Walmart china - supply chain transformation

Running head: SUPPLY CHAIN MANAGEMENT 1

SUPPLY CHAIN MANAGEMENT 2

Walmart-China Case Study

Michelangelo Orsini

QSO 330

Case Summary

Walmart is an American retail enterprise operating a chain of discount shops and grocery stores (Johnson, 2015). In 2015, the business made sales of over $482 billion positioning it as the largest retailer business in the world (Johnson, 2015). The Company’s success has partly been attributed to its online strategies, where it is also anticipated that it will be able to generate an investment of approximately $1 billion in the ensuing fiscal year. During the same period, the management also declared the Company’s interest to grow their presence within the offline platform and the integration of both online and offline strategies in China (Johnson, 2015). The Walmart Company was first introduced in China in 1996 in Shenzhen region, following the establishment of the business supercenter and a Sam’s Club (Johnson, 2015). By 2015, the business had established about 416 of its stores across China. Currently, the enterprise perceives its efficient supply chain as its most important strategic asset for competing in the retail sector, along with its centralized strategy for stores and logistics controls (Johnson, 2015). Walmart also has two distribution centers in China namely, the perishable distribution center and the dry distribution center.

Nevertheless, some of the supply chain management issues Walmart has had to deal with in the past include establishing appropriate infrastructures for its perishable portfolios and having over two-hundred stores before the fall of 2025 (Johnson, 2015). Also, Walmart has continued to experience challenges on what flow model (flexible, cost-efficient, and promising in terms of business growth) is ideal for its DCs (Johnson, 2015).

II. Demand Forecasting

A. Evaluation

i. Suppliers

Walmart China supply chain has evolved over time from ship-direct-to-store to other more centralized models of supply chain management. Nonetheless, the supply models faced several criticisms ranging from being costly and exposing suppliers to a poor quality of services while using the DCs (Johnson, 2015). Whereas Walmart DC strategy was perceived as value adding to the supply chain, the suppliers also complained of high fees for using Walmart network rendering it suppliers insensitive. Essentially, the DCs were aimed at reducing logistic cost, optimizing inventory levels, and enhancing the quality of services by allowing suppliers to ship directly to Walmart stores (Johnson, 2015). However, the DC strategy was later deemed as unfavorable to perishable commodities transported to the warehouses. Therefore, in 2015 the DCs were divided into two categories to cater for perishable and dry merchandises, where an aggregate of 15,000 to about 20,000 SKU were created within its stores. Using the new DC strategy supplies were shipped based on individual store needs to overcome the complexities of achieving order fill-rates, logistic costs, and achieve minimum order quantities needed to overcome stock run out (Johnson, 2015).

ii. Demand Constraints

The demand forecasting constraint for Walmart may partially be impacted by the third-party handling of its eleven DCs. Nevertheless, the Senior VP of Walmart-China Mr. Lesley Smith proposed the need to establish an in-house managed distribution center, which will substitute the existing ones and effectively respond to future demand and supply for the firm (Johnson, 2015). The proposed DC will cater for the current 128 stores and proposed 200 stores capacities by end of 2025. Therefore, the management had the challenge of implementing the best flow model to achieve the optimum inventory capacity projected for their new DCs (Johnson, 2015).

Also, another demand forecasting constraint for Walmart is pegged on consumer needs. Walmart was faced with the problem of setting up a convenient store location, along with introducing an inexpensive alternative, and quality goods and services to its Chinese markets. Therefore, the management responded by growing the number of its retail outlets in several locations in Chinese provinces along with implementing affordable pricing (Johnson, 2015). Other expectation among customers included growing the Company SKUs to about 3,500 to sustain their inflated daily demand of approximately 90,000. Also, the enterprise was expected to have an efficient operating cycle throughout the week to achieve the demand capacity of approximately 150,000 daily (Johnson, 2015). Furthermore, Walmart China is focusing on growing consumer operations where it has continuously strived to remit goods nearer to the consumers where it has increased it supplies to over 1,900 retail outlets in different regions. Furthermore, the ongoing e-commerce transformation has seen the inventories held by the business reduce over time (Johnson, 2015).

III. Sourcing

A. Evaluation

Walmart-China currently deploys the cross-dock sourcing strategy where its network has been disjointed into 20 distribution centers, i.e., 11 DC for perishable merchandise and 9DC for dry merchandise (Johnson, 2015). Using the strategy shipments as received are sorted and laden into trucks, which are then dispatched to the store. Such a strategy is deemed efficient in lowering the firm inventory and inventory turnover cost (Johnson, 2015). Furthermore, Walmart has received significant flexibility in increasing its SKUs within its supply chain system. Hence, the business is able to benefit from bulk shipping that is done on a timely basis (24 hours) and closer to its stores, along with saving on storage-related costs (Johnson, 2015).

B. Recommendations

Therefore, it is recommendable that the management at Walmart resort to using staple stock flow for its sourcing and revitalize its stock delivery plan (Cooper & Ellram, 2014). Implementing such a model is significant for the Company to overcome its supplier complexities and for stock scheduling purposes to ensure timely delivery and quality of the supplies (Richards, 2017). Besides, the cross-docking technique has its downsides and may not be ideal for every situation of a sustainable supply chain, e.g., where delivery is not prompt/ ready. Hence, an appropriate strategy will overcome the problem of stock mismanagement, along with lowering the inventory and logistic overheads (Cooper & Ellram, 2014). Also, a resilient and consistent network should be adopted to correspond and satisfy market demand (Richards, 2017).

References

Cooper, M. C., & Ellram, L. M. (2014). Characteristics of supply chain management and the implications for purchasing and logistics strategy. The international journal of logistics management, 4(2), 13-24.

Johnson, F. (2015, November 26). Walmart China - Supply Chain Transformation. Retrieved May 28, 2018, from https://hbr.org/product/walmart-china-supply-chain-transformation/W15534-PDF-ENG

Richards, G. (2017). Warehouse management: a complete guide to improving efficiency and minimizing costs in the modern warehouse. Kogan Page Publishers.