Sample Research Paper On Logistics Management
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In today’s fiercely competitive business environment, the flow of goods from the supply side down to the final consumers has to be done as efficiently and effectively as possible in order to add value to the product. For the same reason, supply chain management has become one of the most important aspects of a business organization. This paper would like to investigate the supply chain strategy of Wal-Mart and how it is aligned with its over-all business strategy. Being one of the most successful retail companies of the world, Wal-Mart’s business supply chain strategy is considered as one of the most effective. In fact, most companies have tried to model their supply chain strategies based on Wal-Mart’s supply chain management model. The company started in 1967 in Arkansas as a small retain store that sells all kinds of merchandize . Since its humble beginnings, Wal-Mart became one of the world’s largest corporations in terms of revenue and has consistently been on top of the Fortune 500 list for several years since besting even energy and oil companies. It is interesting to know then how Wal-Mart managed to stay on top and if there is a connection between its supply chain strategies and its continued success.
Wal-Mart’s Business Operation
Wal-Mart was founded by Sam Walton in 1962 in Arkansas, U.S.A.. In an area of about 106,000 square feet and 200 employees, the company first started selling all kinds of merchandize by operating a supermarket and a department store in just one outlet. It should be noted though that there is nothing unusual about the way Wal-Mart conducts its retail business. Just like any other retail stores during the time, Wal-Mart also offer electronics, apparel, toys, home furnishings, health and beauty aids and hardware. Also, just like retail chains such as Target and Sears, as its business grew, it began building supercenters which includes specialty shops such as pharmacies, banks, hair and nail salons, name-brand restaurants, vision centers or health clinics. Wal-Mart gets its revenue not only from the product it sells but also from the tenants that rents their selling space. Since it was founded, Wal-Mart has evolved from a retail chain to a complex business entity that engages in numerous lines of businesses. Among the major business activities that the company is engaged with are retail, warehousing and e-commerce. Under these major business activities are smaller business units that operates almost independently. The department store, for example, is a separate business unit from the malls, which is also separate from the supermarket. These business units are often divided into sub units. For example, a department store is further divided into several smaller business units such as men’s wear, ladies’ wear, etc.; each with their own department heads and personnel. By breaking up Wal-Mart’s operation into small business units, each particular operation can be effectively managed. For the same reason, this management strategy is advantageous due to Wal-Mart’s sheer size wherein a centralized operation might not be possible. Even so, most of Wal-Mart’s business operations have been standardized and while each retail outlet is managed by an outlet manager, business operations among retail outlets are uniform as operations are standardized. The company also expanded its operation by building outlets in key cities and communes not only in America but also in countries and cities around the globe. With the increased demand of customers who wants to buy merchandize in bulk, Walmart has also engaged in warehouse style stores with the opening of its Sam’s Club. The company also keeps its own ecommerce site where it engages in online retailing. Just like the online giant Amazon, some shoppers find it enormously convenient to shop for items at home and having them delivered the next day than going to shopping centers. By setting up its ecommerce site, Wal-Mart expects to gain a significant market of the online segment. Recognizing this growing demand, Walmart launched its e-commerce centers which operate in the US and other outsourced centers in Bangalore, India and Brazil.
Looking at retail outlets in the U.S., one could not help but notice that they operate almost similarly in terms of products and strategies. However, there are several business strategies that put Wal-Mart at an edge above its competitors. During the 1960’s when Wal-Mart was first established, several retail chains is already operating in the U.S. with the likes of Target and Sears. However, after several decades, Wal-Mart quickly overtook its competitors to become the largest retail company in the U.S. As observed, Wal-Mart’s edge in relation to its competitors is its ability to lower its prices. In order to stay ahead of their competitors, Walmart has kept their merchandize cheaper than other retail stores. On how it is done can be attributed to how the company maintains value and eliminates wastes on its supply chain. One of the most distinguishing and also the most criticized feature of Wal-Mart’s business strategy is its culture of cost cutting, which has earned them a reputation of being cheap. In his report, Representative George Miller observed that Wal-Mart can keep its price low at the expense of its ordinary employees. Accordingly, the company does not pay its employees well, which resulted to numerous labor disputes. As observed by Miller, “In the last few years, well over 100 unfair labor practice charges have been lodged against Wal-Mart throughout the country, with 43 charges filed in 2002 alone”. Walmart maximizes its labor costs by hiring only what is needed and keeping their salaries as low as possible. Aside from being cheap, Wal-Mart has also been equally admired and criticized for being able to wield an enormous influence among its suppliers. During its early start up, Sam Walton, Walmart’s founder was always looking for better deals with suppliers. Unlike most retailers who keep the extra savings that they get from getting a good deal from suppliers by keeping their prices unchanged, Walton translates this savings to pricing strategy by lowering his retail cost. Eventually, Walmart established a strong reputation for being the cheapest retail outlet in the U.S. With their customer base getting larger and their outlets getting numerous, the company could get better bargaining deals with suppliers. Aside from wielding enormous buyer power, Wal-Mart’s pricing strategy also puts a huge strain to local businesses where it operates. Wal-Mart’s growth has taken a toll on smaller retail business in the local market. Evidently, wherever a Wal-Mart outlet is opened, the company ends up dominating the local market. For the same reason, most local retailers were complaining about the influence of Wal-Mart on their business and some are even forced to close since their prices could not compete with Wal-Mart’s. According to Zenith Management Consulting, most of the competitor’s attitude towards Wal-Mart is that it would be impossible for them to overpower and compete with Wal-Mart and all they can do is to “co-exist by accepting the business conditions Wal-Mart determines”.
Wal-Mart’s Supply Chain Management Strategies
The company’s supply chain management has developed and evolved from actual field experience as well as careful planning. Since its founding, Wal-Mart has tried to eliminate middlemen by directly dealing with their suppliers. As it maintains a network of stores and suppliers, the main challenge is how to consolidate its vast network and direct its operation in a seamless manner. Walmart is operating in high-volume, high-variety of products. For the same reason, it needs a dynamic and dedicated infrastructure and processes to support and address the challenging demands of its supply chain. Wal-Mart’s supply chain starts with finding a supplier for a particular product. Perhaps during its start-up years, the company may have found it difficult to find a suitable supplier for its numerous product lines. However, because of the increased volume of its demand, most suppliers would compete to get a share of Wal-Mart’s market. In the end, Wal-Mart gets the upper hand as it wields a strong buyer power towards its suppliers. In line with Porter’s five Forces, it is quite evident that Wal-Mart puts enormous pressure towards suppliers as it can dictate how these suppliers makes their decisions as well as on how they price their products. Unlike other business organizations that rely on third party logistic companies for their distribution and logistics, Wal-Mart keeps its own distribution system. Developed through experience and careful planning, Wal-Mart’s supply chain management is considered to be one of the best in its kind. Since the start, Walmart has tried to expand close to its headquarters where its leadership resides. For the same reason, the first of its retail outlets where in close proximity with its headquarters in Arkansas. However, as its stores grow in number, distribution centers became necessary to cater for the demands of their growing number of outlets. Most often stores are built in locations where a distribution center is nearby. Today, the company operates more than 140 regional distribution centers in the United States alone and more than 40 distribution centers that support international branches. These distribution centers use state of the art facilities and equipment for inventory and communication between suppliers, distribution centers and outlets. Aside from its high-tech distribution centers, Wal-Mart operates its own trucking fleet that carries goods directly from its suppliers to its distribution centers thereby eliminating third party trucking and delivery costs. Alignment of Business Strategy to Supply Chain Management
The concept behind most supply chain management strategies is to keep the cost of logistics at a minimum thereby increasing the products’ value. When Wal-Mart’s expansion is studied and scrutinized, it can be observed that the company’s expansion pattern is comparable to “dropping a rock into a pond” . According to Ostrander, Wal-Mart stores are conveniently located within a certain radius from its distribution center for easy access and distribution. Evidently, this expansion model offers an efficient and cost effective supply chain management for Wal-Mart. As observed, for every mile that a store is closer to its distribution center, Wal-Mart saves $3,500 a year. This particular expansion model is also observed when Wal-Mart enters a new region. Once a region is determined to be feasible for the company’s expansion, a distribution center is built and several stores are built around it in close proximity with each other. It is also obvious that Wal-Mart is using vertical integration strategies in its supply chain management. By keeping its own trucking fleet and a number of distribution facilities, Wal-Mart eliminates the need for third party distributors. As a result, the vertical integration strategies that Wal-Mart employs on its supply line gives the company better control of its logistics as well as eliminate unnecessary costs. Apart from the savings that Walmart gets from discounts and perks that its suppliers give, its efficient supply chain management strategy provides value-added service to its business. As a result, the company is able to give lower prices on their items as compared to its competitors. Evidently, this value adding supply chain strategy is very much in line with Walmart’s overall strategic position of providing ‘everyday low prices’.
Recommendation for Improvement
Supply chain management plays a crucial role in the distribution of goods as it opts to bridge manufacturers and consumers. According to Pillion, supply chain should play an important role “in keeping the lines between manufacturers and users operating smoothly”. It is important to note that good distributorship is the distribution of goods in a smooth and efficient manner. In order achieve this goal; Wal-Mart can use the four basic marketing utilities as a model on how to determine the room for improvement on their supply chain management strategies. The four basic marketing utilities are form, time, place and possession . Form refers to the physical form of the product that is being transferred across the supply lines; time refers to the amount of time needed that a product or service can be delivered; place refers to the location wherein a product could be bought; and possession refers to the transfer of ownership from the seller to the buyer. While it is the manufacturers’ role to make products that would fit in to the needs of consumers or its market, the role of the supply chain is to keep the form of this product or service in good condition until they reach the outlet, branch or retailer. And since Wal-Mart keeps its own distribution system, it follows that this burden brought by form, time, place and possession is carried by the company as well. Wal-Mart’s domestic supply chain strategy is already established and has less to improve if there is any. However, on its international supply chain, there is a lot to improve. Evidently, as much as it would like to control the supply chain by keeping its own distribution system, the international distribution system offers a different scenario. First of all, the company would have to rely, one way or another, to third party logistic companies for the delivery of their goods. Also, since most of Wal-Mart’s suppliers are based in the U.S., one of the challenges in expanding their business abroad is that they have to ship enormous amount of stocks from their distribution center from the United States, making it highly probable for damage and delay to occur. For the same reason, it is recommended that Wal-Mart should actively seek local suppliers to supply its stores abroad. Another gap on its supply chain that might affect its marketing utilities is the low labor compensation that it provides to its workers. For years, Wal-Mart’s style in doing business has been criticized for being unfair especially towards their ordinary employees. In one particular instance, the company backed out on its plans of opening one of its stores in Germany because of the labor issues that it faced. In order to maintain its efficient operation especially in its supply chain, it is suggested that Wal-Mart should offer competitive compensation even in their low key employees to avoid interruption of their logistic service. Beyond these improvements, it is quite evident that Wal-Mart has somehow perfected its supply chain management at least in the domestic setting.
In terms of business strategy and supply chain management, Wal-Mart is one of the most efficient companies. As observed, these qualities have made the company excel above its numerous competitors in the retail industry. Since its founding, the company’s supply chain management has focused on eliminating costs and translating it to price discounts. Over the years, the Wal-Mart has focused on improving its supply chain by incorporating state of the art distribution facilities and by vertically integrating its logistics through establishing its own trucking fleet. The company’s expansion is also well-planned and compliments its supply chain strategies. As observed, additional outlets are built near distribution centers making it easier for its distribution facilities to serve. This close proximity and efficiency in turn creates more value on the company’s goods that the company can then translate to its core business strategy, which is to provide the lowest price in terms of its competitors. We can therefore conclude that Wal-Mart’s supply chain management complements the company’s strategic position by adding value to its products and services.
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