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Effective Supply Chain Management: A Review of Wal-Mart Meltem Uygun


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INTERNATIONAL INTERDISCIPLINARY
BUSINESSECONOMICS
ADVANCEMENT CONFERENCE
(IIBA)
CONFERENCE PROCEEDINGS

July 16-19, 2014


Istanbul, Turkey

Effective Supply Chain Management: A Review of Wal-Mart


Meltem Uygun (p.478-485)

Co-Editors:
Prof. Dr. Cihan Cobanoglu
Prof. Dr. Serdar Ongan

ISSN: 2372-5885
International Interdisciplinary Business-Economics Advancement Conference

Effective Supply Chain Management: A Review of Wal-Mart


Meltem Uygun
Institute of Social Sciences/ PhD in Business Administration Gazi University, Turkey
mel.uygun@gmail.com

Abstract
Supply Chain Management (SCM) is one of the new business systems emerging with the development of
cooperation between businesses and intensive use of information and communication (IT) technologies, has been
applied extensively in recent years to increase customer satisfaction and to remain competitive in order to
achieve such purposes by enterprises. SCM also includes the management of international trade, the relationship
between suppliers. Small mistakes can be very costly to the companies in international trade. Therefore, the giant
retailers like Wal-Mart, they use information systems used to increase the performance and efficiency is
consistently great introduction to investing. This study is a review of Wal-Mart’s effective supply chain
management which is one of the largest and powerful retailers in the world and they have expended their
business all over the world by having logistic systems that is comparable from any other retailers. This study
examined Wal-Mart's supply chain management (SCM) process, cross-docking, (IT) information technologies,
Scanner-Technology and the use of RFID and sales and pricing as cost dimension.

Keywords: Wal-Mart, Supply Chain Management, Cross-Docking, (IT) Information Technologies, RFID

Introduction
Enterprises are obliged to remedy deficiencies in the supply chain ranging from manufacturing to the customer at
the end in order to achieve a flexible production in accordance with changing customer demands in the
competitive conditions. Especially the intensive competition and free market economy in the market, revival or
stagnation in domestic market and the idea of opening foreign markets lengthen the supply time of the product.
In the last 20 years, the supply chain management (SCM) evolved as a management concept, as recently, with
the increase in intensive use of information and communication technologies and the development of inter-firm
collaborations it is seen that SCM is one of the emerging business system. Figure 1 shows the evolution of
supply chain collaboration the years between 1980's to 2000's.

Fig. 1. Evolution of Supply Chain Collaboration (Source: Ireland, R.K. (2004). Supply Chain Collaboration: An
Implementation Guide. J. Ross Publishing, Boca Raton, FL, USA p.43)

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It is seen that SCM became an important competitive advantage used recently by most of the enterprises in order
to achieve the purpose to increase customer satisfaction and to remain competitive. Enterprises must provide the
resources with the highest efficiency, highest quality, lowest cost to achieve competitive advantage, with the aim
of surviving under competitive conditions and increasing competitor in this field. Fast moving consumer goods
are a manufacturing sector which started globalization. Like Wal-Mart the most successful companies today
know that to provide continuously being the dominance of market depends on how they keep under control on
evolutionary processes located within their supply chain. It is observed that Wal-Mart is the best retail brand in
2013 and the success behind it became worth to examine. Wal-Mart has one of the most effective SCM in the
world and in this respect this study reviews the SCM process of Wal-Mart as; cross-docking (as logistic
technique), inventory (stock) management and (IT) information technologies.

Issues
Supply chain management is defined as creating value systems to provide a high level of information-sharing
and sustainable competitive advantage member organizations high performance within the organization and
integration of supply chains, collaboration within organizations relations and effective business process
(Handfield and Nichols, 2002). SCM is the management of money, information material/product between
supplier, manufacturer, distributor, retailer and customers to achieve raw materials for production and
deployment of obtaining final customer as much of an asset located in a value chain. The company provides
integrated internal resources to work efficiently with external sources. The goal is to increase the values that
make up all of the company's performance, such as improved production capacity, market sensitivity and
customer/supplier relationship.

Companies are required to achieve these objectives by increasing the communication and sharing of information
with suppliers and customers, their suppliers and their customers in the entire of supply chain. Recently in the
changing world competition will be no longer among stand-alone companies there will be competition within the
supply chain of the companies (Kehoe, Boughton, 2001). Everyone in the organization needs to understand and
support the concept of SCM. The supply chain structure makes it necessary that creating a successful SCM needs
the support of other functions in the enterprises. SCM requires the coordination of activities distributed over a
wide area and with the functional boundaries it transcends the boundaries of organizations.
The basic condition for success of SCM is effectively sharing the fast and accurate information among
procurement, production, marketing and logistics et. al. (Lancioni, Smith &Oliva, 2000). Wal-Mart has
demonstrated the opportunities to combine lean supply chains with high levels of customer service. Wal-Mart
adapted a new technology to meet retail industry needs. Retailers provide labour-intensive services and have
quite high employee turnover rates, so hiring is a substantial burden.

Wal-Mart established in 1962 by Sam Walton with the perfectionism mentality, opened the first store in Rogers,
Arkansas, United States. Wal-Mart was America’s Top Retailer By 1990, as the Wal-Mart supercenter redefined
convenience and one-stop shopping; "Every Day Low Prices" went international. Wal-Mart rose to the position
of the largest employer in the U.S. in 1997. By the year 2014, the company employs 2.2 million associates
worldwide and serves more than 200 million customers each week at more than 11,000 stores in 27 countries
(http://corporate.walmart.com/, [Jan.10, 2014]).The interbrand of the year 2013 is Wal-Mart, it delivered its best
top-line results in the last five years and continues to be the dominant retailer in the U.S. with 10 percent of all
retail sales more information can be found on http://www.interbrand.com/en/ BestRetailBrands/2013/ [Jan.10,
2014].

Wal-Mart still continues to grow and expand into the international arena and this phenomenal growth of
company is attributed to its continued focus on customer needs and reducing cost through efficient supply chain
management practices. Wal-Mart is one of the world's most high-tech companies and the most important factor
of the company's success is undoubtedly its effective SCM. Wal-Mart is having the industry's most sophisticated
inventory control and electronic data interchange system by investing in technology and better logistics systems
as well as improving the investment of stores.

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Procedures

This study is a review of Wal-Mart 's cross-docking as logistics technique, information technology (IT), scanner
and RFID Technology, Electronic Data Interchange (EDI)to internet based supply chain systems and sales and
pricing as cost dimension.

Simchi-Levi, Kaminsky and Simchi-Levi (2003) define that cross-docking is a supply chain strategy which can
bring significant savings in supply and supply chain cost. In the late 1980's to make the distribution process more
efficient Wal-Mart began using this logistic technique in the retail sector. In Wal-Mart's cross-docking, goods
are continually transmitted to company's distribution centers where after the selection, repack and consign to the
stores they are crossing from one loading dock to another in less than 48 hours, instead of waiting useless in the
ware houses (Stalk, Evans and Sgulman, 1992).In this system cross-docking facilities are operated as transfer
points where the purpose of eliminating the storage of materials they are not used as stores like in traditional
shipping (Simchi-Levi et. al, 2003). While in the traditional supply chain retailers put the products into the
stores, but cross docking system works when the customer takes the product from the shelf. In addition to that
Wal-Mart has its own transportation system beside its competitors. This gives an advantage to company to lower
the transportation costs.

Wal-Mart has used information systems to enlarge many operating advantages. Wal-Mart gains a cost advantage
by using (IT) technologies and makes it better to control orders and inventory. The company cautiously manage
store inventories with the informations come from seizing and monitoring costumer demand. This control is
extended through the distribution system, as Wal-Mart uses its capabilities to coordinate the flow and inventories
its distribution centers, can be seen also in Figure 2 (Leenders, Fearon, Flynn, Johnson & Flynn, 2006).
Leenders et. al. (2006) mention that the use of (IT) for inventory management has the obvious effect of
improvement efficiency and inventory turns, which reduces cash-to-cash cycle times. But it also allows for
increased variety. Wal-Mart gained competitive advantage through superior inventory management, enabled by
its investments in sales and inventory tracking. Accounting and human resources management systems are as a
core and they make inventory management context.

Wal-Mart has done rationalistic investments in support systems and developed its own private satellite-
communication system that sends daily point-of-sale data directly to its 4,000 suppliers to operate cross-docking
(Stalk et. al, 1992) as can be seen in Figure 2 Wal-Mart's Supply Chain. By satellite communications between
the suppliers, distribution centers and stores Wal-Mart Headquarters gets all the information of chains in SCM.
Distribution centers work as a transfer points crossing from one loading dock to another, suppliers directly get
the information from the stores by satellite communications and prepare the products for the needs of the stores.

Fig. 2. Wal-Mart's Supply Chain


(Source: Russell, R. S.,& Taylor, B. W. (2003). Operations management: Focusing on quality and
competitiveness. Upper Saddle River, New Jersey: Prentice Hall,4th Edition, p.286.)

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Wal-Mart's eventual use of scanner technology has been fundamental for the company. With this system Wal-
Mart constantly knows about the selling information from where and when happens. This technology helps to
replenishment what needs in the stores. Wal-Mart's products remain on the shelves as consignment by the
manufacturers and the use of scanner made it possible to create and manage larger inventories (Hair,
Wolfinbarger, Ortinau& Bush, 2008). Wal-Mart now requires its top 100 suppliers to use RFID technology in
shipping cases and pallets (Attaran, 2007). RFID is a system consisting of RFID tag, receiver and antenna by
these reads the radio frequency data and transmits a processor and contains the information to be transported
RFID tag. FID tags also provide the informations of customer behaviors which can be used by retailers and
suppliers.
Electronic Data Interchange (EDI) provides data transferring among the companies in the supply chain in a to
increase the speed and accuracy of data streams, to eliminate multiple datas to be entered in different systems
and same data in different places (Lambert, Stock&Ellram, 1998). A fundamental strategy to reduce supply
chain costs is cooperating with the rings in the supply chain and as a result sharing benefits to be obtained.
Electronic Data Interchange Systems (EDI) replaced by the internet data based supply chain systems where
exchange of information and managing the supply chain process much faster and cheaper (Brockmann, 1999).
Lancioni, Smith & Oliva (2000) defined that internet based supply chain management is a system which is
established in internet to supply raw materials used in production, to move these substances to production areas
and to reach the products performed to the customer. Internet based supply chain management will make a
significant contribution to reduce the costs and provide optimal use of resources within the organization of
inventories, production and logistics plans according to the conditions of reaction of changes in market. Wal-
Mart settled internet based system among Procter & Gamble (P&G), within this P&G watched the stocks in Wal-
Mart's distribution centers and stores and provided its own products ready for customers to buy (Koch, 2002).
More than ten years after the Wal-Mart and Procter &Gamble meeting, their desire to work together more
collaboratively has spawned a new business model, new business processes and practices, and new technology to
support trading information among supply chain partners. For Wal-Mart, supply chain collaboration has been
part of a transformational strategy that has enabled it to eliminate waste from its supply chain and pass along the
savings to its customers. Wal-Mart has been rewarded for its effort with sales revenues that have risen nearly 15
percent per year (Ireland, 2004). Wal-Mart's financial performance can be seen Figure 3 and Wal-Mart inventory
as a percent of revenue can be seen in Figure 4.

Fig. 3. Wal-Mart Financial Performance (Ireland, 2004)

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ISSN: 2372-5885
International Interdisciplinary Business-Economics Advancement Conference

Fig. 4. Wal-Mart Inventory as a Percent of Revenue (Ireland, 2004)

Changing the business rules has also provided opportunity for Wal-Mart’s suppliers to improve their companies’
financial performance. For Procter & Gamble, the new way of doing business has bolstered its footing in the
extremely competitive consumer goods industry. Procter & Gamble has also used its leverage in the market place
to convince its other retailer customers to adopt supply chain collaboration (Ireland, 2004, p.54). Wal-Mart
focuses on providing goods at the lowest possible cost to the costumer. Wal-Mart in particular has developed
network-based capabilities that allow it to achieve low cost performance throughout its supply chain. Managers
of the local Wal-Mart store had the freedom and flexibility in determining the purchase, price adjustment and
product issues to respond to local rivals and to the changing needs of customers (Leenderset. al, 2006). "Every
day low price" strategy offers to the customer with a better deal and provides savings in merchandising and
advertising costs (Stalk et. al, 1992). Because of the high amounts of purchasing power for the company has a
good bargain. Wal-Mart's sales growth can be seen in Figure 5.

Fig. 5. Wal-Mart's Sales Growth


(Source: http://www.scdigest.com/ASSETS/FIRSTTHOUGHTS/12-07-26.php?cid=6047)

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Wal-Mart's US sales have been growing at more than 6%, while overall retail sales over that time have grown at
just a 3.2% rate, from about $1.6 trillion in 2001 to $2.3 trillion last year. Wal-Mart Share of US Sales (US
Store+Sam's) of total US Retail Sales can be seen in Figure 6.

Fig. 6. Wal-Mart Share of US Sales (US Store+Sam's) of total US Retail Sales


(Source: http://www.scdigest.com/ASSETS/FIRSTTHOUGHTS/12-07-26.php?cid=6047)

Wal-Mart operates more than 10.000 retail units in 27 countries. The customers who have the annual income
which is less than $ 30.000 shop at Wal-Mart stores and this constitutes approximately 65% of American
consumers (Tekinay, 2005). Wal-Mart price policies to earn more with making the price increases on drop and
increased volume. Wal-Mart, carried out the amount of the sales within an hour is $ 38 million. In this sense,
Wal-Mart becomes one of the world's most efficient company. Wal-Mart transmitted over the Annual Report
(2014) that can be seen in Table 1, the total revenues of activities inside and out of America the years between
2012-2014 (http://walmart.com/, [Apr.25, 2014]).

Table.1 Total Incomes of Wal-Mart the Years between 2012-2014

As shown in Table 1 Wal-Mart's total incomes continuing to increase with US (in) and US (out) activities for the
last years. The company's system of online sales Wal-Mart to go pursues a strict competition policy also in the
digital world as well as in the physical store.

Results
Cross-docking provides significant savings of racking in the ways of storage, materials replenishment, order
picking, preparing and packing for shipment are eliminating functions. Instead of using a large fraction of
distribution centers for storage as waiting stops, by converting them to transfer points companies can provide a
competitive advantage in macro level. Wal-Mart's success in reducing the storage, distribution and logistics costs
was to be settled every Wal-Mart store to the distribution center in one day distance. Mol(2013) draws attention
to Wal-Mart's lower transport costs because of its own transportation system which is making delivery to
different stores in less than 48 hours. Transport costs of Wal-Mart is 3% of total costs, competitive transport cost
is 5% of their total costs. To have company's own transportation system provides Wal-Mart to fill the store
shelves four times faster than the competitors.

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Some of the potential benefits of the RFID technology include the following manual counting and bar counting
and bar coding of incoming and outgoing material are eliminated; readers can automatically track inventory
levels; identifying and picking inventory would be faster, easier, and more accurate; and spoilage could be
reduced through improved stock rotation. Zhu and Thonemann (2009) report that using the RFID technologies
Procter &Gamble and Wal-Mart lowered their stocks 70%, developed their level of service from 96% to 99%
and at the same time reduced their management cost in this way.

Fig. 7. Stock Time Period in Suppliers, in Distribution Centers and in the Stores.
(Source: Wal-Mart: Supply Chain Management, Wal-Mart Implications (2012), http://www.docstoc.com/ docs/
115196964 / Wal-Mart-Supply-Chain-Management.)

Wal-Mart's stock management significantly has resulted effectively after the use of cross-docking, (IT)
information technology and RFID Technology. As can be seen in Figure 7, with the use of these technologies
stock time period in the supplier reduced from 30 days to 3 days. The stock time period in the distribution
centers reduced from 30 days to 2 days and in the store reduced from 14 days to 3 days. All of these provided
suppliers to answer the product need more faster. Wal-Mart see the benefits of effective inventory management
in this way according to the competitors that Wal-Mart stores are filled the distribution centers 2 times a week,
but the speed of the overall sector is repeated 1 time per 2 weeks. Within the Wal-Mart's stable sales with prices
becoming more predictable, in that case, thus reducing stock-outs and excess inventory is avoided. Low price
policy provides that always a high level of sales volume is to be ensured and this brings easy profit sharing
(Stalk et. al, 1992).

Conclusions

This study reviewed Wal-Mart to examine supply chain management system which is considered to be one of the
vital for the companies-business system. In this sense, today, in developed countries is thoroughly understood
that the necessity to implement in enterprises and this study may lead the enterprises in order to understand the
importance and benefits of the most effective supply chain management company in the world. The Wal-Mart's
effective supply chain management system consisted of cross-docking, (IT) information technology, RFID
Technology, and internet based supply chain systems and the sales and pricing strategies supported this system
in order to get success. Wal-Mart's effective supply chain management system benefits are seen as; shortening of
delivery times, faster inventory turns, and increasing inventory levels more precise estimates, storage areas, a
reduction in the replacement stock and better use of capital. In addition to these, due to reduce dependence on
distribution center managers which made training costs reduce and minimize the errors, however the risk of
nonstock and its harms were also eliminated.

In developing inter-enterprise integration and cooperation is seen that the value spreaded in creative ways with
the help of information and communication technologies. Today's world of business will be competitive in the
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environment of each companies own supply chain rather than the individual competition. This sense, enterprises
in our country should create an environment of trust and move business processes required to open to each other
for to stay competitive and transfer their businesses to the next generations. The opportunity to earn more
benefits will arise for all supply chain members who practice in the way of businesses through the whole chain
with the coordination of the management. It has been indicated in this study that to have a superior SCM and e-
supply applications are the important roles behind the Wal-Mart's succeed in world markets. Wal-Mart’s supply
chain management system has provided the company with many competitive benefits such as lowering product
costs, reducing the stock transportation costs and highly competitive pricing for the customers. This strategy has
helped Wal-Mart to become a leading power in the competitive global market. As technology develops Wal-
Mart carry on improving its supply chain to have much more efficiency by focusing on the inventive SCM
processes and systems.

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