Wal Mart Stores Inc Distribution System Management Essay

A supply chain can be defined as a group of three or more organisations or individuals that are engaged directly in downstream or upstream flows of products, services (including finances and financial services) or information from a vendor to a customer.

This study evaluates distribution systems and related issues, in terms of the distribution process and channels comprised in the supply chain management (SCM), of Wal-Mart Stores, Inc., whose 4,300 stores worldwide, (3,200 in the US), are visited by approximately 100 million customers every week.

2. Analysis

Overview

Theory on the supply chain identifies three levels of supply chain complexity, namely (a) the direct supply chain, (b) the extended supply chain and (c) the ultimate supply chain. The direct supply chain comprises of a customer, a company and a supplier, who are engaged in downstream and/or upstream movement of products or services or information. The extended supply chain encompasses the vendors of the direct supplier and clients of the direct customer, all of whom are engaged in downstream and/or upstream movements of products or services or information, whilst the ultimate supply chain comprises all entities concerned with all the downstream and upstream flows of the products and services, from the last supplier to the eventual customer.

With it being possible to have innumerable permutations of supply chain patterns, it needs to be pointed out that a particular organisation can simultaneously be an element of several supply chains. Wal-Mart, for instance, can be an element of the supply chain for hardware, electronics, apparel, groceries, and for numerous other items of merchandise. Such a multiple chain experience elucidates the prevalent nature of networks of various retail organisations. Encompassed within the definition of the supply chain, the final client is also reckoned as a member of the supply chain; this is a significant factor as it affirms that retailers like Wal-Mart can be components of both the downstream and upstream flows that comprise a supply chain in the form of customer, partner, supplier or competitor.

Distribution Strategy

While all major retail participants like Sears, Kmart and Roebuck offered the same mundane clean stores, friendly sales personnel and a broad array of merchandise, Wal-Mart differentiated its offerings through innovative stores formats, and an extremely proficient distribution system: whose efficacy enabled its “Everyday Low Price” (EDLP) policy to increase its market share from 9 percent in 1987 to 31 percent in 2000. Wal-Mart, which now commands half the market share of the discount retail segment, has, among its almost 3000 suppliers, the likes of Johnson & Johnson, Procter & Gamble and Clorox.

Whilst it was the acknowledged prime customer of many of its fast moving consumer goods (FMCG) suppliers, it strategically followed a policy of ensuring that it did not allow itself to become overly dependent on any one vendor, by limiting its procurement from a vendor up to a maximum of 4 percent of its total procurement volume. The company, furthermore, convinced its vendors to become part of the electronic network that linked all its stores. Wal-Mart shipped almost 85 percent of its entire sales volume to its stores through its own distribution system, even as its competitors transported less than an average of 50 percent of their goods through their own distribution system to their retail outlets. Wal-Mart owned a 3,000 and 12,000 strong fleet of trucks and trailers respectively, whereas most of its competitors outsourced their transportation needs.

Wal-Mart uses the “saturation” distribution stratagem for its stores expansion strategy. The system is essentially based upon the premise that the driving distance between a distribution centre and a store should be less than a day. Each distribution centre is located to facilitate the supply of goods to about 150 to 200 stores per day. This enable its stores to be remotely located and for a particular area to be saturated by the region’s distribution centre; all distribution centres operate on a 24 * 7 basis and use cross-docking inventory techniques (by receiving merchandise on one side, and concurrently issuing loading orders on the flip side), and laser-guided conveyor belts.

Use of Information Technology

Wal-Mart now operates its own satellite system, a facility that enables the sharing of real time information between the company’s wide network of suppliers, distribution centres and stores; this system merges the orders for merchandise and enables the purchase of full truckload volumes without incurring the otherwise inevitable additional inventory and inventory carrying costs. Wal-Mart’s best-in-class practice of sharing its “RetailLink POS” statistics and estimates with its vendors increases its “Sphere of Influence” in optimising its supply chains’ future operations. In the interim, whilst its vendors use generated data for purposes of estimation, the improved levels of transparency facilitate the optimising of their own individual supply chains. Both entities thus prospectively increase their “Sphere of Influence and Transparency”, even as shared collaborative forecasting is achieved through the “Collaborative Planning, Forecasting, and Replenishment” (CPFR) program,

Stalk, Evans and Schulman (1992) affirm that Wal-Mart’s growth lies in its matchless logistics capabilities; its “cross-docking” inventory distribution system ensures that goods between two loading docks are shipped within forty eight hours. This has not only improved the bottom line by slashing the cost of sales by 2-3 percent, but also reduced its inventory levels significantly. Costs of interest, costs of inventory stocking costs and working capital requirements have also been reduced. The cross-docking distribution methodology used by the company is based on pooling of resources represented by delivery vehicles, transportation and communication systems, and personnel. The company’s coordination and communication network between suppliers, distribution centres, stores and sales depots network is also extremely intricate.

E-Commerce

The global e-tailing revolution, entailing electronic and home shopping, will evolve over a period of time, as more people get computer savvy with improving economic conditions and information technology education. This will necessarily require the setting up of electronic network grids of smaller distribution centres along with their bigger regional or national store/super-store counterparts, which would otherwise be unable to cater to exceedingly localised deliveries.

The company’s “Site to Store” programme in the US has become immensely popular as it enables its online clients to buy merchandise that is shipped directly to their nearest Wal-Mart without the burden of any shipping charges. Whilst its is remarkable, from the perspective of internet retailers, that buyers will be ready to drive to their local Wal-Mart store to save shipping charges, they would, in all likelihood, combine such pick-ups with their weekly Wal-Mart visits. The company, through this system, is working its multi-channel distribution network for its benefit by generating a market that pure online retailers would find hard to replicate. Wal-Mart can move its merchandise to the required stores economically because of their existing transportation infrastructure, which provides them with an enormous advantage over most other online retailers. Brian Osborn, VP marketing of the company states that the entry of shoppers into a Wal-Mart store, to collect their online purchased merchandise, is beneficial for the company, since 50 percent of such shoppers expend an extra average amount of $ 60 during each such visit.

Distribution Channel

With the retail majors, (who are comparable to Wal-Mart in operations), being able to manage distribution more efficiently than outside wholesalers, Wal-Mart arranges with such organisations to sell their goods directly to them, instead of through wholesalers. The company is able to influence retailers solely because of their own capability in handling distribution processes.

It is pertinent to note that such distribution facilities have become feasible only because of huge investments by Wal-Mart, in terms of time, money and effort. The company has numerous challenges in its entry into the grocery business, particularly in the perishable segments, and has taken numerous years to perfect the requisite competencies. Such distribution processes reduce inventory levels further by reducing discrepancies between some producers, who may require the scheduling of their production at comparatively steady levels, and consumers who require particular merchandise only during specific seasons or in festive times.

Dedication and trust are important qualities in supply chain management because of the exceptional demands that are made upon prospective SCM practitioners. Participating entities need to share their susceptible strategic and tactical data with other SCM participants, who do business with organisations in direct competition with themselves. The adoption of certain SCM methodologies additionally leads to reduction of overall costs and augmentation of customer service for the complete supply chain. Such decisions often culminate in sacrifices by individual companies in favour of their supply chains. The Wal-Mart vendors, for example, employ vendor managed inventory methodologies that characteristically entail higher overall inventory volumes at more vendor sites in order to reduce Wal-Mart’s inventory levels and number of stock-outs. Consumers benefit greatly from such strategies because they can regularly find the low cost merchandise that they need. Vendors, after incurring increased costs, keep their merchandise on Wal-Mart shelves; this enables them to recover the higher stocking expenses from the augmented merchandise volumes that passing through Wal-Mart’s stores.

Some of the supply chain methodologies used by Wal-Mart to slash costs incorporate real-time tracking of sales and inventory in individual stores, vendor-managed inventory and cross-docking of briskly moving merchandise in distribution centres.

Conclusion

As is evident, Wal-Mart’s distribution system, (in terms of the distribution process and channels) forms the bedrock of the company’s continued supremacy in the global retail marketplace. Its relentless endeavour to control and moreover reduce costs, across the entire supply chain, will help it in ensuring sustaining its position in the expected growth of the global economy, as countries across the world recover from the current economic downturn.