One their competitors. Walmart’s founder Sam Walton
One of the essential characteristics for a company in thismodern era of the commercial environment, is the capacity to control theirproduction lines and how they distribute their goods through chains. Thischaracteristic is called Supply chain management (SCM) which is an essentialelement that dictates whether a firm will be successful. In addition to that ifthe supply chain is implemented successfully it will give firms an advantageover their competitors. Swaminathan (2001) described supply chain management ismanagement which is efficient of the end-to-end operation which begins with thedesign of the product until the product itself is being sold, consumed, and eventuallydisposed by the consumer. The whole process incorporates product design,planning, forecast, distribution, procurement and after sales report.
This essaywill consist of three sections. Initially, a representation of Walmart’s supplychain will be laid out. Secondly, this will discuss the crucial SCM capabilityrelated to Walmart’s current implemented operation and how this capability is successfuland beneficial to Walmart ‘s supply chain. Finally, the last section of theessay will discuss how Walmart can maintain and improve their current supplychain management focusing on the efficiency capability. Walmart’s supply chain In this part of the essay, Walmart is deemedas one of the leading retail stores in the world and the reason for that is thesupply chain which they have instilled which gives them an edge over theircompetitors. Walmart’s founder Sam Walton stated that the reason Walmart becameso successful was because they replaced inventory with information (source).
Walmart’s supply chain consists of different elementssuch as purchasing, operating, integrating, and distributing which is implemented into theiroperations (source). These elementswhich are integrated to Walmart supply chain sets a standard which all of theircompetitors in the retailing field would try to reach that standard (source). Thesupply chain initially starts off with purchasing. This stage is where decisionshave to be made on what products are going to be sold while identifying vendorsand arranging the best deals for products. These decisions are usually made bypurchasing managers.
Secondly, the operating portion of their supply chaincomes into play where they focus on three different elements; 1) DemandPlanning, 2) forecasting, and 3) inventory management (source) Demand planning isused by Walmart so they can create precise forecasts which eventually leads toan effective and efficient inventory management (source). From there on, the distributionfunction is the third element of the supply chain where Walmart moves theproducts from manufacturing plants and warehouses to stores and evidentially tocustomers. The final function of the supply chain is the integrating where it maximisesefficiencies by interlinking work and information among all other channels (source). Walmart main capability As one of the leading corporations in the retail business,the success that Walmart has achieved is owed to their precise selection of supplychain capabilities. According to Grant (1991) capabilities are an instrumental conceptwhere resources are utilized to perform specific tasks which is crucial to anorganisation to maintain an edge over their competitors. Hayes and Wheelwright(1984) went on to say that capabilities are operational strengths whichenhances performance if applied correctly by the organisation. Walmart as amultinational retail corporation, has elected for a supply chain of efficiency asits leading capability which is crucial for their current operation.
Walmart achievestheir efficiency through removing a few of the chain’s link, establishedstrategic partnerships with most of their vendors, technological development andadvancement, and cross docking. Fewer Links Walmart supply chain management played key role in theorganisations early success when Sam Walton, the founder, bought merchandise inbulk and shifted it directly to his stores. The company in the 1980’s agreedthat they would dispose of a few links from their supply chain and decided towork with the manufactures directly (source). This adjustment evidently diminishedcosts and eventually managed the supply chain more efficiently in the long run.VMI (vendor managed inventory) is implemented in the supply chain of Walmart wherethe manufacturers themselves are responsible for handling and operating theirown product at the warehouses. This resulted into Walmart expecting near 100percent order fulfilment on products (source). The diminished costs which was achieved due to an effective supply chain,were Walmart instilled a fewer links approach to enhance efficiency. It has ledthem to have a low rate in distribution cost which is estimated at 1.
7 %compared to their rivals such sears and Kmart who both have a higher rate. Vendor Partnerships Another element which is Implemented in the Walmart supplychain, is a strategic sourcing concept where they look for suppliers who offertheir merchandise for the best price. The supplier should be able to satisfythe demand which is placed on them by Walmart. Walmart eventually enter intolong-term contracts where they get low prices for high quantity purchases.
As discussed earlier, one of the major factorsfor Walmart to be efficient was to have fewer links in the supply chain which playsa major role on their approach to formulate a strategic vendor partnership. Thisoccurs because when an organisation removes the middle men and have a few linksimplemented in their supply chain, they directly conduct business with theproducers and generate more profit. This evidently builds a trust between thetwo and this leads to the parties to enter into a long-term partnership. In 2010,Walmart bought into the process of developing a relationship with heir supplierwhich revolutionized its supply chain and maximized efficiency (source). This relationshiphas benefited Walmart by avoiding dealing with fluctuating prices set bysuppliers and the distribution cost to go with it.
Another advantage was that thereis no longer uncertainty on whether the suppliers can uphold the high demandsset by Walmart.