Wal-Mart: A Case Study in Supply Chain

Wal-Mart: A Case Study in Supply Chain

Wal-Mart is well know to be a leader in Supply Chain Management. This week’s writing assignment is related to Wal-Mart. Search the internet, the APUS library, books, periodicals, articles. In a minimum of at least 300 words describe innovations Wal-Mart has brought to Supply Chain Management. Lecture 2 in the TLMT352 Folder in Course Materials is meant only to give you some things to think about. Please do not rehash the points made in Lecture 2. Bring completely new things to the table. Please cite from where you have gotten your material. You may want to concentrate on technology innovations Wal-Mart has instituted.

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Wal-Mart: A Case Study in Supply Chain

We all are familiar with and buy from Wal-Mart, maybe on a daily basis, Sam Walton, the founder’s focus was on logistics and today Wal-Mart is a leader in the field of supply chain management. The company, however, is not complacent with this label and continues to strive toward excellence and to expect the same from its vendors. The company continues to institute new initiatives.

Wal-mart looks for ways to improve its supply chain processes, never accepting the status quo. It has viewed logistics as a way to differentiate itself from its competition and to improve service to its stores. Developing close relationships with its suppliers has been a cornerstone of its approach toward its supply chain, redefining the supply chain concept along the way. Core portions of its focus have been:

investment in and use of technology.
mechanization and automation
automatic replenishment of store inventories triggered at point of sale
co-managed inventories with suppliers: data accumulated at point of sale (basically the registers) may trigger production by suppliers and replenishment of product.

Efficiency and productivity improvements in the supply chain have been passed along to consumers though lower prices and better service (merchandise availability). For this to be effective, the material requirements planning (MRP) needs accurate forecasting and well-defined product structures in the bills of materials files (BOMs), along with known and reliable supply lead times. A common error however in some MRP applications is the reality of unreliable supply lead times and also that the default original lead time settings have never been reviewed to reflect subsequent changes. Therefore, wrong decisions are going to be made by the MRP application.

Wal-Mart has challenged its vendors to improve. For example they have pushed their suppliers of warehouse automation equipment to modify and improve their equipment to become state-of-the-art. In many companies the majority of profit will come from a relatively small number of lines; the 80/20 rule again. So here safety stock levels can be set to minimize the value that may be on back-order and minimizes the cost to the company. While lost sales are extremely difficult to analyses, some companies do have the view that it is better to let a competitor have such sales, as this prevents the high cost of stocking and relatively slow-moving low-profit lines.

The efficient layout of Wal-Mart distribution centers has been another thrust of the company. Rather than outsourcing its trucking, Wal-Mart has maintained its own fleet of vehicles and drivers with 100% focus on the company. Their trucking associates coordinate closely with the distribution associates. Trucks have on-board computers, and there is a focus on matching deliveries to stores with pick up of merchandise from suppliers on return trips. There is a comprehensive backhaul operation to improve efficiency. The basic premise of JIT is to have just the right amount of inventory, whether raw materials or finished goods, available to meet the demands of your production process and the demands of your end customers. No more, nor less. This is where the JIT is very important to the overall success of Wal-Mart or any business. UPS has the right idea within their operations as they employ JIT logistics. They believe the closer you get to operating in a true JIT situation, the more responsive you are to your customers – and the less capital you have tied up in raw materials and finished goods inventory. The less you spend to store and carry inventory, the less obsolescence you have to write off, and the better you can optimize your transportation and logistics operations. Ultimately, this all translates into saving your company real money. Just as with all good ideas, there is always the downside and for JIT it is that it is a continuum; the closer you get to it, the more beneficial it is to your business. But go too far and reduce inventories too far, the less beneficial it is for your business. Too much or too little inventory leaves you at a competitive (or cost) disadvantage to your competitors. But if you can do it right, JIT can be a strategic source of competitive advantage.

Wal-Mart has made environmentally friendly practices a priority. Efforts to reduce the amount of packing, fuel conservation and reduction of its carbon footprint in trucking practices, energy efficient stores and distribution centers are just a few of its initiatives. On its website http://walmartstores.com/sustainability/, Wal-mart states that its environmental goals are:

“To be supplied 100 percent by renewable energy”

“To create zero waste”

“To create products that sustain people and the environment.”

Whether it is Wal-Mart or another organization among the major methodological approaches to inventory management with which engineering managers are familiar are material requirements planning (MRP) and just-in-time (JIT) manufacturing. Choosing the “best” inventory management system depends on numerous parameters, among the most important of which are supply chain-related parameters, such as the demand pattern, the demand level, and the inventory costs. The ultimate goal of managing an SC is to satisfy the demand level at minimum cost; therefore, inventory management approaches such as MRP and JIT play a key role in achieving this goal. Some research (e.g., Nahmias, 1997) found that MRP is more appropriate for companies where there are many product options, frequent engineering changes and fluctuating product system, whereas JIT is more appropriate in environments where there are relatively few product options, engineering changes, product mix changes, and there is less variability in demand levels. Managing supply chains is a crucial component of engineering management. Selection of the correct inventory control system has a strong impact on how a system is managed, and on the eventual outcomes.

When looking at JIT and MRP, as with anything different or new it can be and adjustment. We all know change can be uncomfortable. However, the long-term gain of the collaboration and the demonstrable and measurable improvements in production, productivity, cost savings and even customer satisfaction are well worth the short-term discomfort.

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