Wal-Mart and Its Global Supply

Wal-Mart and Its Global Supply Chain

Over the last several years Wal-Mart has had a major effect on what is happening around the globe. This is because the company is the largest purchaser and retailer of a variety of products ranging from: toys to consumer goods. Where, their key to success is to be able to offer the lowest prices around. This formula has proven to be so successful that the company has rapidly expanded opening a number of Supercenters around the globe. These are stores that contain a variety of products to include: groceries and prescription drugs. (Goldman, 2003) Then, the company also has the Sam's Club Supercenters. These are large discount volume stores that sell the same items as the Wal-Mart Supercenters, the only difference is: these stores offer larger discounts. This is because the only people, who are allowed to shop at the store, are those who purchase a membership from the location. These memberships can be used at the different Sam's Clubs around the country. ("Sam's Club Facts," 2010) This model of offering lower prices to consumers has proven to be so successful that the company was able to grow from a small five and dime store in Arkansas, to the largest retailer in the world. One of the biggest reasons why the company has been so successful is because it was able to revolutionize supply chain management. Where, they were able to introduce new techniques that would dramatically lower their overall costs and increase their profit margins. At which point, they would continue to expand into different locations and regions around the globe. To fully understand how the supply chain has helped turn the company into one of the most successful retailers requires examining how the supply chain works and what the company is doing to improve it. Together, these two elements will provide the greatest insights as to how the company was able to become so successful in a little over 50 years.

The Supply Chain of Wal-Mart and Sam's Club

Since Wal-Mart owns Sam's Club, they share the same basic philosophy / principals when it comes to logistics and negotiating with suppliers, which is to receive the lowest cost possible. Yet, when you look beyond this obvious point, it is clear that there are a number of different elements that help support the objective of achieving the lowest cost. This is because every single aspect of the company's supply chain plays an integral part in reaching and maintaining this low cost structure over the course of many years. What happens is: Wal-Mart's supply chain is focused on achieving the lowest prices possible from all suppliers. At first the company, would negotiate with regional suppliers on receiving the large volume discounts that it was looking for. Then, as the company began to grow, they continued this relationship of demanding the absolute lowest prices. Over the course of time, these tough negotiating tactics would provide the basic ingredient in keeping costs low. (Chandran, 2002)

However, the company would face a number of issues that would force them to create a supply chain that would support the long-term objective of: bringing substantial value to consumers. What happened was Wal-Mart was mainly focused on building its stores in small to medium sized towns that were in rural areas. This idea of bringing substantial value to consumers in rural areas was a huge success, as it would allow the company to rapidly expand between the 1960s and 1980s. With the founder Sam Walton saying, "When we arrived in these small towns offering low prices everyday, customer satisfaction guaranteed and hours that were realistic for the way people wanted to shop, we passed right by that old variety store competition with it 45% markups, limited selection and limited hours." (Chandran, 2002) This is important because it highlights how the company was able to be so successful.

Three Elements of the Supply Chain

There are times when a company's successes can lead to a number of different challenges. In the case of Wal-Mart, they were facing challenges in maintaining their low cost structure. This is because their stores were in rural locations, which made delivering the different supplies / goods to managers in a timely fashion very challenging. To rectify the situation Wal-Mart tried shipping the different products through various freight / trucking companies. This was problematic, because large trucks were not going to these areas on a regular basis and when they did, the various goods were consolidated with the orders of other customers. As a result, their supply chain evolved based on three basic principals to include: the company owns / operates their own warehouses, they use the supply chain to serve as a stop gap for local stores and they implemented technology to improve the overall management of the supply chain. Wal-Mart owns and operates 40 different distribution centers throughout the United States. This is a critical element to the supply chain of the company, because it allows them to place warehouses in the different regions that these stores are located. At which point, each warehouse can order and receive large bulk shipments from suppliers. This helps to ensure that all of the stores have a consistent supply of low cost products. At the same time, it means that the company is purchasing more goods from their suppliers, which means that they can negotiate an even lower price. This is significant because it shows how the use of each warehouse helps to ensure that the company has vast quantities of a variety of products. Over the course of time, this helps to insulate the company and the stores from the various shocks that could occur to the economy such as: a sharp rise in energy prices. (Soderquist, 2006)

The different warehouses in the area that all of the stores are located, served a stop gap for each store. Where, if the store runs out of different products, they can be able to quickly order large amounts from the warehouse. This helps to ensure that the company is consistently offering customer the products they demand. It also keeps costs low by: making certain that each store does not lose money, by having to pay more for the items they need on short notice. This is important because when a store runs out of an item and there is no way to purchase it, the manager would more than likely have to pay more for the item. At which point the overall profits from each store decline; as they are forced to pay more for the products that customers demand. (Soderquist, 2006)

As Wal-Mart was continuing to grow, many of their stores would require an increasing number of deliveries. At first, the company used to supply each store once a week. Then, as they became more popular the overall demand for different goods from each warehouse increased dramatically. The situation became so extreme, that many stores were requiring several deliveries per day. To address these issues, the company began to use technology to improve demand and the efficiency of its distribution chain. Where, managers could be able to respond to those products that they needed to be delivered right away. Since, the company had a large number of trucks on the road, meant that they could use this technology to save the millions of dollars. The way it works, is once a manager from a store or a series of stores are placing an order, this information is routed to various trucks in the area. If a truck is empty, they can go to the distribution center or the supplier and pick up / deliver the items that are need to the store. This saves the company millions of dollars, by not having empty trucks driving back and fourth between the distribution center. It also, helps to improve the profitability of each store by ensuring that they have a continuous supply of low cost products. This is significant, because it shows how Wal-Mart was able to take its current supply chain and augment it, to respond more effectively to the demands of each store, while simultaneously saving the company millions of dollars. (Soderquist, 2006)