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Walmart China: Supply, Demand, and Product Flow Case Study

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Updated: Jul 8th, 2021

Introduction

Walmart Stores Inc. is one of the largest global retailers with over 11,500 stores operating in 28 countries around the world. In China, the retail giant opened its first outlet in 1996 in Shenzhen. By the end of 2016, the company was operating 439 retail units in 189 cities around China (Walmart China Factsheet, n.d.). Given the extensive nature of operations, the management has to come up with an elaborate and efficient supply chain to ensure that customers’ needs and expectations are met. The management believes in local sourcing of products, and thus it has partnered with over 7,000 suppliers in the country to provide 95 percent of the merchandise in different stores (Walmart China Factsheet, n.d.). The company’s distribution network and transportation have been successful because the management invests heavily in these areas to gain a competitive advantage in the market. This paper assesses the company’s supply and demands side of product flow to identify potential alignments that will keep cost and waste at a minimum.

Demand Forecasting

Supply and Demand Side of Walmart’s Product Flow

Walmart’s supply chain has become effective by transforming it into the current customer-oriented operations. Initially, the adopted product flow model involved transporting huge quantities of stock units (sometimes up to 20,000 stock units) from its physical locations to customer locations across the country. Similarly, suppliers would ship products directly to the company’s stores. However, this model of shipping products directly to stores was inefficient in China. For instance, suppliers were required to transport truckloads of goods to the company’s extensive network of stores in the country. However, this model was impractical for perishable goods, and thus a huge number of goods would be damaged in the process. In 2015, Walmart introduced two models of transportation to address existing problems. The models were dry distribution and perishable distribution systems. By the end of 2016, the company had eight dry distribution and eleven fresh products distribution centers to handle general merchandise, consumables, dry groceries, and perishable goods respectively, with the help of cross-docking.

Customer Needs

One of the greatest customer needs is convenience when shopping in terms of accessing stores. Customers are also looking for affordability, quality products, and excellent services. Therefore, the senior management of the retail giant decided to create an extensive network of stores in major cities across the country. Given that the majority of the products are sourced locally, they are affordable and of good quality.

Evaluation Suppliers’ Capabilities

From 2012, the management of Walmart in China identified numerous loopholes that were constraining the suppliers’ abilities to deliver products. Therefore, the supply chain team came up with strategies to address this problem. Currently, most suppliers are in a position to meet the demand of customers during steady-state and peak operations due to the intense capital that the company invested in streamlining the supply chain. Walmart restructured its buying model and centralized it to reduce the number of regional buying locations and suppliers. The company retained 20 distribution centers and suppliers were required to improve their volumes to these centers (Johnson, 2015).

Therefore, suppliers have the ability to meet customer needs because instead of shipping directly to stores, they use the distribution centers where they can supply in advance to avoid shortages. Within the distribution centers, the suppliers’ inventory reorder points are at 15 percent (Johnson, 2015). As such, every time the inventory falls below this point, the suppliers are required to fill orders. With the establishment of the Dongguan distribution center in 2018, with a large holding capacity for inventory, suppliers competitively meet customer demands. The Dongguan facility operates seven days a week, and it ships around 150,000 cases in a day. During peak demand, the center ships 90,000 cases daily. 300 suppliers ship directly to this distribution center to ensure that it can serve all stores in the region efficiently.

Demand Forecasting Constraints

The main challenge that Walmart faces in its supply chain is the lack of enough storage in its distribution centers. This aspect has forced the management to keep the staple stock at their dry distribution centers at 15 percent as compared to 50 percent in the US (Johnson, 2015). 15 percent of staple stock may not cushion the retailer against shortages especially during peak periods and in case of suppliers face logistical challenges. The other constraint is the distance between distribution centers and stores. For instance, the weighted distance between the Dongguan distribution center and the 200 stores that it serves is 170 kilometers (Johnson, 2015). This distance may affect the transportation of perishable goods and fulfilling the peak day volumes of 142,000 cases per day.

Sourcing

The current sourcing strategy depends on the 20 distribution centers located around the country to serve all the stores. The company uses two models – cross-docking and staple stock-flow to source goods (Johnson, 2015). In the cross-docking model, products are shipped to distribution centers in truckloads whereby the goods are unloaded and loaded directly onto outbound trucks to be delivered to stores. In staple stock flow, goods are received from suppliers and stored in the distribution centers for some time before being transported to the respective stores. These models have not been serving the Chinese market optimally due to the inherent shortcomings. For instance, the staple stock-flow model requires numerous warehouses with a large physical footprint. This aspect means that the ambient staple stock can only be kept at 15 percent. The number and quality of suppliers are thus not the optimal mix for operations.

Distance from manufactures to the distribution center is another problem affecting the current models of sourcing. Having 20 distribution centers across the entire country means that some suppliers are located miles away from the centers. The lack of enough space in warehouses to maintain ambient staple stock at around 50 percent compounds the problem of suppliers having to transport goods for long distances to the distribution centers. Therefore, the goods delivered may be of poor quality. For instance, perishable goods should be transported and stored carefully to avoid damage. However, long transportation distances and the lack of sufficient storage facilities affect quality. For example, in 2014, the retail store was forced to recall donkey meat after it turned out it had fox DNA, while in 2011 it experienced the infamous pork scandal involving mislabeling and contamination (Kamath, 2018). As such, suppliers may not be in a position to constantly provide products that meet or exceed Walmart’s quality standards.

Recommendations

Walmart should focus on streamlining its supply chain in China. The first strategy to solve the current problems is to partner with different warehouses to expand the network of their distribution centers and increase the ambient staple stock to at least 30 percent to avoid shortages. The second strategy is to look for reliable suppliers with the right product mix. This step will help the retailer to eliminate non-performing suppliers, and deal with the problem of poor quality. Walmart should also leverage technology to track inventory, avoid shortages, and improve quality assurance. In the long term, the company should focus on building its own warehouses with enough space to handle the inventory based on customer needs.

References

Johnson, F. (2015). Walmart China – Supply Chain Transformation. London, ON: Ivey Publishing.

Kamath, R. (2018). Food traceability on blockchain: Walmart’s pork and mango pilots with IBM. The Journal of the British Blockchain Association, 1(1), 1-12.

Walmart China Factsheet. (N.d.) Web.

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IvyPanda. (2021, July 8). Walmart China: Supply, Demand, and Product Flow. Retrieved from https://ivypanda.com/essays/walmart-china-supply-demand-and-product-flow/

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"Walmart China: Supply, Demand, and Product Flow." IvyPanda, 8 July 2021, ivypanda.com/essays/walmart-china-supply-demand-and-product-flow/.

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IvyPanda. 2021. "Walmart China: Supply, Demand, and Product Flow." July 8, 2021. https://ivypanda.com/essays/walmart-china-supply-demand-and-product-flow/.

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IvyPanda. (2021) 'Walmart China: Supply, Demand, and Product Flow'. 8 July.

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