Walmart Case Study On Supply Chain Management

World’s largest retailer, Wal-Mart has always been experiencing increase in its revenue every year after it was founded by Sam Walton in 1962 in Bentonville, Arkansas. Within only one year of operation, Wal-Mart was able to gain $700, 000 in sales and eventually Wal-Mart grew into the youngest company to obtain $1 billion in net sales in 1980. Wal-Mart’s main strategy was to provide merchandises and services using “everyday low prices” (EDLP) in order to increase foot traffic into the stores. Wal-Mart was able to increase its revenue due to its impressive supply chain strategy as well as its ability to control suppliers in order to lower prices tremendously. Despite of its powerful supply chain, Wal-Mart is still facing challenges even today. The advancement of retail experience has led customers to seek for new means of shopping. The convenience of online shopping nowadays leads customers to rethink their spending habits. Although Wal-Mart completely owned the bricks-and-mortar aspect of retail sales, they are far below Amazon. com in terms of online sales. As Amazon. com strengthen their online presence, Wal-Mart has to reconsider its strategy to improve the sales of Walmart. com. In addition, problems faced by Walmart in-store include delays in restocking merchandise as well as products being misplaced. The report below analyze Walmart’s strengths and weaknesses regarding their supply chain strategy and the rise of their competitors, such as Amazon. com. Walmart’s approach towards improving its online sales will also be discussed. Solutions and recommendation of actions are proposed with a goal of maintaining Walmart’s position as the leader of retail corporation globally.

Problem statement

Walmart’s biggest threat at the moment is Amazon. com as they face constant pressure to improve their game in the E-Commerce market. Amazon clearly overpower Walmart when it comes to online sale of goods and Walmart need to constantly develop new measure to close the gap between them and Amazon.

Walmart faced a lot of competition from Amazon. com which made sales as equal to Walmart from year 2009-2011, which made Walmart to control their inauguration of large stores and focus on competition analysis. Walmart has always hesitant to the idea of opening small stores because of increasing procurement cost and low profits. However it never realizes the fact that small stores could even lead to advertisement and would help to make revenue from purchases by people who do not follow Amazon. com or small scale stores such as Dollar Store.

Walmart is faced with internal problem of restocking products in their store. Delays occur when transferring products from warehouse to the store. Products are also being misplaced in both storage and backroom. In addition, due to various execution of small stores and persistent issues with remodeling, Walmart’s sales target was hampered. Also, the great financial crisis in 2008 led to the cutting of labor, which resulted in a consistent 9 quarters for the same store to witness sales decline starting in second half of 2009. In the year 2011, due to inefficient earning growth prospects, Walmart stock price lashed down to $45-$55 range. The stock price seemed to be a topic of concern which caused them a bad market reputation in that period. Walmart had to develop an efficient operational policy to overcome its lagging stock price.

Analysis

The retail industry can be defined “as a sector of the economy that is comprised of individuals and companies engaged in the selling of finished products to end user consumers (B. Farfan, 2005)”. Sam Walton’s incredible rise to the top of the world would take him back to a $20, 000 loan from his father-in-law. Walton’s expertise and experience in retailing helped him to realize that selling for less meant selling more and making more as returns. 74 years later, this is still a major competitive advantage Walmart wield over their competitors. Not many can offer the same prices Walmart offers to its customers, and it’s not just the prices that influences a competitors entry and exit into the retail market. Walmart have mastered the art of retailing and are always open to improvisation if it means the growth of Walmart. They overpower and outmuscle small competitors in almost every aspect of retailing. Walmart are the like the United States of retailing, they have way too much power in their hands.

Walmart completely owned the power of the supply chain based on their capability to control their way of procuring their items as well as they managed their superstores. On procuring their products, Walmart entirely dominate the power over suppliers as they do not have much of a say when it comes to dictating prices with giant companies like Walmart. It was said that Wal-Mart completely held the authority to instruct its suppliers down to how they acquire raw materials, although this was looked down upon as it may have brought down its suppliers’ revenues. Due to large and tough population among suppliers, Walmart can just pick one supplier over another and so on until he finds the one with the best price. As many suppliers are fighting over very limited shelf space, Walmart is benefited greatly. Regardless, their supply chain strategy was one that was most emphasized by the investors.

It is safe to say that Walmart becomes the world’s largest and arguably most powerful retailer with the highest inventory turnover, sales per square foot, and operating profit of any discount retailer in the last ten years. Walmart being such a huge player in the world market, they also have the responsibility to take care of the environment. Walmart have implemented “smart logistics and supply chain management” to cut costs and reduce the emission of greenhouse gasses which harm the environment. With a combination of high-tech data analysis and low-tech data gathering, Walmart have managed to figure out how to plan pickup routes and truck delivery that require the least amount of fuel and move the greatest amount of goods and freight. It would be impossible to expect the same from a new entrant into the market who has limited exposure to such advanced logistics.

Wal-Mart has increased its line-up of grocery items, which has resulted in delays in restocking shelves. Wal-Mart's top executives, however, mentioned that increasing sales per square foot was the primary goal of their supply chain strategy and that no problem has occurred from the logistics standpoint. According to the Income Statements of Wal-Mart, the number of sales of the company has been increasing by an average of 10% each year for the past consecutive ten years, whereas only several of its competitors such as Costco, CVS, and Amazon. com have experienced such results as well. Walmart stocks products made in over 70 countries and at any given time, operates more than 11, 000 stores in 27 countries around the world, and manages an average of $32 billion in inventory. The name Walmart is synonymous with an organization that strives to chase costs away from the supply chain and provide better and faster to the consumer at cheaper. With the aforementioned numbers, it is imperative that a company has an extremely efficient and effective supply chain management activities that are second to none. Amazon being the world’s largest online retailer is one of Walmart’s strongest competitor, is continuing to gain market share globally. Walmart undeniably has the substantial advantage when it comes to physical store aspect, although Amazon has currently been attempting to enter the physical store market with the opening of AmazonGo stores in Seattle, WA. On the other hand, Walmart has been attempting to improve its online retail platform to improve sales and customer experience. To do so, they are aggressively investing in the e-commerce platform in order to offer lower prices than Amazon to customer.

In terms of revenue and private employment, Walmart is the largest retailer in the world. Walmart’s revenue as of 2017 was $500. 343 billion, in comparison to Amazon’s revenue which was $177. 866 billion in 2017. This clearly shows how much of a struggle it is, even for a company of Amazon’s stature to catch up with Walmart. Walmart has close to 1. 5 million employees more than Amazon does. Being the largest has helped Walmart to benefit from economies of scale, efficient and effective use of resources, huge gains from implementing best practices and experimenting with less risk.

Although Walmart generally offers more varieties of merchandise sold in their supercenters offered at mostly lower price as other competitors, the rise of their rivals, such as Target and Amazon. com has led customers to reconsider their purchasing decisions. Regardless, competitors have yet to be able to knock down Walmart completely in their sales. Based on Princeton Survey Research Associates International 2005, 50% of Walmart’s customers chose “low pricing” and 32% of their customers chose “broad selection of items” and “convenience” as the reason why they shop at Walmart. In addition, 50% of Walmart’s customers come from family with annual income less than $30, 000, whereas only 33% of the customers have an annual income of more than $50, 000.

As one of Walmart’s strongest competitors, however, Target’s success in United States’ market owes to its marketing strategy and taking a different approach into the market than Walmart. Although Target has tried to match its prices to Walmart, their prices are higher when compared to that of Walmart’s. Despite their higher prices, Target was able to attract younger and edgier customers due to its clever advertising. Target spent 2. 3% of their revenue in marketing, in comparison to Walmart which only spent 0. 3% of their revenue.

This is how, a few substitutes to Walmart's products are promptly accessible. The outside factor of the low assortment of substitutes makes it troublesome for buyers to move far from items accessible from retailers like Walmart. Likewise, Dollar tree, Dollar store and Amazon can be more costly than the minimal effort merchandise and ventures accessible at the organization's stores. The blend of these outside variables prompt the substitutes of Walmart's industry condition.

From a shareholder perspective, return on equity (ROE) is the main summary measure of a firm’s performance expressed as a percentage. After analyzing the ROE of each company we found out that Nordstrom Inc. has the highest percentage (38. 42%) to compare it to other three companies.

As the return on assets (ROA) measures the returned on each dollar invested by the firm in assets. According to the table above Walmart and Macy’s are getting a good return on their investment on assets with 9. 46% and 7. 02%. On the same time, Amazon. com has the lowest value on return investment percentage (less than 1%). But still Nordstrom Inc. has a highest value (10. 37%) on return on investment that Walmart.

Average Payable Turnover (APT) is an important ratio that defines financial leverage is accounts payable turnover. As known that APT should be less as possible. As we can see, Amazon. com has about two times less in APT than Nordstrom Inc. Even Macy’s APT (3. 34) is less than Walmart (5. 96). Cash-to-cash (C2C) cycle roughly measures the average amount time from when cash enters the process as cost to when it returns as collected revenue. C2C cycle should be as less as possible, even can be negative in few cases. Walmart’s C2C cycle is -1. 51 weeks, which is the time taken by cash to enter the process and return as collected revenue. So Walmart is doing good than Macy’s and Nordstrom Inc with 1. 82 and 11. 56 weeks. However, Amazon is leading when it comes to C2C cycle with a value of 10. 51 weeks.

Solutions

The administration needs to approach every last partner to contribute ideas. The administration has a prerequisite to enhance their supply chain network frameworks with the goal that the transportation has accomplished all the more productively. Shipment of items from providers to stores specifically, points of interest of this would be that stockroom and appropriation focus space would be limited, diminishing the level of stock required. Walmart needs to plan new trucks and trailers. This can help them in being more aerodynamic and eco-friendly.

Walmart needs to benchmark other retail chain stocks restock systems. This could be leverage for cost sparing. It also needs to investigate the measures of stock to pay special mind to the time the items are remaining in the product house. It ought to be noted about the items that are causing high stock expenses. Walmart can even proceed with RFID innovation it utilized previously. which helps in following about the items whether they are extremely out of stock or not.

Rebuilding the stores as indicated by the present innovation and rivalry can lessen the losing and misreading the stock. They have to center around the multi-channel framework which included both the stores and the online deals. They have to concentrate more on the online deals to rival others, for example, Amazon which has a more extensive assortment of items and are accessible at a less expensive cost. Walmart needs to enhance their online site UI and make the site more steady so they can contend with tech goliaths like Amazon in online deals.

Changing their way in sourcing the items comprehensively and enhancing item conveyance to stores for in-store accessibility and fortify the online sales. They need to enhance their dissemination focuses and transportation tasks with the goal that the items can be sold to the clients at lower prices. Some of the requirement for them to include a more extensive choice of things online which were not accessible in stores or which are out of stock.

Walmart needs to move the medium-term stocking to daytime as there will be more representatives accessible amid daytime and the clients will believe that the coveted items will be in stock If the workers are loading the items for the duration of the day. Walmart can enhance its deals and developed into an online market if the accompanying issue are mulled over and successful arrangements conquer those impediments.

Recommendations

a) Short Term

In the short term, it is recommendable for Walmart to move towards lean initiatives by establishing cross-functional team working and observe and benchmark competitor inventory restocking systems. Walmart could benchmark against the restocking and inventory levels of grocery stores like Kroger Co. and Albertsons Inc. Despite these being grocery stores, implementing a just in time and leaner system would be a huge cost savings to Walmart. Walmart could also benchmark against stores like Costco, Home Depot and Target Co which aren’t grocery stores. Working towards lean initiatives would help eliminate waste in inventory. Cross-functional team would take care of overproduction or transportation and the effective handling of inventory. An analysis of the ordering and receiving level of inventory would need to be analysed. A cross-functional team brings a good mix of diversity and shared purpose to problem solving. Disadvantage to this method would be that there might be conflict among employees owing to their diversity.

b) Medium Term

Walmart can design new trucks and trailers. As of now, Walmart owns 6, 000 tractors, 53, 500 trailers and 5, 600 refrigerated trailers. (Source: Walmart Corporate website). Trucks and trailers could be designed to be more aerodynamic and consume less fuel. They could also invest in Tesla or Volvo’s hybrid and electric trucks which help them in reducing fuel costs and also carry out a good CSR initiative. Trailers could be fitted with separate doors to keep apart fast and slow moving goods. Light-weight and high tensile materials like carbon fiber alloys could be used to increase fuel efficiency and safety. Walmart can sell their old trailer fleet or take care of disposal. Advantages to the aforementioned recommendations would be increase in storage capacity of trailers and lighter vehicles which would result in an improved mileage, green environment initiative which would give them a good PR and flexibility in moving goods. Cost and maintenance would be on the downside but the shipping performance could be drastically improved.

c) Long Term

Long term recommendation would be to ship the goods directly to Walmart stores than to a warehouse and mandate the use of RFID tags in all merchandises and purchases. This would result in reduction of inventory space requirement. This method would involve an intricate and a complex plan, but with Walmart’s volume that is being shipped, it could be possible and feasible. Mandating the use of RFID tags could help in inventory tracking. Walmart can mandate the use of RFID tags from all of their suppliers which could increase the ability to track inventory better. This will improve in stock rate of inventory and reduce tracking costs. This method would also enable people working in the store to restock shelves if there is any need for replenishment. Walmart can reduce overstock expenditure and out-of-stock sales losses.