Walmart Operations Strategy Matrix: Analysis & Improvements

Introduction to Walmart's Business Operations

Walmart is an American-based multinational corporation operating a chain of retail stores in the UK and in 25 other countries. Founded in 1962, the company grew from a small general store into the world's largest retailer, with over 65 different banners. In the UK, the company operates under the name "Asda" and runs over 70 stores dealing in general merchandise including clothing, apparel, foodstuffs, groceries, and stationery.

Walmart commits itself to providing everyday low prices to consumers to enable them to live better. Its decisions center largely around the provision of commodities at low prices when customers need them. This paper examines Walmart's operational strategy and proposes a number of decisions that the company could take to improve its standing in the retail market. The analysis is informed in part by direct observation during a period of employment as an associate in one of the company's stores, during which Walmart's reputation for successful supply chain management became clearly apparent.

Walmart's Supply Chain and Operations Strategy

Walmart's mission is to provide everyday low prices to consumers to enable them to live better. To achieve this, the company has focused on developing cost structures that support its everyday low pricing initiative. It has created an advanced and highly structured supply chain management strategy to enhance its competitive advantage and maintain its market leadership position. It uses this strategy, in addition to its large size and massive bargaining power, to drive down costs and offer everyday low prices to its customers.

Walmart's supply chain innovations began in the 1980s when the company introduced the Vendor Management Initiative (VMI) in its supply chain. The initiative gave manufacturers the opportunity to manage their products in the company's warehouses. As a result, the company was able to work directly with manufacturers, eliminating other links in the supply chain. This helped it cut down on distribution costs and placed it in a better position to manage the supply chain overall. A 1989 report named Walmart the Retailer of the Decade, with distribution costs estimated at just 1.7% of the cost of goods sold (Johnson, 2006). The company's main competitors, Sears and Kmart, lagged far behind with delivery costs estimated at 5% and 3.5%, respectively (Johnson, 2006).

Walmart uses strategic sourcing to find commodities at the lowest prices from suppliers who are in a position to meet demand. It then establishes strategic partnerships with these vendors, offering them the potential for high-volume, long-term purchases in exchange for the best possible prices. Moreover, Walmart constructs relationship and communication networks with vendors to improve commodity and material flow. This network of retail stores, warehouses, and global suppliers behaves effectively like a single firm.

One such partnership was formed between Walmart and Procter & Gamble (P&G) to help maintain inventory levels above reorder thresholds. P&G's computers were linked to Walmart's through a satellite communication system, enabling P&G to monitor inventory levels in Walmart's stores and then deliver goods to Walmart distribution centers or directly to Walmart stores once the reorder level was reached.

Cross-docking refers to the direct transfer of products from inbound truck trailers into outbound trailers and trucks, with no storage in between. At Walmart distribution centers, products are cross-docked and then delivered to stores. This helps to keep storage and inventory costs down and eliminates inefficiencies in the supply chain.

Walmart trucks continuously deliver goods from suppliers to distribution centers, which are located an average of 130 miles from each store. At the distribution center, goods are repackaged and distributed without sitting in inventory. Goods move from one dock to another in 24 hours or less. This reduces storage and inventory costs, and the resulting savings are passed on to the consumer in the form of low prices.

Walmart uses RFID technology to track inventory levels, forecast demand, and ensure that goods are available on the shelf when customers need them. RFID is a technology that allows for the storage of large amounts of information on chips (transponders/tags) that can be read by readers from long distances without requiring a line of sight (Kosasi and Saragih, 2014). RFID technology provides invaluable benefits to Walmart's supply chain processes.

First, it allows for real-time tracking of inventory across the global supply chain. Employees and suppliers do not have to manually scan bar codes or count items to verify whether an order is complete — supply can be seen in real time, enabling accurate demand forecasting and improved reorder timing (Kosasi and Saragih, 2014). Second, it synchronizes the physical flow of both goods and information from manufacturers to retail outlets and finally to the consumer at the right time (Kosasi and Saragih, 2014). This helps to reduce costs associated with the upstream flow of demand information and the downstream flow of goods. In essence, the technology enhances total supply chain visibility from points of production to those of consumption, and boosts the company's ability to know which products are being demanded by which group of customers, and at what time (Kosasi and Saragih, 2014).

A 2012 study by researchers from the University of Arkansas found that Walmart had reported a 16% reduction in out-of-stocks since introducing RFID technology in its supply chain (Kosasi and Saragih, 2014). Furthermore, the study indicated RFID's superiority over bar code technology — the more commonly used technology in retail stores — by pointing out that products using electronic product codes were replenished three times faster than those using only bar code technology (Kosasi and Saragih, 2014).

Operations Strategy Matrix

These supply chain innovations, and Walmart's business strategy as a whole, can be presented in the form of an operations strategy matrix. The matrix below maps the company's key operational decisions across performance objectives including availability, flexibility, cost, capacity, supply networks, process technology, and organizational development.

Encompasses speed and dependability — the availability of products on the shelf when customers need them.

Walmart links its computer networks with those of suppliers so that suppliers can monitor inventory movements and supply goods to Walmart stores or distribution centers once the reorder level is reached. This ensures that shelves are always stocked and goods are available whenever customers need them. Distribution centers exceed one million square feet in size and feature between 5 and 12 miles of conveyor belts to keep products moving to stores 24 hours a day. RFID technology synchronizes the physical flow of goods and information from manufacturers to retail outlets and to the consumer at the right time.

The company's ability to respond to changes in consumer trends.

Walmart conducts demand planning primarily using historical data to generate statistical forecasts for new and existing products, collaborating this data with suppliers and manufacturers to determine which products are being demanded by which customer group, and at what time. The company also maintains a significant number of disaster distribution centers, strategically located to provide rapid response in the event of unforeseen demand surges or disasters. RFID technology in distribution centers and supplier facilities allows monitoring of inventory movements and analysis of consumption patterns based on replenishment rates. Field agents are also deployed to conduct market research to determine whether a new product would succeed in a particular market and how sales might be affected by local culture.

The company's ability to minimize distribution and overall operational costs.

Walmart operates over 70 stores countrywide. Its large size, branch network, and high purchase volumes give it significant bargaining power over suppliers, enabling it to negotiate favorable price deals in exchange for potential high-volume, long-term contracts. Stores are located within a 130-mile radius of distribution centers, which keeps distribution costs low. The company works directly with manufacturers to reduce supply chain links and minimize distribution costs. Cross-docking at distribution centers ensures that goods move from inbound to outbound trucks without being stored in inventory, thus minimizing storage costs. RFID technology reduces labor costs by eliminating the need to manually scan bar codes or count items; as systems become more automated, fewer employees are required. The company also uses field counselors with sales data to minimize waste and maximize sales.

Conclusion

This paper reviews Walmart's operations strategy to determine the decisions that the company currently focuses on, and those that it could adopt to improve its overall standing in the global retail industry. The company's operations strategy matrix shows that its strategy is driven primarily by the need to provide low-cost commodities to customers when they require them. The company, however, appears to underemphasize quality in its strategy. It places considerable focus on decisions geared at reducing operational costs and providing low-cost commodities, but focuses very little on enhancing the quality of the products supplied by vendors.

The company's competitive position could be strengthened if it uses its large size and bargaining power to negotiate higher-quality deals from suppliers, incorporates technology into its suppliers' quality improvement systems, and employs sensitivity analysis as a complement or alternative to historical data in its demand forecasts.

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