Walmart currently has stores in over 27 countries with over 11,500 stores operating under 56 different names and has approximately 2. 3 million employees. They have been diversified and expanded due to their effective and enhanced supply chain management. Walmart is a clear example of how firms can apply innovation in supply chain and logistics to realize cost advantage and competitiveness.
Origins and Founding Principles
The company was established by Sam Walton in 1962, when together with his brother they started the first walmart store in Rogers, Arkansas. Walton had a wealth of knowledge in retailing, and had even owned a franchise of a Ben Franklin store. His vision was to bring together quality products with affordable prices and make them all available to the customer at one place. This meant minimizing costs on all facets of store operations. Walton persistently negotiated with suppliers to reduce prices that customers paid, thus offering lower prices than his competitors. Moreover, he chose to open stores in the small towns that other big retail chains have little to no attention to. This strategy proved very effective early on in Walmart’s growth as it enabled the company to quickly capture market share across rural America.
Walton always focused on the principles of making a good operation and giving value added in the customer place as the company expanded. Every aspect of the store operations, order fulfillment, transportation, and supplier relations had to align with the cost cutting and efficiency goals. The company’s application of technology and Best practices helped in assessing the demand, ordering inventory and coming up with transportation plans to reduce mileage. This was possible in that it assisted Walmart in maintaining low costs for their products despite the fact that their profit per unit of sale was relatively low.
Regional Distribution Centers and Inventory Management
One of the key aspects of Walmart’s plan was the development of a large number of regional distribution centers (DCs) throughout the United States. To ensure that stores are adequately stocked, Walmart started investing in distribution system in 1980s as the number of stores increased. Currently it operates more than 150 DCs, ranging from large general merchandise facilities to relatively small grocery-only DCs. The network also provides ground shipping in 2 days to stores and helps Walmart to have direct control on the delivery of products instead of depending on manufacturers.
In its DCs Walmart has employed a cross-dock to ensure that the goods are sorted and dispatched to delivery trucks with a lot of efficiency. Upon receiving products from suppliers, these products are then processed and forwarded to outbound vehicles destined to certain stores rather than spending ample time in the DC. This eradicates holding costs and accelerates the restocking of the store. In conjunction with state of the art inventory information systems, cross docking affords Walmart almost real time information on inventory status throughout the chain. Store managers can order materials according to up-to-date data on the current stocks, plus merchandise that has already been ordered and is on its way to the store. This assists in preventing out of stocks occurrences while at the same time avoiding holding excessive stock.
EDLP Pricing Strategy
Walmart’s every day low prices (EDLP) strategy where price discounts were recovered from supply chain efficiencies were with the consumer. One of the organizational strategies that Walmart was able to perform was keeping the operating costs low which enabled the company to offer and sustain low prices for the products without offering fickle promotional prices. The buying power that stems from high volumes mean that Walmart is able to strike special deals with vendors that other retailers are unable to bargain. Vendors gain from the visibility and the relatively certain fixed high demand over a long period.
Walmart also manages to keep its overall transportation costs low despite having the best logistics system. Its thousands of stores act primarily as a distribution network of DCs situated near population density to reduce the last mile delivery expense. Multicross stores also save on overhead costs, especially when considering the need to have a different warehousing system for each store format. Given such low operating cost systemwise Walmart sells popular stock at a price that is below the supplier’s own wholesale price to other retailers. The company then expects to make up for the difference through better overall margins.
Technology Enabled Innovation
Walmart has been fast in incorporating new technology that enhances productivity, which supports its EDLP strategy. It was one of the very first to incorporate UPC barcode scanners integrated with inventory control systems since the 1980s before most stores. Barcodes brought a higher speed of checkouts increasing customer satisfaction as well as real-time Point of Sale (POS) data capture. Coupled with inventory management systems, POS data provided HQ and store managers much more information about performance of products by chains, stores, and regions.
Walmart has also adopted other technological advancements such as radio frequency identification (RFID) to enhance visibility in the chain further. RFID tags placed on pallets and cases enable workers to quickly scan box that enters the DCs without the need to open or physically count the items. This saves time of handling since the shipments are received and sorted for immediate dispatching. Another benefit of RFID is its capability of monitoring the compliance with a delivery schedule by the vendors. The fact that information is immediate about incoming deliveries enables the workers to be in a position to backfill orders in case the suppliers’ shipments are again likely to be delayed to the stores.
With the increase in ecommerce sales, the firm has embarked on the improvement of the order fulfillment technology. Quite a number of stores have adopted electronic lockers for picking of items, thus enhancing automation. Customers can order products and choose the time to pick up their orders. Mobile notifications are used to direct Walmart workers to collect items and load lockers, labeled by the name associated with the online order. For home delivery, Walmart has contracted firms to initiate experimental AVs for cheap last mile delivery. The company has also sought to apply for patents for delivering orders through the use of drones putting it at the frontier of technological advancement in logistics.
Proliferation of Operational Efficiency Strategies
Walmart which is one of the largest retailers in the world still looks for ways to increase productivity and efficiency using people and processes and information technology. The company closely monitors DC performance and transports indices such as volume of handled work per man hour worked, volume throughput before stressing operations, order accuracy and percentage of on-time inbound and outbound shipping. Through continuous questioning and probing of conventional business practices, Walmart squeezes out additional cost in the overall supply chain. These savings fund everyday low price strategies in a positive feedback loop that benefits both the customer and the company through enhanced sales and efficiency of scale.
This has facilitated expansion to other sales formats besides the retail stores as observed in Walmart supply chain and logistics strategy. Such acquisitions like Jet. com highlight market entry into online selling, corresponding to shifts in consumer preference. However, as the company grows, the core area of interest stays on operations which are the core of its cost leadership strength that is applicable to other areas. This has made it very difficult for the competitors to price compete with Walmart despite having skinner margins from lower efficiency. So long as management sustains this cost and efficiency discipline in existing segments and new outlets, Walmart should continue to sustain the pricing edge and generate steady growth for years ahead.
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