June 22, 2011

Supply Chain Improvements in Wal-Mart

Wal-Mart the retail giant has been successful to attract customers through the unbelievably low prices it charges for its products. ‘Everyday Low prices’ is the atrocious slogan Wal-Mart dared to use for a long period and which it has displayed in action. Such an accomplishment could be achieved by Wal-Mart as it was successful in creating a great supply chain on which it had a high degree of command. The growth model which Wal-Mart followed was based on excelling in the logistics. The real power derived by Wal-Mart was due to the fact that it could put pressure on its suppliers on account of its huge purchasing power. Wal-Mart has an enormous control over its suppliers and dictates terms in what to produce, when to produce and the price of the produced goods.
Wal-Mart can exercise the power it does on its suppliers as it is the organization in the supply chain which is controlling the end sales. The sales information which is vital to all players of the supply chain can be provided only by the end retailer. Wal-Mart maintains a collection of last two years sales data which it shares with its suppliers. Thus, it saves the effort on Wal-Mart’s part in situations where they can do away with the purchase orders. The suppliers themselves analyze the sales data and determine how much to produce. Wal-Mart also uses this system to predict future sales data which is again very attractive to the suppliers. Thus, handling of such a huge volume of data has become a core competency of Wal-Mart. It just has to provide the adequate training to the suppliers to use this data effectively, and thereby minimize its own and its suppliers’ costs.
Another area of the supply Chain where Wal-Mart has shown innovative thinking is the area of transportation. The complex transportation network necessitates bringing all the supplies from different producers from different areas to one location which is highly complicated and requires sophistication. This is where the second core competency of Wal-Mart lies. Wal-Mart has also achieved high levels of Logistics Coordination by establishing buying offices around the world. It does not use intermediate warehouses and has abolished middle men from the chain. This has also led to lowering of costs resulting in higher revenues.
Wal-Mart has chosen to establish suppliers in countries which have lower costs of production to lower costs. It has thus utilized technology, invested creatively trained the members of its supply chain and used its purchasing power to create an effective supply chain which has been at the core of its success. It thus has established a pioneering position in the retail industry which is now being emulated worldwide.
Supratik Saha is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech. in Computer Science & Engineering from Siliguri Institute of Technology, West Bengal and can be reached at totoslg @ gmail . com

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