Table of Contents
- Problem Statement
- Analysis of the Situation
- Global Sourcing
- Project One Touch
- Solution Options
- Recommendations and Plans of Action
This case study aims at studying the supply chain management at Walmart to identify strengths of its supply chain and to identify lost opportunities in the past decade. Although Walmart has the best in class supply chain management for its stores, it has lost its market share to some of the newer retail formats such as small stores and online platforms. Walmart has also been relatively slow when it comes to expanding to the international market. To understand the steps required to be taken by Walmart to stay ahead in the competition, we have analyzed following factors:
- Whether the supply chain capabilities of Walmart are still a source of competitive advantage and strategic fit
- How Walmart is doing compared to its competitors such as Macy’s, Nordstrom and Amazon
- Where should the management focus its energy and resources
The resources and references used for making this analysis is provided at the end of the report for your reference. Walmart is considered one of the most successful retail stores in the bricks and mortar format. Walmart executives are implementing different strategies to continue providing Everyday Low Prices to their customers. In comparison to its competitors Walmart seems to have faired well except in terms of its Accounts Payable Turnover (APT). If APT for Walmart is lowered, it can use this money to better finance its operations. Other fronts that Walmart needs to work on are; increasing its online presence, penetrating newer markets and improving shelf availability of its products.
The best way improve online presence is to use its already existing stores and distribution centers for enhancing delivery management. Home delivery of products can further help increase Walmart’s presence in the urban areas. Walmart can also extend its operations to international markets. With the sophisticated systems available in today’s time and its existing supply chain processes, Walmart can easily maintain its control in the new markets. Product availability can be enhanced through system driven processes and a well-trained work force. The report below provides a detailed analysis of Walmart’s strengths and challenges along with solutions and recommendations to overcome the same.
Walmart with its extensive business model is considered the epitome of efficient supply chain management. However, with the advent of different formats of retailing, new competitors are changing the way consumers are buying. Walmart is thus required to up its game to remain in competition. Walmart is majorly facing competition due to:
- Small format stores (eg. Dollar stores)
- Online Platforms (eg. Amazon. com)
- Slow International Expansion Walmart’s business model aims at providing Everyday Low Pricing (EDLP).
Thus, with its growing stores/distribution centers and online presence, Walmart’s supply chain needs to keep up with the growing demands while keeping its operational costs low. Walmart needs to achieve the following goals to thrive in the competition:· Achieve competitive advantage and strategic fit to improve supply chain capabilities· Focus its energy and resources to develop new initiatives such as increasing online presence, penetrating new markets and developing product availability
Analysis of the Situation
Analysis of Walmart’s Supply Chain Over the recent years, it has become increasingly essential to understand and evaluate the importance and role of Supply Chain Management in big industries and companies. Walmart, in the olden days, was one of the most affordable stores founded in the year 1962 in the US by Sam Watson. Their main strategy was to sell more products at a better cost. Over the last 50 years, Walmart has grown considerably and has become one of the largest retailers in the world functioning in 28 countries and also has a strong e-commerce presence in 11 countries, and it receives around 260 million customers per week. (Walmart 2017). · Walmart uses effective savings of cost by using global merchandising centers.
Their main strategy was to sell more products at a better cost.
- Walmart used IT for getting the real time information regarding the products and sale which in fact helped them a lot in understanding the current status.
- Walmart supplier network being integrated to the levels of in-store inventory.
- Walmart has a very high bargaining clout over its suppliers.
- Walmart was able to provide stocks on time for their customers.
Walmart first started functioning with its main target in mind i. e. , provide the customers with anything and almost everything they required, and after they were able to achieve this form of accessibility they started to focus on integrating and growing a well-structured cost model that made it easier to allow the products to people at a low price. Later it went on to evolve into a better and more uniformly structured supply chain of management to use its competitive advantage to its best ability and become a leader. The following points are based on the reference to the strategic fit.
- Less connecting points in supply chainWalmart started its supply chain model by disconnecting a number of the links. Later in the 80s it started functioning directly with manufacturers to save more and also run the model smoothly. Walmart started its supply chain model known as the Vendor Managed Inventory (VMI), in this venture the main manufacturers were responsible to take care of their products in Walmart’s warehouses. Due to this new advancement in their supply chain model, Walmart was able to expect close to 100% order fulfilment on merchandise. In 1989, Wal-Mart was named Retailer of the Decade, with distribution costs estimated at a mere 1. 7% of its cost of sales – far superior to competitors like Kmart (3. 5%) and Sears (5%).
- Partnering with vendors based on a strategy method. Walmart started looking for a strategic way to source its products to ensure the best price from the suppliers who were able to cope up with the demand.
- Implementing cross-docking in the supply chain modelThis cross-docking model reduced Walmart’s expenses greatly and they passed those savings on to their customers with competitive pricing.
- Advanced and Best Quality of Technology
According to the financial information, it is seen that in 2013, the rate of APT which measures the speed of paying for suppliers of Walmart is the second highest rate compare to Amazon and Macy’s after Nordstrom. It indicates that Walmart financed its own operations for 52/5. 96 = 8. 72 weeks for its supplier which is not effective in supply chain management as Amazon and Macy’s and better than Nordstrom. Moreover, Walmart can collect its money from sales faster than Amazon 4. 6 times at the rate of Walmart’s ART is 69. 32 and 15. 62 of Amazon, and faster than Nordstrom 12. 14 times, but less than Macy’s with an ART of 75. 28 turns.
However, based on the rate of inventory turnover, it is seen that Walmart manages its inventory is the most effective with an INVT of 8. 04 compared to that of Amazon at 7. 31, Macy’s at 3. 15, and Nordstrom at 5. 46. With C2C metric, Walmart can collect its cash in less than 2 weeks before it must pay to its supplier which is much faster than Macy’s and Nordstrom; lower than Amazon at -1. 144 weeks, 1. 716 weeks, 11. 56 weeks and -10. 53 weeks respectively. Overall, it shows Walmart is doing better compared to its competitors but the Accounts Payable turnover (APT) needs to be improved.
As amazon is doing better than Walmart in APT, whereas Macy’s is doing better in both APT and ART. In Inventory Turnover (INVT) and Cash to Cash (C2C) Walmart is performing better than all the competitors. Therefore, the major improvement is to be done in the APT. Refocusing Energy and Resources: As the EVP of Walmart, focus should be on the new initiatives aimed at re-organization undertaken at Walmart; namely:· Global Sourcing – changing the way if procurement of products· Project One Touch – improving on-shelf availability of products· Multi-channel (Omni Channel) – leverage strength of physical stores to boost online business Strengthening these initiatives will in turn help Walmart to improve the distribution network to be able to continue offering “Everyday Low Price” (EDLP).
Walmart needs to explore fresh avenues of the untapped potential in the global market. Traditionally Walmart in known to have a tight leash over its suppliers. However, if Walmart intends to grow and reach out newer markets, it will have to adopt new methods. One such way of doing so is by entering into partnership with established companies of the new market, for outsourcing of products where Walmart may not have the scale or the competencies and skills to leverage. By adopting this technique Walmart could benefit in the following ways:· Gain easier access to new markets; both global and domestic
- Enjoy economies of scale, since the partner company will already have good hold over the suppliers in that market· Better interaction and outreach to customers
- Extend focus from its current large developed markets to the smaller markets
Project One Touch
As quoted by Dobbs, “Across the organization we are focused on the supply chain all the way down to the customer. ” Through this project, Walmart has been able to increase availability of products on the shelf for their customers. One Touch Project helped Walmart increase the product availability by 5. 7% in 10 months. On key items it managed to have up to 93% availability. Walmart has benefitted by this project in following ways:
- Increase of foot traffic in the stores
- Alignment of all operations pertaining to product flow, delivery schedules and store labor schedules· Better trained and highly motivated sales associates in store
- Reduction in labor cost because of introducing system driven process which helped reduce case back processing in back rooms· Better organized inventory management
- Cost reduction of products available in storeMulti-channel (Omni Channel).
Multi-Channel Strategy represents the focus point from where the Company seems to be more fragile in terms of its competitors. Even though Walmart has engaged almost all types of Distribution Network and a complete Omni-Chanel in retail format, they still have some factors to improve such as penetration into the urban market and online presence. Walmart can leverage the availability of its stores (4000) and distribution centers 150) to improve its online presence. Walmart had a sales force of around 1 million people in 2012. Thus, this sales force can be trained to encourage their store customers to use the online platform provided by Walmart.
To improve its online presence, Walmart currently offers three free shipping programs on its online platform:
- Fast – Site to store offer
- Faster – Site to home delivery
- Fastest – Site to Same day store pick up
Building this continuous channel approach will benefit Walmart in following ways:
- Broader selection of items not available in stores
- Increase of foot traffic in stores (due to pickups of online delivery)
- Better access to urban markets
- Using the available assets such as stores and distribution centers to their full potentia
According to the analysis of supply chain of Walmart, there are several solution options for improving its performance such as cross functional team and may cut down on inventory and understand the level of customer satisfaction. Besides that, on some analysis financial performance, it can be seen that the account payable turnover of Walmart is not effective. There are some solutions to solve the problems are Walmart can extend the term of payment. In order to deal effectively with their supplier, there is a solution is that outsource payment processing which helps the company keep on track and avoid late payment fees. Moreover, after analyzing the energy and resources from the reference to Omni channels, the solution for this part are forcing the energy and resource in expanding the number of clients and increase the product line. The company also need to increase its online presence and increase the market research.
Recommendations and Plans of Action
Based on the solution and analyses of supply chain of Walmart, Walmart should implement and establish cross-functional teams in order to reduce the levels of inventory to save time and extra cost. The company need to cut down on inventory which makes things more efficient and cut down on the surplus of products that would otherwise go to waste due to expiry dates. Walmart also need to know the level of customer satisfaction, loyalty and purchase behavior. In order to improve the account payable turnover in financial performance, Walmart should have the extension of their term of payment up to 90days or more so the account payable turn over can be degreed which it quite good for Walmart to have addition time before paying to their suppliers. Moreover, Walmart also need to force the energy and resources in expanding its numbers of customers by increasing the experiences from customer outside retail store into the urban online consumers. Furthermore, the company should increase the product variety and finding the ways to attract more supplier that could deliver the product directly from the Supplier Warehouse to a Home Delivery and have more opportunities to some products that cannot be produced in large quantities.
Considering Walmart has a well-established Bricks and Mortar set up, it is recommended that Walmart should aim to increase its online presence by leveraging this. Out of the three shipping programs offered by Walmart, two of them offer store pick up. Thus the existing stores and distribution centers offer an added advantage to boost their online business. Home delivery can be used to penetrate the urban market where there is space constraint for opening big Walmart stores. Walmart should also aim at increasing shelf availability of goods by introducing system driven techniques and better trained associatesIn order to increase its market reach, Walmart needs to have a collaborative approach. It should collaborate with established companies where Walmart lacks competencies or a set up.