Innovation and strategies within Walmart supply chain

Although this is not an original article, but a set of different sources and surveys, I find it very interesting because, even if it’s not very deep in a specific logistic topic, it provides a fast but clear example about the issues, the different strategies and the evolution of the management of a supply chain in many of its aspects. We can find in these lines most of the topic we studied in class, all applied to a real case, which is the biggest retailer (and most profitable company) in the world: Walmart.
The first logistic topic dealt in the article is the relationship with manufacturers (and suppliers in general), or, in other words, the procurement management aspect. From the very beginning, when a more traditional approach of procurement was more widespread (based mainly on price), Walmart has caught the need to establish a deeper and stronger relationship with its suppliers; instead of managing a large number of short-term deals, it has set up a new system based on cooperation and collaboration: the VMI, vendor managed inventory. This strategy is based on continuous stream and share of information and data from the buyer ( in this case Walmart) to the vendor (supplier), so that the latter is able to manage the inventory on his own and in its warehouses. The supplier is supposed to keep an agreed inventory and to be ready to fulfil customers’demand, and hence preventing the retailer from stock-out. The advantages of this technique can be seen from two sides; in fact, in a context of cooperation and risk sharing, both the retailer and the suppliers can have benefits. From Walmart’s point of view, this kind of management ensure it to have always availability of products on the shelves, reducing the risk that costumers could go looking for them to competitors’store. But, as I told, also the vendor takes advantages: since it has to manage the inventory, it is sure that its product is properly displayed, and moreover it acquires a wider comprehension of the final market. Overall, the advantages raise from the fact that every player manages only the area in which it has the highest knowledge; the supplier is more efficient because it can manages his own structure (lead-time required, inventory strategies, warehouse structure and so on), and the retailer, which knows better the market, can concentrate on the sale function.
Anyway, to obtain a successful cooperation, is essential the sharing of information, data, forecast, and also objectives within the supply chain. The tool which catalyses the integration of processes is the information system. Also in this field, Walmart shows its competitiveness; not only a great amount of information is collected every day in a centralized database (information about real-time sale, inventory level, store data, etc) but it also owns a satellite to ensure the stream of communication along al the segments of the company. However, the relevant aspect is not (or not only) connected to the technical characteristics of the IT, but to the way it is used; in fact, if suppliers would not be able to access to this kind of information, or to properly interpret it, the system would be end to itself. Instead, all the components of the supply chain “speak the same language’, and hence from data analysis, suppliers have real time information about the quantity to be produced, delivered, where and when they are required and so on. I can conclude that, probably, Walmart uses both an ERP and a SCM system. The first one has the aim to connect all the functional area inside the company (production, sales, financial, accounting, etc), while the second is used to create a common analytical language with the other players of the supply chain
Another aspects in which Walmart is very innovative is connected to the warehouse management system; among all the various techniques (just in time, quick response, etc.) Walmart has chosen the so called ‘cross-docking’. This system consists in the unloading of materials from trucks located in a certain area of the warehouse, followed immediately (or almost) by the loading of outbound trucks located in another loading area with the same products. The advantages that Walmart got from this system are mainly connected with costs reduction; the first things is that without any warehousing, there is less need to handle stocks, and hence the labour costs decrease. The same thing happens for the inventory holding cost: since the products stay in the warehouse for a reduced amount of time, the inventory holding costs drop. Another aspect, more practical, is the fact that cross-docking allows to reduce risks: if a product is immediately loaded to be delivered to the store, it is more unlike that it remains unsold, or that it could have damaged or even be stolen. Eventually, thanks to this reduced lead-time, Walmart is able to increase its responsiveness, also being flexible to adapt to sudden change in demand.
Finally, the last logistic topic that this article deal with regards the transportation mode. Unlike many companies, Walmart has not decided to outsource the transportation function, but it owns its fleet of trucks.

Link: Walmart article

By: Matteo Maccarana


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