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Wal-Mart'S Supply Chain

Essay by   •  December 19, 2010  •  1,886 Words (8 Pages)  •  2,388 Views

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Introduction

Supply chain management is the process that an organization uses to "improve the way the company finds the raw components it needs to make a product or service and deliver it to customers (www.supply-chain.org 2006)." There are five basics components of a supply chain management system-plan, source, make, deliver, and return. Planning is the "strategy for managing all the resources that go toward meeting customer demand for the product or service (www.supply-chain.org 2006)." The source components are "the suppliers that will deliver the goods and services the organization needs to create the product or service (www.supply-chain.org 2006)." Make applies to manufacturing the product or the activities necessary to provide the service to the customer. Deliver is the logistics, getting the product or service to the customer (www.supply-chain.org 2006). The last component is return where quality assurance comes into play (www.supply-chain.org 2006). The goal of this paper is to identify the existing supply chain management processes with Wal-Mart as a comparison to other supply chain practices in an effort to recommend changes to the current system.

Wal-Mart's Supply Chain Management

Wal-Mart is one the largest retailing companies in the world. Due to its proficient supply chain management practices, Wal-Mart has been recognized by analysts for its ability to achieve leadership-status. Its supply chain management is backed by the need to meet the demands of customers while reducing costs. The company's success is its ability "to offer a vast range of products at the lowest costs in the shortest possible time. It was all made possible due to Wal-Mart's highly automated distribution centers, which significantly reduced shipping cost and time, and its computerized inventory system, which speeded up the checking out time and recording of transactions (ICFAI 2004)."

Flow of Materials to Wal-Mart

Wal-Mart's objective was to reduce its purchasing costs and offer the best prices to its customers. It acquired goods directly from manufacturers, bypassing all intermediaries. Wal-Mart took advantage of the source component of supply chain management, the company negotiated prices with its suppliers and finalized the deal only when it was confident that the prices weren't lower somewhere else (ICFAI 2004). Wal-Mart spent a significant amount of time learning the cost structure of its vendors as to know when they were receiving the best prices for their customers. Once satisfied with a vendor, Wal-Mart ensured and built long-term relationships with them.

Wal-Mart used distribution centers to warehouse inventory for its stores. In most cases Wal-Mart used its own trucks to pick up inventory from its suppliers, proving to be cost-effective aiding in more cost savings for customers. Inventory turnover was very high, about once every two weeks for most inventory items (ICFAI 2004). In some cases, suppliers delivered goods such as automotive and drug products to the stores (ICFAI 2004). About 85% of the goods that were available at the stores passed through the distribution centers (ICFAI 2004). The distribution centers were used to keep a continuous and consistent flow of goods in a support of the supply function. Wal-Mart used technology of the bar coding system making managing the center easier (ICFAI 2004). All employees had access to the inventory information as a means to guide the employee to the particular product inside the distribution center. The computer system also enabled the packaging department to access accurate information about packaging the product, reducing paperwork, and increasing timesavings.

Wal-Mart's supply chain management also supports a fast and responsive logistics system. More than 3,500 company-owned trucks serviced the distribution centers in delivering the products to the retail stores, replenishing inventory twice a week. Cross-docking was used to make distribution more efficient (ICFAI 2004). The finished goods were picked up directly from the supplier, sorted, and supplied to the customer. This system shifted from the retailer 'pushing' products to the customers 'pulling' products through the system.

In January 2005, Wal-Mart directed its top 100 suppliers to use RFID tags with embedded electronic product codes (EPC) for tracking and identifying. "RFID uses low-powered radio transmitters to read data stored in tags that are embedded with tiny chips and antennas. Proponents of the technology say such "smart" tags can store more detailed information than conventional bar codes, enabling retailers and manufacturers to track items at the unit level (Brewin 2003)."

The researchers at the University of Arkansas noted a 16% reduction in out-of-stocks since Wal-Mart adopted the RFID system into its supply chain (Healthcare Purchasing News 2005). The study also revealed that EPC items were replenished three times faster than comparable items using standard bar coding system. Wal-Mart has been able to use the new system to reduce excess inventory with more effectiveness than the control stores (Healthcare Purchasing News 2005). To this day, using its detailed supply chain management system Wal-Mart has been able to achieve respectable leadership in the retail industry.

Organization Function

Wal-Mart is a huge and very powerful company and therefore uses its competitive edge as a core competency. Walton, the founder and entrepreneur behind Wal-Mart, opened a retail store with the goal of "offering significant discounts on product prices to expand volumes and increase overall profits (ICFAI 2004)." Walton discovered a value-creating strategy and made it a huge success. Sam Walton realized consumers wanted 'low prices everyday, customer satisfaction guaranteed, and hours that were realistic for the way people wanted to shop.'

Sam Walton quoted, "People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information." One of its core functions proved to be Wal-Mart's success; the company was able to reduce costs through efficient supply chain management practices, and push these savings onto the consumers.

Customers Served

As Wal-Mart offers discount savings its consumers are typically low-income single mothers. "Wal-Mart customer's average incomes are below the national average. Some analysts estimate that more than one-fifth of Wal-Mart's customers have no bank accounts (Welton 2006)." Wal-Mart has been a reform for the retail industry by demanding the

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