What Attributes Demonstrate the Effectiveness of Wal-Mart’s Supply Chain?

What attributes demonstrate the effectiveness of Wal-Mart’s supply chain?

Alignment, Awareness and Adaptability:  1) Wal-Mart’s strategy of Everyday Low Prices (EDLP) lines up with their supply chain strategy.   For example, this strategy helps minimize the bullwhip effect.  It’s in line to keep costs low to maintain low prices.  Low prices bring in more customers. Higher sales volume leads to higher gross profit.   2) Store efficiency rivaled operational efficiency.  Stores bought in bulk, passed savings along to customer.  Implemented price rollback campaigns which increased volume.  3) Project One Touch - Aligns merchandise flow, delivery schedules and store labor schedules.  4) High velocity distribution centers were made to hold fast-moving goods - this reduced sorting time to get shelves restocked.  5) Delivery trucks returned unsold merchandise after drop-off (backhaul) and they were also hired out in less busy times, both of which generated additional revenue. 6) Being non-union, there were no labor agreements, so they had more control of labor costs and operational processes. 7)  Adaptable to customer, political, economic, demographic and technological changes.

Inventory Control and Levering Technology in Information Systems:  1) Have a POS system and satellite networks, the latter transmits POS data & video messages to stores for faster communication.  2)  Uses cross-docking to minimize inventory and transportation costs. 3) Uses UPC bar codes for instant data collection, paired with external information, leads to more accurate forecasting. 4) RFID - tags all shipping cases to track and sort products - increases stock visibility. 5) Remix - reduces the percentage of out-of-stock merchandise.  

Communication, Collaboration and Long Term Orientation: 1) Wal-Mart’s buyers work directly with the suppliers, increasing efficiency and reducing time.  Some suppliers even had offices in Bentonville so Wal-Mart could have staff in-house.  With suppliers, Wal-Mart uses their size as an advantage and has immense negotiating power and influence.  There is two way communication between suppliers & Wal-Mart - working together to meet short and long term strategic goals.  2) Uses Retail link - which houses two decades worth of sale history.  Provides this for transparency to suppliers.  4) Uses VMI program - requires suppliers to manage inventory, VMI is part of the overall CPRF approach. 5) Distribution centers knew merchandise levels and could restock as needed.  Manufacturers were also informed of purchases.  6) Employees had the ability to place orders.  Management also kept these employees informed about the business.  7) Created partnership with global entities to increase scale and leverage.

How does Wal-Mart’s performance compare to its competitors? Is it performing better or worse? How?   Wal-Mart is on a different scale than its competitors.  Its revenues are almost four times its nearest competitor and it’s delivering above average industry profits.  Wal-Mart was able to achieve 11.5 inventory turnovers in a year compare to Amazon 6.2, Target 8.7 and Sears 4.7 in 2011. Only Kroger, a grocery store, had a higher turnover rate of 14.2.  In 2011, Wal-Mart’s net income was approximately $17 billion on sales of $419 billion, equating to a 4% net profit margin. It has maintained a similar ratio for more than two decades now.  In comparison, Target’s net profit margin is 4.3%, Amazon 1.8%, Dollar General 5.2%, Dollar Tree 7.4% and Big Lots 4.0% (Exhibit 1).   Apart from Tesco, Kroger and CVS, Wal-Mart has the lowest operating expenses of its competitors.  In addition, with its large network of physical assets: trucks, trailers, warehouses and stores, it maintains a high return on assets of 9.4%. Only Dollar Tree, Dollar General, and Big Lots generate a higher ROA.   On average, Wal-Mart can sell products 8-27% cheaper than its competitors.   Their distribution costs are just 1.7% compared to 5% for Sears and 3.5% for Target.   As a competitive advantage, Wal-Mart has used RFID to reduce out of stock merchandise at the store.   Since 25% of out of stock products are simply missing, Wal-Mart identified and rectified this issue ahead of its competitors, both saving money and increasing sales.  With a growing e-commerce and international presence, Wal-Mart remains competitive and continues to generate significantly more sales than its competitors.  Give all of the above, Wal-Mart has a better overall performance than most its competitors.

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