The Supply Chain Management and its effect on Wal-Mart Free essay! Download now
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The Supply Chain Management and its effect on Wal-Mart
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DescriptionThe Supply Chain Management and its effect on Wal-Mart
Wal-Mart was one of the largest private sector employers in the world, with employee strength of approximately 1.28 million. The company’s founder, Sam Walton (Walton) had always focused on improving sales, constantly reducing costs, adopting efficient distribution and logistics management systems and using innovative information technology (IT) tools.
According to analysts, Wal-Mart was able to achieve a leadership status in the retail industry because of its efficient supply chain management practices. Supply chain management is moving the right items to the right customer at the right time by the most efficient means. No one does that well than Wal-Mart.
MANAGING THE SUPPLY CHAIN
Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to its customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that the products being bought were not available elsewhere at a lower price
Wal-Mart spent a significant amount of time meeting vendors and understanding their cost structure. By making the process transparent, the retailer could be certain that the manufacturers were doing their best to cut down costs. Once satisfied, Wal-Mart believed in establishing a long - term relationship with the vendor.
In 1998, Wal-Mart had over 40 distribution centers located at different geographical locations in the US. Over 80,000 items were stocked in these centers. Wal-Mart’s own warehouses directly supplied 85 percent of the inventory, as compared to 50-65 percent for competitors. According to rough estimates, Wal-Mart was able to provide replenishments within two days against at least five days for competitors. Shipping costs for Wal-Mart worked out to be roughly 3 percent as against 5 percent for competitors.
Each distribution center was divided into different sections on the basis of the quantity of goods received and was managed the same way for both cases and palletized goods. The inventory turnover rate was very high, about once every two weeks for most of the items. Goods meant for distribution within the US usually arrived in pallets, while imported goods arrives in re-usable boxes or cases. In some cases, suppliers delivered goods such as automotive and drug products directly to the stores. About 85% of the goods which were available at the stores passed through the distribution centers.
The distribution centers ensured a steady and consistent flow of products to support the supply function. As Wal-Mart used sophisticated barcode technology and hand-held computer systems, managing the center became easier and more economical. Every employee had an access to real- time information regarding the inventory levels of all the products in the center. They had to just make two scans – one to identify the pallet, and the other to identify the location from where the stock had to be picked up. Different barcodes were used to label different products, shelves and bins in a center. The hand-held computer guided an employee with regard to the location of a particular product from a particular bin or shelf in the center. When the computer verified the bin and picked up a product, the employee confirmed whether it was the right product or not. The quantity of the product required from the center was entered into the hand-held computer by the employee and then the computer updated the information on the main server.
An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive transportation system. The distribution centers were serviced by more than 3,500 company owned trucks. These dedicated truck fleets allowed the company to ship goods from the distribution centers to the stores within two days and replenish the store shelves twice a week. The truck fleet was the visible link between the stores and distribution centers. Wal-Mart believed that it needed drivers who were committed and dedicated to customer service. The company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation.
Wal-Mart truck drivers generally moved the merchandise-loaded trailers from Wal-Mart distribution centers to the retail stores serviced by each distribution center. These retail stores were considered as customers by the distribution centers. The drivers had to report their hours of service to a coordinator daily. The coordinator scheduled all dispatches depending on the available driving time and the estimated time for travel between the distribution centers and the retail stores. The coordinator informed the driver of his dispatches, either on the driver’s arrival at the distribution center or on his return to the distribution center from the retail store. The driver was usually expected to take a loaded truck trailer from the distribution center to the retail store and return back with an empty trailer. He had to dispatch a loaded truck trailer at the retail store and spend the night there. A driver had to bring the trailer at the dock of a store only at its scheduled unloading time, no matter when he arrived at the store. The drivers delivered the trailers in the afternoon and evening hours and they would be unloaded at the store at nights. There was a gap of two hours between unloading of each trailer.
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