Operations Management Wal-Mart Runs a

Operations Management Wal-Mart runs a tight supply chain. The company has considerable power over its suppliers and exercises this not only with respect to pricing but with respect to procurement as well. Wal-Mart exerts tight control over shipping, mandating delivery times and refusing to accept late deliveries. They are now working to improve the social and environmental responsibility of their suppliers as well (2009 Annual Report). Wal-Mart is focused on continual improvement of its supply chain.

The company made improvements to its inventory management in fiscal 2008, which yielded higher initial margins and fewer markdowns. Wal-Mart tracks sales at the store level. This allows managers to understand not only the trends with respect to products day-over-day and week-over-week, but season-over-season as well. By tracking point of sale data, Wal-Mart is able to understand its current inventory levels in store and in transit. Wal-Mart also has a sophisticated system for understanding the unique buying trends at each store, which helps them forecast sales levels more closely.

Wal-Mart uses its data to forecast sales based on product, store, season and is now working on ways to forecast based on the buying patterns of individual customers (Chase, Jacobs & Aquilano, 2005). Accurate forecasting and tight supply chain control gives Wal-Mart two competitive advantages. First, it allows Wal-Mart to operate at minimal system-wide inventory levels. This reduces the carrying cost of inventory and increases the inventory turnover ratio. The second competitive advantage Wal-Mart derives from this is that it brings its unsold merchandise to a minimum.

The company only orders what it thinks it can sell. Those forecasts are only as valuable at the information that went into their production, and Wal-Mart puts more information into the production of its forecasts that virtually any other retailer. II. The four primary forecasting techniques are time series analysis, causal relationship forecasting, focus forecasting and web-based forecasting. Time series models try to predict the future based on past data (Chase et al., 2005).

Wal-Mart uses point of sale data collection to gather information that can be analyzed on the basis of geography, time of year and even time of day. This helps the company to understand how much of what was sold when, and where. The key elements of time series model are the time horizon to forecast, data availability, accuracy required, size of forecasting budget and the availability of qualified personnel. Wal-Mart has the data, and the personnel.

They are therefore able to create the forecasts they need -- including products with different lead times. Causal relationship forecasting relies on leading indicators as a predictor of sales. This approach. The technique requires regression analysis to determine the degree of correlation -- which is assumed in this case to indicate causality -- between the independent and dependent variables.

For example, Wal-Mart's sales saw an increase during the recent recession -- with enough data points, a regression analysis could reveal the degree to which a stagnation of the GDP will increase Wal-Mart's sales. The company's data is such that the dependent variables can be individual products. Focus forecasting This technique is based around rules of thumb, wherein past data is interpreted in the context of these rules to yield a forecast for the future. Focus forecasting is a relatively simple technique that yields imprecise, but roughly accurate results.

Wal-Mart prefers more sophisticated methods and builds any focus concepts into the assumptions surrounding its time series analysis. Web-based forecasting involves bringing suppliers into an integrated forecasting process whereby input ordering at the supplier is tied directly to the forecasts at the buyer level. Wal-Mart uses this technique extensively, since not only does it help to guarantee that its suppliers will be able to meet Wal-Mart's demand, but Wal-Mart wants to help its suppliers manage their supply chains better.

If a supply managers its own supply chain more efficiently, it can supply the good to Wal-Mart at a lower price. 3. Wal-Mart's forecasting techniques have impacted its master schedules and production plans. The company is linked with its suppliers, such that Wal-Mart essentially dictates their production schedule on the basis of Wal-Mart's forecasted demand. Wal-Mart's demands for cost reductions impact capacity planning and workforce management at its suppliers. The more information that Wal-Mart gathers, the better it performs at inventory management.

Wal-Mart prepares its budgets with thorough use of forecasting techniques. It uses time series data to analyze long-term sales expectations. This is linked throughout its supply chain, such that suppliers are guided by these forecasts. Wal-Mart also makes continual adjustments to the forecasts, sometimes based on new data that has been gathered but also sometimes based on established causal relationships.

Not only does the sales data go into the budget, but so does the cost of goods data -- Wal-Mart's negotiating power allows it to dictate prices so that it knows in its budget what its cost of goods sold is going to be. A Wal-Mart budget is an all-inclusive document that forecasts demand down to the day for 100,000 products and forecasts costs as well, taking advantage of the company's relative cost certainty. 4. Wal-Mart needs materials for store construction, store upgrades and for general conduct of business purposes.

The company approaches materials resource planning (MRP) in the same way it approaches its supply chain management. Wal-Mart forecasts demand by planning store openings in advance, and then secures the necessary materials using many of the same techniques as it does for its merchandise. There is a significant difference between MRP at Wal-Mart and Toyota, as the former is a retailer and the latter is a manufacturer. Toyota strives to streamline its inventory of parts so that parts are available as needed, but that.