Wal Mart's Supply Chain

In the 1960s through the 1970s, companies realized strong engineering, design, a
nd manufacturing functions were strong market strategy keys to create and captur
e customer loyalty. As the demand for new products rose in the 1980s, these mark
et requirements were to increase their flexibility and responsiveness to adapt e
xisting products and processes or to develop new ones in order to meet customer
needs. As manufacturing improved in the 1990s, managers began noticing material
and service inputs involving suppliers and their major impact on an organization’s
ability to meet customer needs. As a result of these changes, organizations now
find that it difficult to manage their own organizations. First, they must be i
nvolved in the management of their network of all upstream firms that provide di
rectly or indirectly, as well as the network of downstream firms, which are resp
onsible for delivery and market service of the product to the end customer. In o
rder to succeed, managers have to realize that they cannot do it alone and they
must work together on a daily basis with the whole organizations in their supply
chains. Because supply chain management involves all functions within an organi
zation, managers need to know what a supply chain is, why it is important, and t
he impact of supply chain management on the success and profitability of their o
rganization. Today, Wal-Mart topped the list of the America’s biggest companies on
the Fortune 500 list, “with sales of almost $345 billion — more than a quarter of a
trillion dollars” (Forbs). Wal-Mart’s supply chain management is becoming recognize
d as a core competitive strategy.
A supply chain is a system through which organizations deliver their products an
d services to their customers. The network begins with the basic ingredients to
start the chain of supply, which are the suppliers that supply raw materials, in
gredients, and so on. From there, it will transfer the supplies to the manufactu
rer who builds, assembles, converts, or furnishes a product. The chain now needs
to get the product to the consumer by transporting the finished product from th
e manufacturer through a warehouse or distribution center. An example is that Wa
l-Mart has a nearby distribution center where products are delivered there and t
hen split up to be delivered to a retail Wal-Mart. “Wal-Mart will take responsibil
ity for breaking down larger loads and delivering the product to other Wal-Mart
stores” (Ehring 1). Since Wal-Mart started using their own distribution center, Wa
l-Mart cut inventories, warehouse spaces, and reduced costs and cycle times whic
h led to “space and inventory reductions effectiveness” (Chan and Lee 6). Once the p
roducts are delivered to the retail outlets; grocery stores, department stores,
discount outlets and superstores, the products are stocked on the shelves or flo
ors. The customers have the final decision to purchases the product and making p
urchases that conclude the chain.
Wal-Mart’s supply chain includes an internal functions, upstream suppliers, and do
wnstream customers. Wal-Mart’s internal functions include the different processes
used in transforming the inputs provided by the supplier network. For example, i
n a cereal manufacturer’s supply chain, all of its manufacturing parts are farmers
, grains, wood, paperboard, packaging, etc., which are all brought together in t
heir final assembly operations into a packaged cereal. Bringing together and sch
eduling of these internal flows is very challenging for Wal-Mart’s cereal supplier
because “order processes managers are responsible for translating customer requir
ements into actual orders” (Wincel 212), which are number of orders from customers
into the system input. They also have to make sure that the right mixes of the
cereal, packaging, and labels are available so that the wholesalers can meet the
needs of their customers. This also includes the prices, delivery dates, delive
ry arrangements, and after market service. Once the order processes are done, pr
oduction scheduling begins. Production scheduling translates orders into actual
production tasks which involve working with material requirement planning system
s, scheduling work centers, employees, and maintenance on machines, and delivery
to Wal-Mart’s distribution center. The second part of the supply chain management
is that upstream suppliers are involved with purchasing managers, who responsib
le for making sure that right suppliers are selected, meeting performance expect
ations, and having a good relationship with their suppliers. They are responsibl
e for driving improvement in the supply centers and with others. Also, material
managers are responsible for planning, forecasting, and scheduling material flow
s between suppliers in the chain. Finally, the third part of the supply chain is
the external downstream of the distribution channels. This is where the functio
n of that product passes through on its way to the end customer. Products that p
ass through Wal-Mart’s supply chain, directly or indirectly, make up the external
downstream that finally gets the product to the hands of the customers. Wal-Mart
is more of a push system than a pull system because the work release is based o
n downstream demand forecasts where the pull system is more of an actual demand
on customer’s order. Since Wal-Mart doesn’t respond to customer requests, it is not
a pull system. In another sense, it is a pull system because Wal-Mart, the retai
ler, tells its manufacturers what to produce and how much to produce.
Looking at the supply chain for a cereal manufacturer again, we see that manager
s using a push strategy because they are responsible for the actual materials be
tween locations. Transportation management involves selection of carriers; truck
ing companies, airlines, railroads, shipping companies. Distribution management
involves packaging, storing, and handling of materials at receiving docks, wareh
ouses, and retail outlets. An internal functions, upstream suppliers, and downst
ream customers are important to Wal-Mart’s supply chain.
Wal-Mart’s delivers high quality products at low prices to its customers through b
eing efficient and having high responsiveness. Wal-Mart’s logistical system is hig
hly effective because it is extremely flexible, which allows products to be ship
ped anywhere at any notice. When choosing suppliers, Wal-Mart has the upper hand
because “Wal-Mart will only pay the most competitive prices” (Ehring 4), meaning th
at if Wal-Mart finds a supplier that will give them a lower price, the current s
uppliers will lower their prices to match it (price matching). This gives Wal-Ma
rt an advantage over the suppliers. It is easy for Wal-Mart to find other suppli
er of a particular material with a lower price because it will not be difficult
or costly for Wal-Mart to choose another supplier, but it is costly for a suppli
er to lose a customer as large as Wal-Mart.
Another reason for Wal-Mart’s ability to be efficient is that they buy in large qu
antities (bulk). This increases the supplier’s revenues, and in return lead to Wal
-Mart receiving huge discounts on large purchases. Since Wal-Mart delivers to re
tail stores through large semi-trucks, they can transport large quantities from
one end of the supply chain to the other, which makes it not as costly for addit
ional units. Today, Wal-Mart’s efficient supply chain includes a Site-to-Stores se
rvice, where consumers can log on to Wal-Mart’s web site, and can view everything
that Wal-Mart carries on hand. If the customer sees what they want and finalizes
an order, they have an option to either ship to their home or to a near by Wal-
Mart store where they can pick up any time they want. This shipping method reduc
es Wal-Mart’s warehouse costs because they do not have to carry everything on hand
.
Wal-Mart has invested tens of millions of dollars in “companywide computer system
linking cash registers to headquarter enabling to quickly restock goods selling
off the shelves, and also in truck and distribution centers” (Ehring 3), where if
things move quickly, it reduces costs and will achieve information, sourcing and
pricing in Wal-Mart’s cross-functional drivers. The most important requirement fo
r Wal-Mart is the concerns of their responsiveness to customer needs.
A supply chain begins when an organization decides to pursue improvement across
its full supply network using whatever resources are appropriate for gaining a c
ompetitive advantage. As companies find that they can reach out and partner with
willing suppliers and customers, they discover a wealth of resources that can b
e focused on serious improvement actions. Logistics is an area that offers a sur
e route to improvement opportunities. For example, at one time, the improvement
opportunity area was the responsibility to keep transportation costs as low as p
ossible. The role of logistics was operation of packaging, unitizing, loading, u
nloading, transporting, moving, storing, sorting, and reloading products. It als
o includes keeping track of these actions, providing valuable data on location a
nd storage, and warehousing and transit costs. The basic business requirement ha
s recently been the subject of serious study by supply chain organizations.
The best supplier and retailer relationship is Wal-Mart’s relationship with Procte
r & Gamble Co (P&G). Their relationship didn’t start out too well in the beginning
because Wal-Mart and P&G operated on a day-to-day transaction basis. P&G’s organi
zational structure was too complicated and they relied on day by day selling bas
ed on whether they got the order out or not and it pushed for sales that were no
t necessarily what the customers needed. P&G and Wal-Mart’s relationship grew posi
tively and beneficially through channel partnership and information sharing. Thi
s information sharing allowed each corporation to better under each other’s market
s and eliminated the bullwhip effect using strategic fit. Overall, the communica
tion through information sharing allowed for better execution of every step in t
he supply chain.
Today’s consumers want a pleasant shopping experience; they will avoid returning t
o retail outlets or companies that disappoint them. Consumers want creative sale
s approaches, friendly service, and the lowest price for every product. Customer
s demand more for less and want to shop at one-stop shopping centers. An example
would be how the Wal-Mart stores have formed an alliance with Fresh America to
operate the fresh produce department in the Sam’s Wholesale Club and Wal-Mart Supe
rcenter. This has lead to Wal-Mart’s growth of over eighty percent, annually. Thes
e days Wal-Mart is using some of the supply chain techniques to cut costs like v
endor-mangers inventory, using real time tracking of inventory and sales in indi
vidual stores and cross-docking of fast-moving items. Now, Wal-Mart has more sel
ections, convenience, and low prices.
Like Wal-Mart, most companies, big or small, have a supply chain. Management of
the supply chain ranges from the simplest to the most challenging depending on t
he size of the company to the market it’s involved in. Management of a company’s sup
ply chain, like Wal-Mart, is very critical, especially when it can make or break
a company. If Wal-mart does not manage its supply chain correctly, it would los
e profits because they are providing products at lower costs than its competitor
s, so they must also receive lower prices from its suppliers. Overall, the suppl
y chain of every company should not be overlooked as it may lead to a loss in pr
ofits, revenues, and even the company itself.

Works Cited

Chan, Chi Kin, and Lee, H.W.J. Successful Strategies in Supply Chain Management.
Pennsylvania: Hershey, 2005.

Chopra, Sunil and Meindl, Peter. Supply Chain Management: Strategy, Planning, &O
peration. New Jersey: Upper Saddle River, 2007.

Ehring, Dain. The Wal-Mart Model. 3 October 2006. Mortgage Banking. 10 December
2007.
< http://www.dorado.com/pdf/WALMART_10.06.pdf>

Forbes.com. Wal-Mart. 22 April 2007

Patton, Joseph D. Logistics: Technology and Management the New Approach. New Yor
k: Jamaica, 1986.

Wincel, Jeffrey. P. Lean Supply Chain Management. New York: New York, 2004.