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Walmart China’s Transportation and Warehousing Case Study

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Updated: Jul 10th, 2021

In China, Walmart is a leading retailer with over 400 stores in more than 180 cities across the country. The extensive network of outlets means that the management should come up with elaborate supply chain practices to ensure that customers can access goods when they want them in all locations. Additionally, Walmart China has partnered with over 7,000 local suppliers in the country. As such, the management needs a comprehensive supply chain framework to ensure that suppliers deliver goods in time and in the required volumes. Initially, Walmart’s approach to supply chain management in China was designed to fail. For instance, the adopted product flow model meant that suppliers would transport goods directly to stores around the country, which was impractical for some products. Consequently, most outlets would remain without certain products for several days, and this aspect was inconveniencing for customers. Ultimately, in 2015, the management changed its approach and introduced dry distribution and perishable distribution systems in its supply chain management. This paper addresses the current transportation and warehousing strategies used by Walmart China to evaluate their effectiveness and constraints before recommending ways for improvement.

Modes of Transportation

Currently, Walmart China uses a large fleet of trucks to transport goods to different stores around the country. The company has two models of warehousing – cross-docking and staple stock flow. In cross docking, suppliers’ trucks unload goods at distribution centers (DCs) before they are immediately loaded into outbound trucks managed by the company. In the staple stock flow model, trucks are loaded with products stored at DCs for supply to outlets based on demand. These trucks have to travel long distances to deliver goods, which might be inconveniencing. For example, the newly established perishable DC in Dongguan serves over 128 stores in two provinces in the region within an average distance of 170 kilometers. The trucks supply all the outlets by transporting over 3500 stock keeping units (SKUs) per day. The current model of transportation has several constraints as discussed in the next section.

Transportation Constraints

The main transportation constraint for Walmart China is the need to maintain a large fleet of trucks at any given time. The cross-docking model supplies over 85 percent of goods needed in different stores. This aspect means that the company should have outbound trucks at all its DCs to be loaded with products that come from suppliers. This model presents a scheduling challenge because the pick path is too large and complex. For example, stores have to start and finish picking at the same time, which might be a problem. Moreover, this model is dependent on the reliability of suppliers to deliver goods at the right time and at the correct fill rate. Meeting these requirements is a challenge for most suppliers since the majority of them “are still far from mature in planning and demand fulfillment, leading to unstable fill rates” (Johnson, 2015, p. 6). Therefore, Walmart China faces challenges during festivals and seasonal changes, when sales periods are short.

Transportation Recommendations

In the short-term, Walmart China should focus on retaining reliable suppliers to deliver goods according to the set schedules. The company should also partner with different warehouses across the country to increase its DCs and reduce the distance that trucks have to travel to deliver goods to stores. More DCs would also increase the staple stock to at least 30 percent to avoid shortages. For example, having enough staple stock will ensure that outlets do not lack products because they can be supplied on demand within a short time. In the long-term, the company should focus on constructing own warehouses in strategic locations based on the number of stores to be served and their distances from the DCs.

Warehousing: Infrastructure

By 2015, the Walmart China operated 11 perishable DCs and 9 dry DCs. The dry DCs, which are commonly known as ambient DCs, handle dry grocery items and general merchandise products. Perishable DCs deal with products that require controlled temperature storage. Currently, Walmart China operates leased and own warehouses. In 2018, the company opened a new perishable DC in Dongguan with a capacity to support 128 stores in South China, specifically in Guangdong and Guangxi provinces. The average distance between this new DC and stores in the region is 170 kilometers. The DC operates throughout the week working in two shifts to ship 150,000 cases a day at an average value of 24.50 per case. In other locations, the company leases warehouses for its operations. The management has adopted two models of warehousing – staple stock flow and cross-dock flow, to meet the current storage needs. In the staple stock flow model, suppliers transport goods to the DCs where they are stored and supplied to different outlets on demand.

The ambient staple stock is kept at 15 percent, and thus it offers short-term storage of inventory. This model ensures that the company reacts quickly to unexpected increases in sales by facilitating the on-demand supply of goods to stores. Additionally, this model supports buying in large volumes and other opportunities such as storing seasonal items. In cross docking flow model, suppliers bring truckloads of goods, which are then loaded directly into outbound trucks for delivery in different stores. This model is beneficial because it requires a smaller building footprint and lower handling costs as compared to the staple stock flow model. Additionally, this model allows the company to handle an infinite number of SKUs. Therefore, these two models ensure that the organization meets its current storage needs. However, in the future, the organization will be required to construct more DCs and increase the staple stock flow capacity if it seeks to expand its network of stores. New outlets cannot be opened relying on the cross-docking flow model due to scheduling challenges.

Warehousing: Hazardous Materials

Walmart China strategy of handling hazardous materials is based on its environmental compliance program. For instance, the company has a compliance office led by Senior Vice President and Chief Compliance Officer. This office works with regional and international compliance managers to ensure that hazardous goods are handled with the appropriate care based on the stipulated protocols. In China, the company trains all its associates annually on compliance with the state rules concerning waste regulations. Products discarded at return centers are tracked and monitored to establish their disposition. When products become hazardous, they are identified and disposed of appropriately, and that information is made available to all associates. Every facility has a web-based data management system to identify, track, and report compliance to environmental managers.

The current product mix that would become hazardous in the stores includes deli, seafood, dairy, frozen meat, flowers, grocery, bakery, and tropical fruits (Johnson, 2015). Most of these products mainly undergo the staple stock flow model to ensure their quality when delivered to outlets through the “pick to zero” policy whereby goods are stored for one day before being forced out to different locations. Therefore, handling hazardous items impacts the company’s warehousing negatively as it increases the need to have large building footprint to create space for staple stock flow.

Reference

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

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