Evaluation of Walmart's Supply Chain Management

Introduction

Walmart is a well-known leader in the large discount retail business. The history of Walmart began when Sam Walton owned discount stores under the name of Ben Franklin. Being required to procure his merchandise through the Ben Franklin franchise, Sam Walton finds a way to bring different discount merchandise he purchased in bulk to his store. Walton then realized the emerging trend in discount merchandise and proceeded to open his own discount retail business under the name of Walmart Discount City (Mark, 2012).  After doing so, Walton had a difficult time getting suppliers to send their trucks to his Arkansas location and he was forced to take upon self-distribution.

After a public offering of stock in 1969, Walton built his first distribution center in Bentonville, Arkansas in order to send discount goods to his nearby discount warehouses. Over the next twenty years, Walton built an improved infrastructure making moving merchandise from his distribution center to his stores more efficient. In order to check on his system of distribution, Sam Walton purchased a single engine plane and built airstrips next to his stores in order to keep a close eye on the procurement and distribution of merchandise. Walmart’s supply chain is one of the secrets behind its claim and ability to offer the lowest prices every day. Walmart also can make the promise of low prices because it has possibly the most efficient business to business supply chain in the world and can count itself one of the largest purchasers of consumer goods in the world. Walmart was able to claim more than $443 billion for the fiscal year ending January 31, 2012 and has been able to use information technology to achieve a decisive cost advantage over competitors (Boesler, 2013). Walmart was one of the first companies to use data to make decisions relying on bar codes and sharing the data with suppliers while controlling its own shipping fleet. Walmart also installed its own point-of-sale systems that was able to collect item level data in real time.

In the late 1980s, Walmart developed their own Electronic Data Interchange (EDI)-based supply-chain management system that required its large suppliers to use Walmart’s proprietary EDI network to respond to and fill orders from Walmart purchasing managers. In 1991, Walmart expanded the capabilities of its EDI-based network by introducing what they called Retail Link (Mark, 2012).  Retail Link connected Walmart’s largest suppliers to Walmart’s own inventory management system. This required large suppliers to track actual sales by stores and to replenish supplies of merchandise as dictated by demand from the EDI following rules imposed by Walmart. Walmart also introduced and implemented financial payment systems that ensures that Walmart does not own the goods until they arrive and are shelved putting the burden of merchandise cost on the supplier until the delivery at the demand of need is completed per Walmart terms.

In 1997, Walmart moved Retail Link to an extranet system allowing suppliers to have a direct link via the Internet into Walmart’s inventory management system. In 2000, Walmart hired an outside firm to upgrade Retail Link from being a supply-chain management tool towards being a more collaborative forecasting, planning, and replenishment system. Atlas Metaprise Software provided a demand aggregation software from which Walmart purchasing agents could now aggregate demand from Walmart’s over 5,000 stores in the United States, into a single replenishment, forecasting, and planning from suppliers. This gave Walmart a tremendous upper hand, even with its the largest suppliers.

By 2012, Walmart’s business to business supply-chain management system had achieved mastery on a global scale. The following capabilities of inventory management, cross docking, forecasting, demand planning, strategic sourcing, and distribution management were among the necessary business solution skills necessary to keep the merchandise coming in at their demand while meeting the discount cost consumers relied upon. Despite the economic slowdown in 2011–2012, due to the mastery of distribution, Walmart’s sales grew. In 2011, Walmart’s revenues of $443 billion were up 6.4 percent from 2010, and its net income was $15.77 billion. In the first half of 2012, sales continued growth by over 4 percent. Other retailers who do not have access to this supply distribution relationships and systems will have a difficult time meeting the bar Walmart has set.

Looking at Walmart on a pure economy of scale, Walmart has no other company in the world as large as their economy of scale. This advantage allows Walmart to negotiate lower prices with its suppliers on their terms and in turn offer the cost savings directly to the consumers. Walmart imports over $15 billion worth of low-cost goods from China annually and even with importing costs, the savings from the large quantities purchased outweighs the importing costs.

Another historically large-scale issue Walmart is known for is their non-unionized work force. Due to this fact alone, management has been able to use the workforce in a different way of efficiency and incentives. Local unionized business often trying to undermine the expansion of Walmart operations to their area for fear of driving down wages. Walmart often receives a great deal of criticism that the offset with marketing strategies with their key phrase of offering “Everyday Low Prices” and the company’s fundamental values and key strategy of using low cost marketing achieved by word-of-mouth reputation, spending only about 25% of the competitors’ marketing budget and they place a heavy emphasis on their financial contributions to patriotic and national causes.

Analysis of Walmart Supply Chain

Walmart believes in providing what their customers want at discounted price and below the competition by developing more structured and advance supply chain management strategies designed to enhance this competitive strategy. Walmart has developed and maintained market leadership. Walmart’s work in developing their own supply chain, then later using technology and market force to negotiate with manufacturers in order to cut cost and control the supply chain has given Walmart its leadership in the discount merchandise industry. Walmart’s use of strategies such as strategic vendor partnerships with most of their vendors, offering the vendor potential large volume orders. This strategy allows for long-term growth and high-volume purchases in exchange for lowest possible prices. Walmart having their suppliers carry the costs of merchandise and goods until delivery keeps Walmart costs even lower. This is a negotiating position not many retailers can achieve. Walmart uses cross docking particularly well which has reduced the storage cost of goods.

Walmart has come up with new technologies that are used for understanding where the stock of goods of the company lacks and where they need to increase stock of goods in order to maintain inventory balance. Walmart’s main competitive advantages lie in its cost advantages, which are brought by its economy of scale. The large economy of scale allows Walmart to precure their goods for lower purchase prices and maintain special vendor relationships which has vendors competing for shelf space instead of Walmart seeking merchandising. The company has the most store and shelf space and it is fully supported by the largest distribution and warehouse network of any retailers allowing 24-hour delivery turnovers. This fundamental competitive advantage will only survive with supporting functions and activities of continued technology and marketing leading programs and strategies that help to organize and manage such a large company. Often the first in the market has the benefit of relationships and leadership that leaves other companies always trying to copy a complex strategy that allows them to lead (Trump & Schwartz, 2017). As such, Walmart, continues to enjoy a global lead in distribution.

Walmart vs. Competitors

Walmart possesses half of all the sales of Target, Costco, Kroger, Costco, Safeway, Amazon, Dollar General, Dollar Tree, Big Lot’s, Fred’s, Sears, Walgreen, CVS, Carrefore, and Tesco combined. Walmart assets have grown every year, and sometimes in large increments with only Amazon behind them with the biggest growth between 2011 and 2012. Kroger has large sales but steady assets with little growth. The large sales attributed to the perishable nature of their inventory (Mark, 2012).

Amazon is an online presence with no retail stores and often third-party delivery system of goods. Sears had a strong presence in growth of assets from 2002-2006, only to see a decline in assets from 2006-2012. Walgreen and CVS have a niche in pharmacy and higher priced convenience goods. Dollar General offers low cost goods and groceries but often in areas not served by larger stores like Kroger and Walmart. Dollar Tree offers items that cost only $1 and nothing else. Carrefore and Tesco are International companies that don’t serve the large economy of the United States like Walmart.

Costco, a large warehouse that is comparable to Sam’s Club, also under the Walmart umbrella has a slow and steady increase across 2006-2012 in assets and operate at half the cost of total sales with Costco being at 10% and Walmart at 19% (Mark, 2012). However, Costco is only a wholesale warehouse that requires a membership and Walmart is both a retail giant and a warehouse club that requires a membership for access. The goods from the warehouse sales are often sold in large quantities that are not a necessity for the everyday consumer who needs things for a quick meal or a week worth of food and household items for a smaller family size. The savings of the warehouse atmosphere is not always needed by the consumer population. Sears has a completely different retail atmosphere with more of household supplier of tools and appliances with newer competitors like Lowe’s and Home Depot which explains the reduction in assets since 2007 (Mark, 2012). Big Lots is a different retail arena often selling goods that were unsold merchandise from other stores bought at a deep discount or have small defects.

While competitors may either be in the warehouse industry, discount industry, or supplying groceries and household items at retail costs, none have been able to capture all those markets like Walmart. Walmart started focusing on rural American pushing mom and pop stores out of business with their efficient supply chain and surpassed the sales of Kmart despite have 600 fewer stores (Thomas, 2019). Meanwhile, Target grew more slowly than Walmart, but it had the focus of replacing department store quality and providing discount prices. It does not appear that many of the current successful competitors are trying to fully duplicate the Walmart business model.

Future Opportunities for Walmart in the Global Supply Chain

At an Annual Global Conference in September 2009 the CEO of Walmart explained why Walmart has decided to focus on being the best in market as opposed to trying to bring their world-class supply chain practices and technologies to every country it serves. The retailer considers each situation individually analyzing factors like land and labor costs, local regulations, and risk and then tailors its approach to that market (n.a. 2009).

Walmart currently has stores in 15 countries outside of the United States including those that it operates as joint ventures. Walmart and Li and Fung partnered in Asia, so it did not have to purchase or set up from the ground manufacturing of its private label goods to distribute globally (Mark, 2012). Walmart runs 228 distribution centers to support its overseas operations in addition to its own food processing facilities in other countries (n.a, 2009).

To be best in market requires thinking like the customer to understand where the market is on the maturity curve and realizing that in some countries, consumers may not be willing or able to pay the higher prices that are required when implementing costly automation and sophisticated handling facilities. When first introducing Walmart in India, the first warehouse there had no automation but only forklifts in a warehouse with racks because that is all the customers in that market could afford. However, in Japan, the consumers can afford and even expect to pay higher prices, so Walmart was able to employ technology in the form of sorting systems, radio frequency picking that they use in the United States, automated cranes, and mini load systems. Each piece of technology was used to keep the quality at the high demand of the Japanese market. The Walmart analysis of each market has served the company well because in 2008, the international division earned $100 billion US dollars (n.a. 2009).

While Wal-Mart tailors its supply chain for a new international market’s current needs, it also recognizes that markets do not remain static and growth and maturation occurs. For that reason, the retailer introduces more sophistication and technology into a country’s supply chain as its national market matures. “We need to build a best-in-class supply chain for today,” Maxwell said, “and then we’ll evolve the supply chain.” (n.a., 2009).

References

• Boesler, M. (2013). Walmart earnings beat, guidance soft. Retrieved from: https://www.businessinsider.com/wal-mart-q4-2012-earnings-2013-2
• Mark, K. (2013). Half a century of supply chain management at Walmart. Ivey Publishing.
• N.A. (2009). Supply Chain Quarterly Staff | From the Quarter 4 2009 issue. For Wal-Mart, being “best in market” is key to global success. Retrieved from https://www.supplychainquarterly.com/news/scq200904forward_walmart/
• Thomas, L. (2019). Twenty-six Sears, Kmart stores are set to close in October, company ‘cannot rule out’ more closures this year. Retrieved from: https://www.cnbc.com/2019/08/07/26-sears-kmart-stores-to-close-company-cannot-rule-out-more.html
• Trump, D., & Schwartz, T. (2017). Trump the art of the deal. New York: Ballantine Books.