Supply Chain Management at Wal-Mart - Case Study Example

Supply Chain Management Wal-Mart Name: Lecturer: Course: Date: Executive Summary Wal-Mart, as the largest retail chain globally, has an effective supply chain operations management based on two main strategies. The company makes use of its scale in a range of ways to build operational efficiencies that ensure considerable competitive advantage. Wal-Mart also uses scale to establish additional competitive advantage through effective implementation of its supply chain. Walmart has a reputation for pioneering the practice of digital sharing of its sales data with its key suppliers. This has allowed it to supply an expansive variety of products at low cost and within short delivery times. For Wal-Mart, the concept of supply chain management poses a problematic condition. The first is coordinating the activities within its supply chain operations. Additionally, optimising the chain as a whole is not practicable when the individual businesses, entities, or partners within the supply chain centre on profit maximisation and expanding market share. Collaboration is an important theme for ensuring effective supply chain management, as it integrates the systems theory. Supply chain partners need to gain an insight into their roles as being a component of the system rather than working in the supply chain separately. Additionally, they have to be prepared to interrelate with other partners in the system. As a relatively new concept, the concept of collaboration in supply chains can be explained more clearly using a range of theoretical perspectives, such as network theory, Social capital theory, and the resource-based view theory. In using the collaborative approach, Wal-Mart effectively improves the performance of its suppliers’ performance. The supply chain enables the company’s suppliers to be leaner, faster, as well as more efficient and focused. Wal-Mart Stores is also able to make efficient use of supply chain strategy to ensure inimitable competitive advantage. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Company Background: Wal-Mart 5 Theoretical Review 6 Rationale for using System Theory and Collaborative approach 7 Collaboration and Optimisation as the fundamental solutions 8 Network theory 8 Social capital theory 9 Resource-based view 10 Application to Wal-Mart and analysis 10 Discussion 12 Conclusion 13 Reference List 14 Introduction Supply chain management (SCM) refers to the management of processes that are essential for procuring products and services and changing them into intermediate goods ahead of their ultimate delivery through a distribution system (Muysinaliyev & Aktamov 2014). Like all kinds of operational management concepts, supply chain management needs a strategy. To all intents and purposes, supply chain strategy would, therefore, entail the processes involved in planning of the entire supply chain to make the most of the capacity to address customer demand at the bare minimum cost (Bowersox et al 2012). Anson & Maani (2011) define supply chain as the capabilities for coordinating material, and capital and information flow across the organization’s activities strategically in order to take full advantage of operational processes and provide customer needs, as well as to attain remarkable capital returns from investment (See Figure 1). Figure 1: Informational flow and product low (Anson & Maani 2011) In practice, many industries, including the retail industry, seek to have competitive advantage over their rivals within their respective markets. Because of this, strategic supply chain effectively is requisite to attaining competitive advantage. Wal-Mart Stores Inc demonstrates such an efficient use of supply chain strategy to ensure inimitable competitive advantage. This paper examines supply chain management as an operations management aspect. The supply management concept is applied within the context of Wal-Mart. Focus is placed on Wal-Mart’s collaborative and systems theory approach (Hu & Han 2005). Company Background: Wal-Mart Established in 1945, Wal-Mart Stores is currently the largest chain retailer with an estimated $466 billion in sale, as of 2012. The company also runs other businesses, such as Neighbourhood Markets, discount stores, SAM'S Club warehouses, and Wal-Mart Supercenters. Current Wal-Mart estimates indicate that it has nearly 2.1 million employees working across its 9230 retail units globally (Ecommerce-digest.com 2013). Walmart has a reputation for pioneering the practice of digital sharing of its sales data with its key suppliers, such as Procter and Gamble, which has allowed it to supply an expansive variety of products at low cost and within short delivery times. Figure 2: Wal-Mart's supply chain (Supplychainopz.com 2014) Wal-Mart's supply chain management is not just integrated with information systems compared to its key competitors in the market, the operational management is efficient. Indeed, Wal-Mart's extensive size is a challenge for effective supply chain. The company distributes nearly 80,000 items from its warehouses than its competitors. It ships 80 percent of merchandise across its 121 S distribution centers (Supplychainopz.com 2014). Theoretical Review The general idea of supply chain management at Wal-Mart is complemented by critical success factors, such as “coordination of activities across the company’s supply chain, using a collaborative and systems approach. Clearly, this is to ensure effective global supply chain and sourcing. Its objective is also to link the organisation with its customers and supplier’s operations, ensuring optimal networking with partner and lastly, to promote use of holistic approaches (Ecommerce-digest.com 2013). These approaches or theories point to the fact that although the businesses along Wal-Mart’s supply chain is self-regulating entities, they operate as a system. Hence, function in a coordinated way to attain a “greater common good” for the entire supply chain. Rationale for using System Theory and Collaborative approach As Anson & Maani (2011) reveals, the concept of supply chain management poses a problematic condition. The first is coordinating the activities within its supply chain operations. This could be interpreted to mean that the supply chain will only become efficient and more productive when all entities in the supply chain are well coordinated to work towards the common goal of delivering the final product to the customers, in the most efficient manner. Indeed, this appears to be the main objective of Wal-Mart’s supply chain. In fact, while the main objective of any business operation in a capitalistic environment is to increase better profits, the systems theory suggests that optimisation of any system holistically is not attainable when all the components are optimised locally (Ketchen & Hult 2007). Within the context of Wal-Mart’s supply chain, optimising the supply chain in its entirety is not practicable when individual businesses seek to maximise own sales, profits, as well as the market share. At the same time, they cannot attain this when they work separately other partners within the chain. Therefore, within the context of the supply chain, optimising the chain as a whole is not practicable when the individual businesses, entities, or partners within the supply chain focus on profit maximisation and expanding market share. Indeed, researches on supply chain have brought evidence suggesting that an effective supply chain mainly involves coordination of the supply chain, as well as compromising and sacrificing on the part of the partners (Wilding et al 2015). At the same time, the partners have to divert their attentions and efforts from their intrinsic objective of optimising their performance, such as product specification and design, as well as updating information systems to ensure there is consistency with other partners (Schoenherr & Mabert 2006). In the case of Wall-Mart, achieving this can be a problem as the company is intrinsically profit-oriented. An additional problem is that, while Wall-Mart’s management is keenly knowledgeable on the potential benefits, they tend to be reluctant to implement these strategies because of the huge investments they requires, as well as concerning exchanging sensitive trade information. Hence, another challenge emerges on whether to collaborate or not. Collaboration and Optimisation as the fundamental solutions Ahmed and Ullah (2012) suggest that collaboration is an important theme for ensuring effective supply chain management, as it integrates the systems theory. To ensure effective collaboration, Kampstra and Ashayeri (2013) comments that supply chain partners need to gain an insight into their roles as being a component of the system rather than working in the supply chain separately. Additionally, they have to be prepared to interrelate with the other partners in the system. Indeed, exploration into scholarly works in the area of supply chain management reveals an emphasis on collaboration within the supply chain management. As a relatively new concept, the concept of collaboration in supply chains can be explained more clearly using a range of theoretical perspectives, such as network theory, Social capital theory, and the resource-based view theory. Network theory The Network theory seeks to explain and envisage the relations among connected entities or the partners engaged in a supply chain. Integrating the theory into supply chain would mean that the supply chain is, in reality, a type of network. This also means that the network theory has the ability to expose interesting realities regarding chains. As the theory suggests, weak and strong ties are important concepts in network theory (Ketchen & Hult 2007). Therefore, the strong ties comprise companies that are firmly connected while the loose ties consist of firms that have more fragile links. According to the theory, each type of tie offer particular benefits to the supply chain. The strong ties offer greater dependability while the loose ones improve flexibility. At Wall-Mart, the weak and strong ties are created on separate situations. Based on the systems theory, Wal-Mart integrates both the strong and weak ties to ensure flexibility and reliability in order to ensure optimal performance of the supply chain. For instance, since Proctor and Gamble is its strongest supplier with strong ties, the company would need to also integrate companies with weaker ties, such as Nestle, to ensure flexibility in supply. Hence, while Proctor and Gamble would offer dependability, Nestle would offer flexible supply of alternative food products when Proctor and Gamble fails. Social capital theory The Social capital theory perceives that the partners are entities that make up the supply chain. These entities, as the theory suggests, are made up of people with interpersonal skills. Therefore, establishing relationships among these people determines the performance of the supply chain (Anson & Maani 2011). Indeed, this theory is relevant to the case of Wall-Mart in its bid to seek collaboration with partners within the network of supply chain. Each partner has a conflicted objective. What results is combination of shared and organisational-level values, goals as well as experiences.. However, sacrificing personal objectives to have shared values and goals lead to shared sense-making that improves performance. Resource-based view The resource-based view reviews how particular organisational assets and capabilities lay the basis for better performance and competitive advantage. The theory views an organisation as a combination of resources and assets (Ketchen & Hult 2007). These resources or assets are inherently heterogeneous, hence need collaborative and coordination. Within the context of Wall-Mart, the theory suggests that since the company has unique resources, supply chain management is an important tool for complementing the mix of resources. Simply put, Wall-Mart’s partners are its key resources with respect to supply chain management and, therefore, supply chain management complements the partners to create a competitive advantage for the firm (Muku1maan 2013). Wal-Mart’s stores and warehouse are also key assets. People within these places need effective coordination. Indeed, Wal-Mart's extensive size is a challenge for effective supply chain. The company distributes nearly 80,000 items from its warehouses than its competitors. It ships 80 percent of merchandise across its 121 S distribution centres, while the remaining is shipped by its suppliers (Ecommerce-digest.com 2013; Supplychainopz.com 2014). Application to Wal-Mart and analysis Wal-Mart, as the largest retail chain globally, has an effective supply chain operations management based on two main strategies. The company makes use of its scale in a range of ways to build operational efficiencies that ensure considerable competitive advantage. Wal-Mart also uses scale to establish additional competitive advantage through effective implementation of its supply chain. Wal-Mart has often centred on operating philosophy of customer satisfaction. According to Ketchen and Hult (2007), the company’s executive management, from as early as the 1980s, implemented effective supply chain management based on collaboration of partners within the supply chain in order to make the company greatly customer centric. Wal-Mart experienced several benefits, such as efficient delivery and lower prices because of the effective supply chain. Wal-Mart benefited from customer loyalty. According to Ketchen and Hult (2007), Wal-Mart conceived that failure to take care of customers through supply chain would give its competitors an advantage to exploit. The company ran its supply chain operations as an “extended enterprise,” rather than as support business. In using the collaboration approach, the company emphasised information visibility. As Hu and Han (2005) explains Wal-Mart challenged the prevailing feelings of the mistrust between retailers and their suppliers, as it acknowledged that when it shared information like future customer demand and point-of-sale consumption with the suppliers, then they could significant reduce inventory in addition to other potentially wasteful activities. As a result, the company would minimise cost, and pass the savings to the consumers. Wal-Mart’s concept was dubbed “process/ product knowledge sharing.” The underlying philosophy was to create policy that provides an attractive circle for customers’ value. This is since selling in low prices triggered higher sales, which later enabled the company to negotiate for discounts from its suppliers. Second, the company allowed its suppliers access to its sales figures. This led to directness and eliminated mistrust. Wal-Mart used key information system: Retail Link and Inforem. Retail Link refers to a communication system designed for in-house to store data, as well as to share data and assist with the routing shipments. "Inforem" is designed for replenishment processes. It makes use of a range of factors like current level of stock to recommend on the order quantity that suppliers should supply (Ecommerce-digest.com 2013). Still, information sharing, is generally not unusual businesses and their suppliers (Ketchen & Hult 2007). Wal-Mart’s competitors like Kmart provide operational information at a cost to the suppliers. Essentially, the suppliers used the information as market intelligence that assist in making decisions regarding marketing promotions. On the other hand, Wal-Mart offers information to suppliers at no cost. For instance, its traditional suppliers like Procter and Gamble is mutual and goes as far as exchanging information on improving Procter and Gamble’s quality management while on the other hand improving Wal-Mart’s supply chain. Indeed, Fishman (2003) has discussed this idea. In his review of Wal-Mart, he argues that the company is different from other retailers, as it aims to create collaborative, as well as mutually beneficial relationships with its suppliers. Hence, it should be reasoned in using the collaborative approach, Wal-Mart effectively improves its suppliers’ performance. The supply chain enables the company’s suppliers to be leaner, faster, as well as more efficient and focused. Under such a circumstance, the less experienced suppliers would be urged to adopt strategies that would enable Wal-Mart’s supplier development team to create long-term yet mutually beneficial relationship. Indeed, an example of the company’s collaborative project for coordinating suppliers is when, in 2003, it required its top 100 suppliers to tag their product cases and pallets with RFID tags. Discussion Customarily, supply chain management has been perceived primarily as processes concerned with moving goods and materials and, therefore, as a support function that assists organizations to put their strategies into operation (Ascencio et al 2014). For Wal-Mart, its collaborative supply chain has taken a significant step. The company uses strategic supply chain management as a means to get the products and materials to their destined locations and as a means to enhance the key outcomes driving organisational performance. Put differently, strategic supply chain management provides the vital functions for supporting processes of material procurement and delivery. Still, Wal-Mart’s concentration on using strategic supply chain management does not mean that it needs to make of use cutting-edge and costly technology, or even give emphasis to teamwork at the entire stages of the chain. Rather, it emphasises on matching the chain’s approach to specific problems to the kind of problem that should be resolved. Indeed, McLaren et al (2002) mentions that other than focusing generally on strategic supply chain management, supply chains that are best on collaborative are different from other chains because of the manner in which they approach different variables, such information and resources sharing, as well as their capacities to solve various priorities. Conclusion For Wal-Mart, the concept of supply chain management poses a problematic condition. The first is coordinating the activities within its supply chain operations. Additionally, optimising the chain as a whole is not practicable when the individual businesses, entities, or partners within the supply chain centre on profit maximisation and expanding market share. Collaboration is an important theme for ensuring effective supply chain management as it integrates the systems theory. Supply chain partners need to gain an insight into their roles as being a component of the system rather than working in the supply chain separately. Additionally, they have to be prepared to interrelate with the other partners in the system. As a relatively new concept, the concept of collaboration in supply chains can be explained more clearly using a range of theoretical perspectives, such as network theory, Social capital theory, and the resource-based view theory. 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