Wal-Mart has gained the reputation of being a global retail leader. The company has received a lot of praise regarding its corporate strategy that has seen it become among the largest retail stores in the world. After receiving numerous accolades for being among the fortune 500 companies, Wal-Mart has consistently made billions of dollars from its operations around the world (CSM 1).
In the US, the company is perceived to be several times bigger than its main competitors are (because the company has a global presence characterized by more than 7,000 stores around the globe) (CSM 1). Wal-Mart’s success has been unrivaled.
There are many factors that have been cited for Wal-Mart’s success; however, there is a consensus that Wal-Mart’s supply chain strategy has played a vital role in cementing the company’s success. The characteristics of Wal-Mart’s supply chain have been cited as having given the retail giant a strong competitive advantage over its peers.
Similarly, unique technological innovations have been cited as having contributed to the company’s dominance in the retail market. A significant technological adoption at Wal-Mart is the introduction of radio-frequency identification (RFID) services to the company’s supply chain operations.
The characteristics of Wal-Mart’s supply chain, the competitive advantages of the company’s supply chain and the incorporation of RFID forms the basis for this study. These items will be analyzed sequentially.
Characteristics of Wal-Mart’s Supply Chain
For a long time, Wal-Mart has been committed to improving its customer service offing, thereby making its operations efficient at minimizing operating costs (to offer customers low prices).
However, the most notable aspect of the company’s supply chain strategy is its commitment to reduce supply chain costs. Concerning this observation, CSM reports that, “Wal-Mart’s company philosophy (The Wal-Mart Way) is to be at the leading edge of logistics, distribution, transportation, and technology” (CSM 2).
Wal-Mart’s supply chain strategy conceptualizes the company’s vision of being the leader in global retail business. This supply chain vision informs the company’s low-pricing strategy and low-transportation costs which are significant features of the company’s supply chain.
CSM (3) explains that because of Wal-Mart’s low-price strategy, most of Wal-Mart’s suppliers have been able to easily break-even and realize profits (simply by doing business with the retail giant). However, it is understood that the biggest winners of Wal-Mart’s low-price strategy has been Wal-Mart’s customers who enjoy affordable prices.
From the above understanding, it is important to highlight that Wal-Mart touches the lives of about 175 million customers who patron its outlets weekly (CSM 3). Wal-Mart’s strategy has been very successful. In fact, after Wal-Mart started selling groceries, most of the small retail companies (which were in competition with the regional giant) went out of business (CSM 3).
Others are still trying to match Wal-Mart’s strategy. Through Wal-Mart’s supply chain strategy, the company made about $350 billion in 2010 alone (while operating in more than 15 countries around the world) (CSM 3). Across these countries, more than 7,000 Wal-Mart stores operate now.
These outlets are served by more than 120 distribution centers, which are scattered evenly across this geographical space (CSM 3). Wal-Mart’s low-cost supply chain strategy has been admired by many other retail stores and currently, Wal-Mart can boast of having inspired other retail giants like target and home depot for emulating the company’s low-cost supply chain strategy.
As noted in earlier sections of this paper, Wal-Mart operates more than 7000 stores around the world. These stores have a lot of autonomy in their operations such that every store operates like its own unique company.
One manager who is specially trained to operate individually manages the operations of every store. However, teams are allowed to contribute to the operations of the store (CSM 3). The collective strategy for operating every store improves the relationship among stakeholders in the supply chain
Several characteristics of Wal-Mart’s operations make it unique to other companies. For example, Wal-Mart’s incorporation of information technology (IT) tools into its supply chain is perceived to be the best among all privately owned companies in the world (CSM 3). For example, Wal-Mart maintains a just-in-time distribution approach, which allows for the inclusion of RFID into its logistical operations.
RFID will be analyzed further in subsequent sections of this paper but it is important to highlight that the strategy has greatly complemented the company’s low-cost strategy and improved the efficiency of the supply chain. For example, through the inclusion of RFID, the company has been able to identify out-of-stocks and increased sales figures throughout the company’s different outlets.
The establishment of distribution centers has also added to the company’s low-cost strategy but the establishment of automated stock-out procedures and cross-docking technology has significantly contributed to the improved efficiency of the company’s supply chain (CSM 3).
Aligning itself with environmental conscious ideologies, Wal-Mart has embarked on an ambitious strategy of making its supply chain more environmentally friendly. From this conviction, Wal-Mart intends to cut its greenhouse gas emission by close to 20 million metric tons before the year 2015 (Rosenbloom 1).
To implement this strategy, Wal-Mart is focusing on certain goods like milk and meat (which have a strong carbon blueprint) to press its suppliers to use more environmentally friendly approaches to transport these products. Wal-Mart also intends to influence the way such goods are manufactured and packaged.
Essentially, Wal-Mart explains that suppliers have to rethink their strategies and evaluate the lifecycle of their products to understand the impact that their operations have on the environment (Rosenbloom 1). This analysis involves the understanding of how their raw materials are sourced and how the products are disposed (through the product lifecycle).
In addition, Wal-Mart intends to achieve its green strategy by forging a strong partnership with its suppliers. Here, the company intends to collaborate with the suppliers to adopt more environmentally friendly practices throughout the supply chain. As opposed to popular opinion, Wal-Mart does not intend to impose its strategies on its suppliers; it intends to seek collaboration with its partners.
Some of the green strategies, which are expected to be introduced by Wal-Mart, will also add to the company’s low-cost strategy because a lot of money is expected to be saved by going ‘green’. This benefit will also contribute towards cementing the company’s perception of being the benchmark for low-cost pricing.
The green energy initiative that Wal-Mart adopts is not going to be mandatory for all its suppliers; however, the company has shown the willingness to do business with suppliers who share the same vision. Suppliers who do not conform to this vision therefore run the risk of being sidelined.
Wal-Mart has launched many green initiatives. Indeed, the company has also forged partnership agreements with some suppliers to reduce the carbon footprint.
For example, Rosenbloom explains that, “In the last couple of years, the chain worked with 20th Century Fox Home Entertainment, which produces DVDs, to cut greenhouse gas emissions by eliminating the plastic knob in the center of its CD cases” (Rosenbloom 9). Recently, Wal-Mart has also signed more agreements with other partners to reduce the company’s carbon footprint. Rosenbloom explains that,
“Wal-Mart is collaborating with organizations including the Environmental Defense Fund, PricewaterhouseCoopers, Clear Carbon, the Carbon Disclosure Project and the Applied Sustainability Center at the University of Arkansas. The groups will help advice Wal-Mart and its suppliers, as well as evaluate and measure reductions” (Rosenbloom 9).
Through the initiatives Wal-Mart is undertaking to embrace an environmentally sustainable supply chain strategy, the company is set to be a leader in adopting environmentally friendly supply chain strategies.
Competitive Advantages of the Supply Chain Strategy
As noted in this study, Wal-Mart’s supply chain has contributed immensely to its success because Chandran (7) explains that Wal-Mart’s supply chain has ensured that the right goods are sent to the correct customers and within the precise time. In addition, Chandran (7) reports that this approach has made Wal-Mart a very efficient company and many of its peers are left to emulate the company’s strategies.
One of the strongest competitive advantages Wal-Mart has enjoyed from its supply chain strategy is the strong relationship it shares with all the stakeholders in its supply chain (suppliers, customers and employees). Through the solid relationship that the company enjoys with its partners, Wal-Mart has been reliable and efficient in its operations.
In addition, through these close relationships, the company has been able to take advantage of any cost-saving opportunity. These cost-saving strategies have contributed to Wal-Mart’s increased profitability. However, it is also important to note that the company has not been selfish in reaping the benefits of its supply chain strategy; it has been able to share its profits with the customers through decreased cost of goods (Chandran 7).
Wal-Mart’s supply chain strategy has also enabled it to benefit from low transportation costs because the company operates its own fleet of trucks, which has significantly reduced its supply chain costs.
In fact, it is estimated that Wal-Mart’s transportation costs account for 3% of its supply chain costs while the company’s competitors report that their transportation costs account for 5% of their total supply chain costs (Chandran 7). Furthermore, “operating their transportation system has enabled Wal-Mart to replenish its shelves, four times faster than its competitors” (Chandran 7).
Wal-Mart’s low-cost strategy has also increased Wal-Mart’s bargaining power, such that it has been able to develop the reputation of being a low-cost retail store thereby becoming increasingly popular with local consumers.
This strategy has also facilitated the purchase of goods in large quantities, thereby increasing the company’s prospects of enjoying the benefits of economies of scale. Through this strategy, Wal-Mart has been able to give its customers huge discounts, which are not matched by its competitors. This strategy has also ensured that Wal-Mart’s sales are constantly high.
As noted in earlier sections of this paper, Wal-Mart’s supply chain strategy has led to increased efficiency of operations. Here, it is important to highlight that the efficiency of Wal-Mart’s operations have led to decreased lead times and improved inventory turnovers which have similarly led to improved capitalization of operational advantages.
Similarly, there has been a further accurate forecasting of inventory levels, which has subsequently led to an improvement in warehouse operations. The improvement in operations has had a ripple effect where there has been a further increase in warehouse space.
Through the improved warehouse operations, it is reported that Wal-Mart has been able to reduce its safety stock below its competitors and better working capital has been realized as a result.
Consequently, there has been reduced reliance on distribution centers, which has led to reduced emphasis on the functions of center management personnel. The reduced reliance on human input has also led to reduced training costs and the reduction in error reports. The above advantages have led to the reduction in goods stock-out and subsequent costs arising as a result (Chandran 7).
The increased efficiency in supply chain operations enabled Wal-Mart to better concentrate on service provision initiatives which has set the company above its peers (in service provision).
The inclusion of new technology such as bar-coding systems and the incorporation of RFID also contributed to the maintenance of quality goods and the elimination of poor quality stocks and old stocks. Inventory storage costs were also reduced through the same strategy after Wal-Mart adopted better stock maintenance strategies such as cross docking.
Similarly, the company’s low-costs strategy was further strengthened by the elimination of handling costs and the reduction in labor costs (Chandran 7). These advantages have increased Wal-Mart’s competitive position
Use of RFID at Wal-Mart
The use of RFID had been adopted by Wal-Mart as a strategy to improve the efficiency of its supply chain. This technology was set to replace previous technology such as bar code scanning (which revolutionized the retail industry a while back).
RFID provided several advantages to Wal-Mart (upon its adoption). Notably, the new technology made it easier for the company to track its goods throughout the entire supply chain. The efficiency of this concept was realized when Wal-Mart required all its suppliers to have their products tagged (IDtechex 1).
The company has also found RFID useful in monitoring stock levels across its stores. As noted in previous sections of this paper, Wal-Mart’s supply chain strategy has realized decreased incidences of out of stock episodes.
This benefit can be mainly attributed to the adoption of RFID. A recent research affirmed that the adoption of RFID at Wal-Mart accounted for a 16% reduction in the number of out-of-stock incidences (IDtechex 1). It was also established that after the adoption of RFID, it was three times easier to replace stocks from the shelves.
A reduction of excess inventory was also realized in this manner because the number of manual orders decreased, in place of automatic ordering. RFID tags have also facilitated the dissection of company sales to establish which products are flying off the shelves fast and at what rate this is happening. Through the above strategy, it is also easy to track the profile of shoppers who are buying the company’s products.
These benefits are crucial in understanding the company’s sales and knowing which areas to focus on for increased sales. Comprehensively, the adoption of RFID at Wal-Mart marked an improvement to the traditional use of barcodes. Mainly, the advantage of RFID over barcodes was that RFID could send out messages while barcodes could not.
After weighing the findings of this paper, we can establish that Wal-Mart’s supply chain strategy is highly efficient and progressive. The company’s supply chain strategy has been able to offer immense benefits to the retail giant thereby offering different competitive advantages that have cemented Wal-Mart’s leading position in the retail market.
Wal-Mart’s supply chain strategy is also progressive in the sense that the company is a leader in embracing new technology for ultimate performance.
This strategy has been consistently used by Wal-Mart as a winning formula, which has seen its competitors following the company’s strategy. Evidence has been given of other retail stores such as target, which has emulated Wal-Mart’s supply chain strategy. Therefore, Wal-Mart’s supply chain strategy has been a leader among its peers.
Several issues have been highlighted as the main success factors for Wal-Mart’s supply chain strategy. However, it is important to note that the success of Wal-Mart’s supply chain strategy has mainly been built on the pillars of cost saving and maximum customer experience. Wal-Mart has therefore been able to cut a niche for itself as being pocket friendly to its customers.
Its good relationship with its customers has also been a pointer for the company’s good relationship with its suppliers. The good relations between Wal-Mart and its stakeholders have therefore oiled the wheels of its supply chain strategy. Going forward, Wal-Mart intends to position itself as the leading retail store in supply chain management by adopting more environmentally friendly and cost-friendly strategies.
Chandran, Mohan, Walmart’s Supply Chain Management Practices. 4 January. 2003. Web. 23 April. 2012. <http://mohanchandran.files.wordpress.com/2008/01/wal- mart.pdf>.
CSM. Why Wal-Mart’s supply chain is so successful? 5 June. 2012. Web. 23 April. 2012. <http://supply-chain-case-studies.blogspot.com/2008/06/walmart-scm- strategy-analysis.html>.
IDtechex. RFID Progress at Wal-Mart. 14 April. 2005. Web. 23 April. 2012. <http://www.idtechex.com/research/articles/rfid_progress_at_wal_mart_0000016 1.asp>.
Rosenbloom, Stephanie. Wal-Mart Unveils Plan to Make Supply Chain Greener. 3 December. 2010. Web. 23 April. 2012. <http://www.nytimes.com/2010/02/26/business/energy-environment/26walmart.html?_r=1>.