforms in policies and regulations, like the abolition of the 'resale price maintenance' (Roberts & Berg, 2012), which had prohibited retailing businesses from giving discounts.
The relative market power situated between suppliers and retailers determines the characteristics of their relationship. A supplier or retailer with comparatively greater market power is capable of taking out financial gains from the other entity. As explained by Bloom and Perry (2001), these financial gains obtained can be categorized into two supply chain negotiation strategies-- (1) a partner strategy, and (2) a dependency strategy (as cited in Mottner & Smith, 2009, 536). The partner strategy implies that continual relationships result in improved financial outcomes for both the retailer and supplier. On the other hand, the dependency strategy indicates that when supplier develops a dependency toward a more influential retailer, the suppliers will grant monetary compromises to keep their position.
Sam Walton's son and the Chairman of the Board of Wal-Mart, Robson Walton, chooses the term 'supplier-partners' to explain the relationship of Wal-Mart with its suppliers. He explains how the company aims to provide the best value to its consumers by means of selling products and/or services at the lowest prices possible and does not take deal money, display payments, or slotting fees from its suppliers (Roberts & Berg, 2012; Sonderquist, 2005). Walton claims that a continual stable relationship with suppliers is a company's tradition and brings advantages to small- and medium-sized suppliers of Wal-Mart. He claims that the company tries to not merely be excessively focused on cost and operational efficiency, but works with suppliers in looking for ways to improve supplier efficiency, bargaining for price with no exclusive deals, and predicting demand (Roberts & Berg, 2012). In fact, the company has continuously collaborated with its customers and suppliers in acquiring efficiency savings.
The performance of Wal-Mart's supply chain has further improved over the years. The company engaged in strategic sourcing to locate goods and/or services at the most affordable prices from suppliers that are capable of meeting the company's demands. Afterward, Wal-Mart builds strategic relationships with almost all of their merchants, providing them opportunities for high volume and continuous purchases in return for the most affordable prices possible (Leeman, 2010). Moreover, the company systematized its supply chain management by creating and building communication systems with suppliers to enhance material movement with reduced inventories. According to Ireland and Crum (2005), the system of global retail stores, warehouses, and suppliers has been characterized as operating virtually like an entire corporation.
Unfortunately, so as to reduce their labor expenses, Wal-Mart has slashed the number of employees working it its stores. This has brought about restocking problems because there are no enough number of employees to replenish the shelves with products that are kept in the stockroom (Basker, 2007; Roberts & Berg, 2012). This is one area in the company's supply chain that needs improvement. Generally, strengthening a supply chain demands the involvement of the entire organization. It calls upon the executives to examine previous sales and have confidence in the sourcing units to make appropriate choices, to use the IT division in applying the correct technology in order to fulfill the company's needs, and to motivate employees at the tip of the supply chain.
Approach to Maintaining a Competitive Advantage
Wal-Mart successfully maintains its competitive advantage by exercising its bargaining power to push its suppliers to cut down prices; reducing operational and overhead costs; sustaining a supply chain management structure that minimizes costs and boosts efficiencies; and, acquiring massive volume of sales accomplished through expansion and widening of the customer base. First, numerous established companies depend on Wal-Mart for a substantial portion of their overall revenue (Li, 2007). Being the topmost retailer and supplier of a vast number of consumer goods, Wal-Mart holds significant power in the retailing industry. In executing a low-cost strategy, the company is continuously pressuring its suppliers to trim down prices.
Second, following the strategy developed by Walton for a low-cost business, Wal-Mart continues to keep its costs as low as possible. Third, the company owns a supply chain structure that is considered in the business world as one of the strongest and most productive in terms of technology. Wal-Mart was a leader in electronically linking precise, complete product information to goods and services so that these pieces of information could be used to keep its inventory management system updated (e.g. radio frequency identification technology (RFID) tags, barcodes) (Thomas, 2010; Roberts & Berg, 2012). Information like real-time sales, warehouse inventory, and point-of-sales data are transmitted to, and saved in, an integrated database (Roberts & Berg, 2012) that can be accessed by their suppliers.
In addition, Wal-Mart has the biggest private satellite network that facilitates the smooth transmission of vital information among all parties within the company's supply chain and enables data and voice transmission among all offices and divisions of the organization in different areas (Thomas, 2010). Moreover, Wal-Mart's competitive advantage is firmly rooted in the cost-effectiveness and efficiency of the distribution system and the supply chain strategy. All of its distribution centers are located near the stores that are being supplied. Regional distribution centers have been located at areas that have lower costs of transportation and labor. Hence the company has been able to perform 'cross-docking', a procedure wherein goods are immediately removed from a truck once it arrives and transferred into a truck en route to a store (Coyle et al., 2008). This process has reduced transportation costs and inventory storage costs.
And, lastly, Wal-Mart has been able to sustain its competitive advantage and occupy a massive market share by offering almost all products and services available, and being almost in every place. It has persevered to satisfy the needs and wants of the different market segments, and to create a wide array of buying options, squeezed into single areas (Sonderquist, 2005). In fact, as stated previously, it has a multiple-store arrangement that expands its market scope, and it offers products and services through four store formats, namely, neighborhood markets, Sam's Club warehouses, Walmart Supercenters, and discount stores.
Production Process
Although the advantage of Wal-Mart over other retailing businesses has been indisputable for many years, the sources and scale of such leverage are not completely known. One of the sources of this competitive advantage is the company's retail production function. As soon as the processing of orders are completed, the scheduling of production starts. The process of scheduling production converts orders into concrete production operations which include handling material requirement planning structures, organizing machine maintenance, job assignments, and work centers, and shipment to the distribution center of Wal-Mart (Leeman, 2010). The interplay between economies of scale and technological expertise has made the company a leader in the total productivity boost in the retail industry.
The investment of Wal-Mart in information technologies (Its) does seem to have improved its efficiency and productivity over the recent years. The findings of Basker and Van (2007) suggest that advancements in the company's technology have cut down the cost of running a massive chain (as cited in Basker, 2007). If such technological improvements had occurred earlier sustaining the chain size of Wal-Mart, its distribution costs and logistics would have decreased by roughly 5.4% annually from 1980 to 2005 (Basker, 2007, 183). Rather, the company's chain expanded by roughly 12% a year (Basker, 2007, 183), maximizing growth in efficiency and productivity.
Commitment to Quality and Excellence
At present, Wal-Mart employs the attribute control mechanism so as to locate products that are spoiled or damaged. Their goal is to determine the rate of defects taking place in a specimen as measured by the attribute control process. The attribute measure that the company concentrates on is the number of products that are damaged from their supplier. Wal-Mart ensures that their suppliers have certification because goods can be sold to and purchased by customers without undergoing inspection (Roberts & Berg, 2012). The company makes sure that their suppliers are ensuring the quality and safety of the products delivered to Wal-Mart stores.
Suppliers of Wal-Mart have decisive and rigid quality control processes. The company has established strict control guidelines for their suppliers. Primarily, suppliers are obliged to report a list of all their manufacturers. In addition, they should have a thorough inspection process for their transportation security. The company also requires a third-party checkup by their chosen suppliers (Mottner & Smith, 2009; Brunn, 2006). They are mandated to perform a self-evaluation process and they should afterward obtain a stamp of approval from a Wal-Mart agent. The company's suppliers are also mandated to have factory security standards.
Inventory Methodologies and Model
The success of Wal-Mart in the area of inventory management is in part attributed to the efficient execution of the vendor-managed approach to inventory. Within this approach, suppliers are allowed to look at or acquire information from the company's database, like information on the latest levels of inventory and the speed at which particular products are purchased (Coyle et al., 2008). Suppliers make the decision when to deliver products to Wal-Mart, and then the firm tracks and regulates the actual delivery of products to stores. The vendor-managed inventory system of Wal-Mart has the advantage of reducing delays and setbacks in the flow of inventory throughout the supply chain (Coyle et al., 2008). Such advantage is gained because suppliers are allowed to access information about the movement of their products at Wal-Mart stores.
An additional benefit of the vendor-managed inventory system is the reduction of inventory management costs. Wal-Mart is able to regulate its labor costs since it does not have to hire additional workers to handle every supplier's products. Rather, these human resource and financial costs are transferred to the suppliers. Basically, the vendor-managed inventory system reduces the costs of handling the company's inventory since the cost is handed over to the suppliers. The merging of the anticipation inventory, buffer inventory, transit inventory, and finished goods inventory reinforces the cost leadership strategy of Wal-Mart by means of cost control (Coyle et al., 2008; Brunn, 2006; Roberts & Berg, 2012). Furthermore, the company's cross-docking as a part of its just-in-time inventory model contributes to the reduction of inventory costs through minimization of the size of inventory.
Operational Planning Policies, Job Designs, and Work Environment Issues
Wal-Mart has positioned itself at the top of the retailing industry by employing the straightforward strategy of selling products at the best prices possible. Through the application of appropriate and advanced logistics that is composed of the most sophisticated inventory management and technology systems, the company enhances its scale of operations, purchasing and bargaining power, and reduces costs for the firm (Thomas, 2010). However, Wal-Mart is facing dropping prices and margins. Due to the expansion in operational efficiencies, the company has been confronting declining gross margins in some products because of this price drop.
In the meantime, job design and analysis are effectively executed in Wal-Mart's human resource (HR) management by means of the hierarchical-functional organizational structure of the company. This process simplifies the identification of distinctive features for each job. The company has definite and clear-cut descriptions for every level and job position within the organizational structure (Roberts & Berg, 2012). As a result, Wal-Mart's HR management reduces setbacks and delays in job design and analysis. The company employs work- and employee-based job analysis. The objective of this strategy is to generate information regarding tasks and outcomes (Brunn, 2006).
Unfortunately, Wal-Mart has been charged of numerous labor relations issues in the past few years. The company has become widely known for its controversial employmet practices. It has faced numerous lawsuits for anti-unionism, abuse and exploitaton of employees, insufficient health care benefits, unreasonably low pay, and poor working conditions (Roberts & Berg, 2012). Nevertheless, the company is making decisive steps to resolve these problems that severely tainted its corporate image and reputation.
Conclusions
The supply chain management strategy of Wal-Mart is considered as one of the strongest and most productive in the business world. The extraordinary growth and success of the company is largely attributed to its supply chain. The company's operational processes and policies, production mechanism, inventory methodologies, and distribution networks all work together to provide the best value to Wal-Mart customers. The use of cross-docking, just-in-time or lean processes, and vendor-managed inventory systems ensures the continuous success and profitability of Wal-Mart's supply chain.
References
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