Global Supply Chain Management Maria Daniela Ostos A.

March 30, 2019

HALF A CENTURY OF SUPPLY CHAIN MANGEMENT AT WAL-MART

Case Questions

1. What is the analysis of Wal-Mart’s supply chain?

Are the company’s supply chain capabilities still a source of competitive advantage? Why
or why not?

Wal-Mart’s supply chain, which was one of the main sources of its growth from the
beginning, was also considered by many to be a mayor source of competitive advantage
for the firm. And it was, indeed: Wal-Mart was one of the firsts firms to:
• Wield enormous power over its suppliers. When negotiating with its suppliers they
had to abide by Wal-Mart’s terms. With such expectations and pressure, it was not
uncommon for a supplier to have several employees working full time to support
the Wal-Mart business.
• Have a “hub-and-spoke” design of high volume distribution centers serving a
nearby cluster of stores.
• Control its own trucks with the largest private truck fleet employee base of any firm,
which delivered the majority of merchandise sold at stores.
• Tailor its stores and their product mix to appeal to the distinct tastes of the
community each store is located at. This store-wide template was created after
analyzing historical store sales and community traits.
• Implement an Every Day Low Price (EDLP) policy in which the demand was
smoothed out to reduce the “bullwhip effect”, eliminating the need for huge
inventory stockpiles derived from a “hi-lo” discounting environment. A researcher
remarked: “Consumers certainly love Wal-Mart’s low prices, which are on average
of 8 % to 27% lower than the competition.”
• Install computerized point-of-sale systems that collected item-level data in real time
which allowed Wal-Mart to rely on data in order to make operational decisions and:
o Improve the accuracy of its purchasing forecasts.
o Share sales data with suppliers in real time and expect them to monitor and
replenish product on a continual basis.
o Receive a category analyses and recommendations for how shelf space for
competitors should be allocated.
o Manage short-term inventory and discuss product trends with their
suppliers.
• Use bar codes to ensure that cases moved efficiently through the distribution
centers (RFID tags).
Thanks to Wal-Mart’s chain capabilities and its commitment to focusing in delivering
products that its customers need in the most efficient method and process available, Wal-
Mart was able to fulfill its value proposal for every customer. As Johnnie Dobbs, Wal-
Mart’s EVP logistics, had stated: “Everyday low cost is the foundation for everyday low
prices.”
Global Supply Chain Management Maria Daniela Ostos A.
March 30, 2019

• How does Wal-Mart compare to competitors?

As was mentioned before, Wal-Mart was one of the first firms to truly focus on
strengthening its supply chain capabilities as a source of competitive advantage. And the
results were not only about spectacular financial results vs. its competitors. Also, when you
compared Wal-Mart’s distribution costs vs. its competitors, Wal-Mart’s were estimated at
1.7% of its cost sales while competitors’ such as K-Mart and Sears were 3.5% and 5% of
total sales, respectively (1989). Also, Wal-Mart managed to achieved inventory turns of
11.5 times (2011), while other key U.S. competitors such as Target Corp., Amazon.com
and Sears had inventory turns of 8.2, 6.7 and 4.7 times, respectively. It was clear that,
even though competitors may have adopted many of Wal-Mart's management techniques,
Wal-Mart had built up the most efficient logistics network of any retailer and continued to
lead the industry in terms of supply chain’s efficiency.

2. A Johnnie Dobbs, Wal-Mart’s executive VP of logistics, where would you spend

your money or focus your energy?

If I were Johnnie Dobbs, I would certainly spend my money and focus my energy on
strengthening my strengths, so I would remain focus on improving our supply chain. In that
case, I would continue to aim at reducing the percentage of out-of-stock merchandise at
stores by redesigning the network of distribution centers, especially when it comes to fast-
moving merchandise, for this kind of merchandise should be shipped from dedicated “high
velocity” distribution centers instead of the traditional general merchandise distribution
centers, otherwise delays in restocking shelves of these fast-selling items may keep
occurring.

Also, I would put some energy on keep eliminating excess inventory and remodel stores in
order to improve customer experience regarding checkout speed, customer services and
store appearance. Last, but not least, I would pay special attention to the competition from
online competitors such as Amazon.com and start to work on finding ways to leverage my
strength in physical store locations to boost the online business (Multi-Channel Strategy).

3. Where do you see the opportunities for Wal-Mart in its global supply chain?

As I was saying, I think there is a huge opportunity for Wal-Mart in its global supply chain
when it comes to building a Multi-Channel strategy to leverage both its physical store and
distribution center infrastructure in order to boost the online business. By doing so, Wal-
Mart would be able to offer a broader selection of items not available in stores and reach
customers in urban areas that Wal-Mart has not yet penetrated.

Also, with this online business Wal-Mart would have unlimited assets in one place and that
combined with the fact of already having nearly 4,000 stores and over 150 DCs, would
allow Wal-Mart to offer its customers best in class delivery options: the convenience of
same day pickup in stores or have it delivered to home for free.

Similarly, considering that Wal-Mart already posses a huge amount of information about
historical sales and community traits, Wal-Mart would be able to tailor its ads and
communication to customers in its database advertising its hottest assortment depending
on product trends or their particular buying patterns.