Wal-Mart - Monitoring supply chain risk

In January 2008, the world's largest retailer Wal-Mart introduced Supply Risk Monitoring (SRM) service as a requirement to Wal-Mart's supplier community. This after Wal-Mart made an agreement with Strategic Forecasting, Inc. (Stratfor) to assess and rank security risk for countries in its global supply chain.

Stratfor is a leading private intelligence company and its services will enable Wal-Mart to identify risks with supply chain infrastructure in countries (ranked as high, medium or low) within its supply chain using a unique analytical methodology. The countries will be assessed on risks associated with terrorism, insurrection, crime, the political and regulatory environment, natural disasters, including various other factors related to supply chain infrastructure. This will help Wal-Mart to produce a quantifiable measure of the actual risk to a nation's supply chain and thereby determine appropriate supply chain security counter-measures. It can thus quickly warn of emerging threats and prevent disruption of deliveries of goods to major markets around the world.

Why Wal-Mart's supply chain is so successful?

The key to Wal-Mart's supply chain

Wal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailer Wal-Mart's success is its ability to drive costs out of its supply chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores. Wal-Mart's company philosophy ('The Wal-Mart Way') is to be at the leading edge of logistics, distribution, transportation, and technology. The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain (Wal-Mart has made significant investments in supply chain management).

Wal-Mart's business model and competition

Wal-Mart's business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low Price Strategy), Wal-Mart's suppliers - both large and small - either break even or make profit supplying at Wal-Mart's stores. But the real winners are Wal-Mart's customers (approximately 175 million every week) who save thousands of dollars buying at low prices. Since Wal-Mart stores began selling groceries almost three dozen regional grocery suppliers have struggled to match or simply run out of business. Last year, Wal-Mart's annual sales were $350 billion and it had more than 7,000 stores, 120 distribution centres and operations spanning 15 countries. Nearly two million employees at Wal-Mart focus on cost, customers and continuous improvement on a daily basis. Other major retailers like Target and Home Depot have emulated Wal-Mart's logistics strategies and actics.

Wal-Mart's one-store-at-a-time, RFID and just-in-time distribution approach

Every Wal-Mart store operates like a small company. Store managers are trained to manage one store at a time, one department at a time, and one customer at a time. Decisions are made by store teams to make the individual stores operate at its best with superior in-store execution. With established vendor partnerships with top manufacturers, Wal-Mart has implemented advanced logistics solutions like RFID (radio frequency identification). RFID solutions help maintain lower costs, identify out-of-stocks and increase sales. Distribution centres instead of warehouses, automated replenishment and cross-docking technology also reduce inventory carrying costs.

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RFID and Supply Chain - Reverse consumer effect

RFID, Supply Chain and the Reverse Consumer Effect

During the last several years, Radio frequency ID or RFID technology was seen as the catalyst to supply chain revolution. But many feel that the most important technology trend is moving into the reverse direction i.e. from business use to consumer use. RFID technology in the supply chain has not progressed as well as the RFID industry had hoped for. This is creating the 'reverse consumer effect'. The consumer effect is when technologies popularized by consumers find their way into business use. A great example is the Apple iPod or social networking sites like Orkut. But RFID, which has been a corporate technology since its introduction is finding its way into the consumer market. Businesses in various sectors and industries are adopting RFID, but not necessarily for the supply chain.

Examples can be derived from At&T's move to provide radio-frequency identification and GPS-based products and services for schools. Schools can use RFID to track their staff and students. Even insurance companies, and hospitals are using RFID tags to track important assets, files and equipment. On the reverse, corporate side, Wal-Mart (RFID's most aggressive user -- e.g. Wal-Mart's suppliers tag pallets and cases with RFID tags), has said that its RFID plans have fallen short of the company's goals.

Walmart Case Study on Supply Chain Management (SCM)

Case Study : Walmart's Supply Chain Management (SCM) Practices

Supply chain management (SCM) is important for companies that deliver goods or services. Transitioning from a single company to the whole supply chain implies the need for reorganization and reengineering, strategic management or organizational theories have not yet been incorporated in supply chain management. A competitive business environment has made Walmart focus on innovative processes and systems to overhaul its supply chains and make them more efficient. Increasingly, Walmart is integrating its supply chains with major customers. Wal-Mart is an innovator in SCM, which has helped it to provide low-cost merchandise to its customers and undercut its competitors.

Stalk et al. (1992) reported:
“In 1979 Kmart was one of the leading companies in the retail industry… At that time, Wal-Mart was a small niche retailer in the South with only 229 stores and average revenues about half those of Kmart stores… Today Wal-Mart is the largest and highest profit retailer in the world. How did Wal-Mart do it? The starting point was a relentless focus on satisfying customer needs; Wal-Mart’s goal was simply to provide customers with access to goods when and where they want them and to develop cost structures that enable competitive pricing. The key to achieving this goal was to make the way the company replenishes inventory the centerpiece of its strategy. This was done by using a logistics technique known as cross-docking. In this strategy, goods are continuously delivered to Wal-Mart’s warehouses from where they are dispatched to stores without ever sitting in inventory. This strategy reduced Wal-Mart’s cost of sales significantly and made it possible to offer everyday low prices to their customers."

Stalk, G., Evans, P., and Shulman, L.E. (1992). Competing on Capabilities: The New Rule of Corporate Strategy. Harvard Business Review, March-April, 1992, 57-69.

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Keywords: Case Study, Walmart, Wal-mart, Supply Chain Management (SCM) Practices, SCM, Supply Chain, Strategy and Organization in Supply Chains

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