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Xavier’s College Kolkata College, Logistics & Supply Chain Management 2009-2010
A CASE STUDY ON
Wal-Mart Changes Tactics to Meet International Tastes
Nirmalya Fadikar Roll no. – 15
1. Introduction to Global Supply Chain Management.
2. History and Facts about Wal-Mart.
3. Case Objective.
4. Case Overview.
GLOBAL SUPPLY CHAIN MANAGEMENT
With increased globalization and offshore sourcing, global supply chain management is becoming an important issue for many businesses. Like traditional, supply chain management, the underlying factors behind the trend are reducing the costs of procurement and decreasing the risks related to purchasing activities. The big difference is that global supply chain management involves a company's worldwide interests and suppliers rather than simply a local or national orientation. Because global supply chain management usually involves a plethora of countries, it also usually comes with a plethora of new difficulties that need to be dealt with appropriately. One that companies need to consider is the overall costs. While local labor costs may be significantly lower, companies must also focus on the costs of space, tariffs, and other expenses related to doing business overseas. Additionally, companies need to factor in the exchange rate. Obviously, companies must do their research and give serious consideration to all of these different elements as part of their global supply management approach. Time is another big issue that should be addressed when dealing with global supply chain management. The productivity of the overseas employees and the extended shipping times can either positively or negatively affect the company's lead time, but either way these times need to be figured into the overall procurement plan. Other factors can also come into play here as well. For example, the weather conditions on one side of the world often vary greatly from those on the other and can impact production and shipping dramatically. Also, customs clearance time and other governmental red tape can add further delays that need to be planned for and figured into the big picture. Besides contemplating these issues, a business attempting to manage its global supply chain must also ask itself a number of other serious questions. First, the company needs to make decisions about its overall outsourcing plan. For whatever reason, businesses may desire to keep some aspects of supply chain closer to home. However, these reasons are not quite as important as other countries advance technologically. For example, some parts of India have now become centers for high-tech outsourced services which may once have been done in-house only out of necessity. Not only are provided to companies by highly qualified, overseas workers, but they are being done at a fraction of the price they could be done in the United States or any other Western country.
Another issue that must be incorporated into a global supply chain management strategy is supplier selection. Comparing vendor bids from within the company's parentcountry can be difficult enough but comparing bids from an array of global suppliers can be even more complex. How to make these choices is one of the first decisions companies must make, and it should be a decision firmly based on research. Too often companies jump on the lowest price instead of taking the time to factor in all of the other elements, including those related to money and time which were discussed above. Additionally, companies must make decisions about the number of suppliers to use. Fewer supplies may be easier to manage but could also lead to potential problems if one vendor is unable to deliver as expected or if one vendor tries to leverage its supply power to obtain price concessions. Finally, companies who choose to ship their manufacturing overseas may have to face some additional considerations as well. Questions regarding the number of plants that are needed, as well as the locations for those plants can pose difficult logistical problems for companies. However, it often helps to examine these issues in terms of the global supply chain. For example, if a business uses a number of vendors around Bangalore, India than it may make sense to locate the manufacturing plant that would utilize those supplies in or around Bangalore as well. Not only will this provide lower employee costs, but overall shipping and tariff expenses should also be reduced. This would then save the company money.
Freight Forwarders The freight forwarder is concerned with organizing transportation for companies. Their primary task is to combine smaller shipments to create a single large shipment to minimize the shipping costs. Companies using a freight forwarder will benefit as they are charged a much smaller shipping cost than if they had shipped their product independently. The freight forwarder provides other services which are beneficial to the exporting company. The services include documentation, payment and carrier selection. Export Management Company (EMC) The export management company offers services to companies that have not exported items before. The EMC offers all the services that a company would have if they had an internal export department. The EMC deals with export documents and operate as the company’s agent in the overseas market. This may include selling the items directly or operating a sales department to process sales orders.
Export Trading Company The export trading company exports goods for companies who hire them. The trading company will identify and work with companies in the foreign country who will market and sell the products. The export trading company will provide services including export documentation, logistics and transportation. Export Packers The export packing company provides a service to companies unfamiliar with exporting. Some countries require specific packaging specifications and the export packer’s knowledge in these matters are invaluable to the novice exporter. In addition the export packer can advise companies on appropriate design and materials for the packaging of their items. Packing companies can also assist companies in minimizing packaging so that they can maximize the number of items to be shipped and reduce shipping costs. Customs Brokers The customs broker can help companies to avoid the pitfalls involved with customs regulations and dealing with the complete customs process. The customs requirements of many countries can be difficult to understand for the novice exporter and the knowledge and experience of the customs broker is vital. Many countries have specific laws and documentation requirements for importing items that are not always obvious to the exporter. The customs broker can offer a company a complete package of services that are essential when a company is exporting to a large number of countries. Because of the complexities of the global supply chain companies can quickly become successful in new markets when they use the experience of facilitators and intermediaries. However these services do add an additional cost to the price of the items being exported.
Wal-Mart Stores, Inc.
Type Founded Founder Headquarters Area served
Public (NYSE: WMT) Rogers, Arkansas, U.S. (1962) Sam Walton Bentonville, Arkansas, U.S. Worldwide Mike Duke (CEO) H. Lee Scott (Chairman of the Executive Committee of the Board) S. Robson Walton (Chairman) Retailing Discount Stores Supercenters Neighborhood Markets ▲ US$ 404.16 Billion (2009) ▲ US$ 30.07 Billion (2009) ▲ US$ 13.59 Billion (2009) ▲ US$ 163.514 Billion (2007) ▲ US$ 64.608 Billion (2007)
Revenue Operating income Net income Total assets Total equity
Wal-Mart is an American public corporation that runs a chain of large, discount department stores. It is the world's largest public corporation by revenue, according to the 2008 Fortune Global 500. The company was founded by Sam Walton in 1962, incorporated on October 31, 1969, and listed on the New York Stock Exchange in 1972. Wal-Mart is the largest private employer and the largest grocery retailer in the United States. It owns and operates the Sam's Club retail warehouses in North America. Wal-Mart's operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club, and Wal-Mart International. The company does business in nine different retail formats: supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.
Wal-Mart's international operations currently comprise 2,980 stores in 14 countries outside the United States. According to Wal-Mart's 2006 Annual Report, the International division accounted for about 20.1% of sales. There are wholly owned operations in Argentina, Brazil, Canada, Puerto Rico (although PR is part of the US, the company's operations there are managed through its international division), and the UK. With 1.8 million employees worldwide, the company is the largest private employer in the US and Mexico, and one of the largest in Canada. In 2004, Wal-Mart bought the 116 stores in the Bompreço supermarket chain in northeastern Brazil. In late 2005, it took control of the Brazilian operations of Sonae Distribution Group through its new subsidiary, WMS Supermercados do Brasil, thus acquiring control of the Nacional and Mercadorama supermarket chains, the leaders in the Rio Grande do Sul and Paraná states, respectively. None of these was rebranded. As of August 2006, Wal-Mart operates 71 Bompreço stores, 27 Hiper-Bompreço stores, 15 Balaio stores, and three HiperMagazines (all originally parts of Bompreço). It also runs 19 Wal-Mart Supercenters, 13 Sam's Club stores, and two Todo Dia stores. With the acquisition of Bompreço and Sonae, Wal-Mart is currently the third largest supermarket chain in Brazil, behind Carrefour and Pão de Açúcar. Analysts perceived the phenomenal growth of Wal-Mart to the emphasis being placed in customer needs and the reduction of cost through efficient supply management practices as being laid down by Mr. Walton as Wal-Mart’s core principles in running and competitively staying in the business.
Innovative Supply Chain Practices:
Cross Docking: Cross-docking refers to the logistics practice in the unloading and loading of materials with little or no unnecessary storage in between to ensure that the quality of goods would be enjoyed by the customers by first hand. To avoid all sorts of potent causes of inefficiencies in the distribution operations, Wal-Mart features a logistic infrastructure that is guaranteed to be fast and responsive transportation system wherein the distribution centers are being serviced.
State of art technology system to predict the level of inventory: The use of technological infrastructure such as information technology and state-of-the art communication system is a very powerful tool in any business today that guarantees up-to-date and hasten process in the logistic operations which leads to being able to cater to the needs and demands of the customer in the least time possible. Therefore, to hand over excellent service that is tantamount to customer satisfaction. Wal-Mart launches its own satellite communication system as they see the need to expand not only their operations but also their communication system such that they can sustain the growing demand of communication essential to keep terms in the operation of the increasing retail outlets or distribution centers.
1. Reasons for Wal-Mart Global Expansion 2. Benefit of having suppliers in different countries 3. Need for strong centralized control of stores 4. Need for strong local control of stores. 5. Pitfalls and opportunities would Wal-Mart face in next few years. 6. Sources of risk in global supply chain and process of mitigating risks.
1. Other than a need to expand, what other reasons would Wal-Mart have for opening stores globally? 2. Why would it be beneficial for Wal-Mart to have suppliers in different countries? 3. Why would Wal-Mart want strong centralized control of its stores? Why would Wal-Mart want strong local control of stores? 4. What pitfalls and opportunities, other than those mentioned in this case, will Wal-Mart face over the next few years? 5. What are the sources of risks faced by the global supply chain and how can the firm mitigate the various risks?
Wal-Mart, one of America's chain hypermarkets, entered Argentina and Brazil, along with other nations across the globe, in an attempt to capture shares of a lucrative market. By exporting their "Main Street USA"-type shop all over the world, Wal-Mart sought to bring a different shopping experience to other cultures and to make a lot of money in the process. However, because of the nature of the supermarket industry in Argentina and cultural influences, Argentineans are not embracing American supermarkets, as Wal-Mart is not seeing the profits the company had hoped at the beginning of its venture. The same problem is with Brazil also. Wal-mart faced a lot of problem while implementing Everyday Low price Strategy (EDLP). Brutal competition and inability of achieving Wal-Mart’s trademark strategy of Economies of Scale made impact in its bottom line. Many things were depend on Wal-Mart global expansion drive. It is not only targeting South America but also China and Indonesia. Wal-Mart experiences a huge loss of $48million in its Brazilian operation. Reducing cost in supply chain is crucial for implementing EDLP. It can only be done by stocking wide variety of merchandise. But it is hurting. Timely delivery of merchandise is difficult in intense traffic condition of Brazil where Wal-Mart have to depend on suppliers and contract tuckers. The biggest issue is shipping product on time and get it on the shelf. Local suppliers are also facing problem in meeting Wal-Mart Specifications. Suppliers are also opposing Wal-Mart’s aggressive pricing strategy. Wal-Mart also failed to do its homework before entering South American Market. Wrong planning of stock handling equipment is also a major pitfall in its South American market operation. Slow adapting of of Brazil’s financial environment is also a major problem. In Argentina the business faced a major barrier where small business customers are reluctant to signup with Wal-Mart. Wal-Mart also very much reluctant in listening its local employees which added another pin to its coffin. As the first US retailer to enter Argentina in November 1995, Wal-Mart had optimistic hopes of capturing the Argentine consumers by showing them the benefits of hypermarket shopping and adding much revenue for good fortune. By offering lower prices than local merchants and other European chains and American-style service and convenience, Wal-Mart was sure to capture the hearts and wallets of Argentineans. Unlike its entry into Mexico and Brazil, though, WalMart was facing obstacles alone in Argentina without the luxury of local partnerships. When opening its first supercenter, Wal-Mart had to fight protests from suppliers for selling at prices below costs, a strategy that is not accepted nor regulated in Argentina. Carrefour, a French hypermarket operator, and Dutch-owned Makro operate combined about 15 hypermarkets in Argentina. These European competitors are accustomed to dealing with cultural influences of
foreign markets. "It was a dumb thing for Wal-Mart to do," said Kurt Barnard, publisher of the Barnard Retail Marketing newsletter, describing the interests of Wal-Mart to penetrate foreign markets. By not understanding cross-cultural influences and not changing the format of their stores to fit cultural differences, Wal-Mart will be unable to compete in foreign markets, according to Barnard. Argentina's consumers spend about 33% of their income on food. WalMart only controls 2.5% of Argentina's food expenditures but 16.5% of non-food expenditures, leading many to believe that Argentineans are tired of making a separate trip to Wal-Mart for non-food items, even those being sold at a lower price. European retailers in Argentina are heeding the call from consumers for neighborhood shops instead of big mega markets. These companies have plans to reformat their stores into smaller discount chains and convenience stores in order to appeal to Argentinean taste.
Wal-Mart gaining ground in Argentina and Brazil
BUENOS AIRES, ARGENTINA - Argentina is unique in Wal-Mart's international expansion in that it is the first truly foreign market the company has entered on its own. A little more than two years ago, advance Wal-Mart employees including Argentina division VP, coo Steve Furner and gmm Dan Owen landed here knowing no one. By December 1996, the company operated three supercenters and three Sam's Clubs, with long-term plans for as many as 40 supercenters. This year, the company plans to open at least four more supercenters and one or two Sam's Clubs, bringing the store count to 12. Argentina is the most affluent of Latin American countries, with an average household income of about $20,000. The middle class is evolving rapidly, but the retail base has not kept pace with the nation's evolving taste for U.S.-style consumer goods. The country's dominant retailer is Carrefour, the French hypermarket operator, which has 14 Argentine stores, most in Buenos Aires and its suburbs. Carrefour, both here and in Brazil, has refused to cede anything to the encroaching American giant. With about 20 years of experience in the market and long-term relationships with the thousands of Argentine vendors, Carrefour has put up what might possibly be the toughest fight Wal-Mart has encountered since the Kmart price wars of the 1980s. Carrefour used its clout to influence vendors to refuse to do business with the interloper. However, that early problem has been overcome, according to Owen. In large part, change has come about, in many cases, because "local" vendors were the South American divisions of large U.S. consumer product companies such as Lever Bros. and Procter & Gamble. Wal-Mart applied its own muscle stateside, and vendor problems quickly evaporated.
Similarities between retail employment in theUnited States and Mexico Retail as proportion of nonagricultural private employment Women as percentage of retail workforce Ratio of percentage of women employed, retail/all industries Median retail wage as percentage of wage for all industries
US 21.2% 52.5% 1.11 68.2%
Mexico 21.0% 51.5% 1.44 87.9%
Entry of Wal-Mart redefines South American retail market
Investigates the entry of Wal-Mart in Brazil, and subsequent moves of established retailers and new entrants with data taken from secondary sources and interviews with executives. First, internationalization of Wal-Mart and its entry are discussed, which caused an impact on Brazilian retailing by accelerating the concentration, automation and modernization of the industry. Competitive reactions were classified in four categories: neutralizing competitor’s actions, establishing competitive advantage, redefining markets, and changing ownership. It is argued that Wal-Mart’s experience in Brazil could be an interesting source of learning for foreign retailers desirous of entering the Brazilian market as well as for local companies that need to remain competitive to survive.
1. Other than need to expand what other reasons would Wal-Mart have for opening stores globally? Sol: Wal-Mart has opening stores globally because of the following reasons: a) To earn more revenue. b) To capture the new and emerging markets like South America, Indonesia, China because the US markets are saturating and overseas markets have lot of growth opportunities. c) Global expansion actually fulfills the dream of Wal-Mart Chief Sam Walton to give Wal-Mart a true Multinational image.
2. Why would it beneficial for Wal-Mart to have suppliers in different countries? Sol: It is always beneficial for Wal-Mart to have suppliers from different countries because Wal-Mart international operation is completely based on “Think global act local” strategy. Local suppliers have the geographical knowledge of the territory where Wal-Mart is operating. They are in better position to know about the cultural sentiments of the local consumers and can give first hand primary information about the market because they in direct touch with the intermediaries. Local suppliers also reduce logistical and sourcing cost. So it is also preferable to have local suppliers in the international market operation. 3. Why would Wal-Mart want strong centralized control of its stores? Sol: Strong centralized control signifies strong and stringent control of its operation round the globe. Every thing that is from procurement to customer service is done by keeping in mind the interest of the entire operation and this particular move has really become trademark for any successful organization.
4. Why would Wal-Mart want strong local control? Sol: Wal-Mart always want strong local control in terms of pricing agreement and delivery time and product specifications over its suppliers because Wal-Mart operation is completely based on economies of scale and EDLP. So, without having a strong local control Wal-Mart cannot practice EDLP. 5. Opportunities of Wal-Mart: a) Untapped foreign markets like South America, China, Indonesia, and Mexico. b) Strong customer base. c) Huge bargaining power with suppliers. d) Dense network of local suppliers. e) Presence of warehouse facility in overseas territory also. f) Financial freedom. g) Strong market penetration power by offering lowest possible price to its customers which actually whitewashes its competitors.
6. Pitfalls of Wal-Mart: a) Operate on the basis of economies of scale which is always not possible in overseas market. b) Wal-Mart issue is shipment on time and getting it on shelf. But implementation of this is not always possible in overseas market because of traffic condition which it already faced in its Brazilian operation. c) Local suppliers facing difficulties in meeting Wal-Mart specifications like easy to handle packaging and adherence to quality which actually force the retailer to rely on imported goods.
d) Bargaining with local suppliers doesn’t prove fruitfull. e) Lack of in-house homework and research is carried out before entering in the foreign market.
7. Sources of risk in global supply chain management:
a) Problem in supply chain integration. b) Lack of communication between the supply chain intermediaries. c) Different Political conditions in different regions. d) Chances of theft and pilferage. e) Fluctuations in delivery time. f) Risk due to unforeseen events like natural calamities. g) Difficulties in achieving the uniformity in approach.
8. Mitigating Risk:
a) Integrating the supply chain through ERP and Extranet. b) Taking suitable insurance coverage. c) Hiring Third Party Logistics provider (3PL). d) Enhancing Collaborative planning, forecasting and replenishment system (CPFR). e) Efforts in establishing cultural balances. f) Bargain with political factors. g) Increases the efficiency of the entire operation by newly develop technologies and practices.
Wal-Mart try to penetrate foreign markets without understanding cross-cultural influences and not changing the format of their stores to fit cultural differences, Wal-Mart will be unable to compete in foreign markets, according to Barnard. Argentina's consumers spend about 33% of their income on food. Wal-Mart only controls 2.5% of Argentina's food expenditures but 16.5% of non-food expenditures, leading many to believe that Argentineans are tired of making a separate trip to Wal-Mart for non-food items, even those being sold at a lower price. European retailers in Argentina are heeding the call from consumers for neighborhood shops instead of big mega markets. These companies have plans to reformat their stores into smaller discount chains and convenience stores in order to appeal to Argentinean taste. Wal-Mart very much reluctant in listening to its Local employees. The bottom line is: If Wal-Mart would like to survive in foreign markets, it must be willing to lose its "Hometown USA" image and start listening to cultural concerns. Doing things "the Wal-Mart way" just won't cut it.
• The three strategies on the corporate level that Wal-Mart would benefit most from are: expanding market share by continuing global operations (horizontal growth), backward vertical integration, no change strategy and divestment strategy.
Wal-Mart can continue with its current strategy of international expansion. This would mean the sale of present products or services in new geographic regions. The company has the needed resources to fulfill (the needed capital and human resources), Wal-Mart brand is recognizable all over the world, and there are several unsaturated markets still available. As long as Wal-Mart is the best among its competitors, it should take advantage of its superior position. Otherwise competitors can be the first to use this opportunity.
The company has been successfully implementing this strategy. This type of strategy will give an opportunity for Wal-Mart employees to be promoted by relocating to new divisions, increase their importance of being part of the successful company.
Besides the company can undertake some acquisitions, as it did during the recent years. undertake Purchasing another company already operating in this area could make it easier to take a strong position, as well as result in synergistic benefits.
Wal-Mart can also initiate no changes. As the company has already established itself as Mart company the leader in the retailing industry it can pursue its current course.
This strategy suggests that the Wal Wal-Mart should sell off all of its Neighborhood Markets eighborhood to local, or possibly one global, food food-store chains. By doing this, the company would be y able to concentrate on the most profitable part of its business, and the cash flow generated from the sale could be invested in further developing it.
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