Operations Strategy Matrix Wal Mart Inc Essay

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Wal-Mart Inc.: Operations Strategy Matrix

Operations Strategy Matrix: Wal-Mart Inc.

Wal-Mart is the world's largest retailer. It commits itself to providing everyday low prices to consumers to enable them live better. Its decisions center largely around the provision of commodities at low prices when customers need them. This text examines Wal-Mart's operational strategy and proposes a number of decisions that it could take to improve its standing in the retail market.

Wal-Mart Inc.: Operations Strategy Matrix

Wal-Mart 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 stationary. I had the opportunity to work as an associate in one of the company's stores. During this period, I realized that Wal-Mart is synonymous for a variety of things, among them the concept of successful supply chain management. The company commits itself to making goods available on the shelf for customers whenever they need them. This text reviews Wal-Mart's operational strategy to determine what the company could do to improve its overall level of efficiency. The precepts presented herein are based largely on what I observed working as an associate in the company.

Wal-Mart's Business Operations Strategy

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

Fewer Supply Chain Links: Wal-Mart's supply chain innovations began in the 1980s when the company introduced the vendor management initiative (VMI) initiative 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 and placed it in a better position to manage the supply chain. A 1989 report named Wal-Mart the Retailer of the Decade, with distribution costs estimated at 1.7% of the costs 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).

Strategic Supplier Partnerships: Wal-Mart 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, where it offers them the potential for high-volume, long-term purchases in exchange for the best possible prices. Moreover, Wal-Mart constructs relationship and communication networks with vendors to improve commodity and material flow. This network of retail stores, warehouses and global suppliers behaves like a single firm.

One such partnership was formed between Wal-Mart and P&G to enable the company maintain its inventory levels above reorder levels. P&G computers were linked to Wal-Mart's through a satellite communication system that enabled the former to monitor inventory levels in the latter's stores and then deliver the same to Wal-Mart distribution centers or directly to Wal-Mart stores once the reorder level was reached.

Cross docking: cross-docking refers to the direct transfer of products from inbound trucks trailers into outbound trailers and trucks, with no storage in between. At Wal-Mart 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.

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

Technology: Wal-Mart 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).

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RFID technology provides invaluable benefits to Wal-Mart's supply chain processes. First, it allows for the real time tracking of inventory in the global supply chain. This is because employees and suppliers do not have to manually scan bar codes or count items to find out if an order is complete -- supply can be seen in real time, which enables then to accurately forecast demand and improve reorder timing (Kosasi and Saragih, 2014). Secondly, 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. Basically, therefore, 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 in the U.S. found that Wal-Mart had reported a 16% reduction in out-of-stocks since it introduced RFID technology in its supply chain (Kosasi and Saragih, 2014). Moreover, the study indicated RFID's superiority over bar code technology (the more commonly used technology in retail stores) by pointing out that those products using electronic product codes were often replenished three times faster than those using only bar code technology (Kosasi and Saragih, 2014).

These supply chain innovations by Wal-Mart, and its business strategy as a whole can be presented in the form of an operations strategy matrix as shown in table 1 below.

Table 1: Operations Strategy Matrix for Wal-Mart Corporation

QUALITY of products and services

Decisions

AVAILABILITY

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

Wal-Mart links its computer networks with those of suppliers so that suppliers are able to monitor movements in inventory, and supply the same to Wal-Mart stores or distribution centers once the reorder level is reached. This ensures that the company's shelves are always stocked and that goods are available whenever customers need them **

Distribution centers more than 1 million square feet in size, with between 5 and 12 miles of conveyor belts to keep products moving to the stores 24 hours a day. The massive floor area represents the distribution centers' large-scale inventory holding capacity **

RFID technology synchronizes the physical flow of both goods and information from manufacturers to retail outlets and finally to the consumer at the right time ***

FLEXIBILITY

The company's ability to respond to changes in consumers' trends

Wal-Mart conducts demand planning primarily using historical data. It uses historical data to generate statistical forecasts for new and old products, and collaborating this data with suppliers and manufacturers to determine which products are being demanded by what group, and at what time. It then strives to provide commodities in line with these changes in demand *

A significant number of disaster distribution centers, strategically located to provide rapid response in the event of unforeseen demand and disasters

Use of RFID technology in distribution centers allows for the effective monitoring of inventory products. It allows the company to understand trends in consumption patterns by monitoring which products are getting replenished fastest in the company's stores **

RFID technology in the company's stores and in supplier companies affiliated to Wal-Mart allows the company and its suppliers to monitor movements in inventory and understand changes in consumption trends based on the rate at which products are getting replenished **

Field agents sent to conduct market research to determine whether or not a new product would do well in a particular market, how sales would be affected by culture, and so on *

COST

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

The company operates over 70 stores countrywide; its large size and branch network, coupled with the large number of purchases it makes give it significant bargaining power over suppliers. The company is able to negotiate the best price deals with suppliers in exchange for potential for high-volume, long-term purchases **

Stores located within 130-mile radius of distribution centers. This helps to keep distribution costs low

Company works directly with manufacturers to reduce links in the supply chain and hence, minimize distribution costs

Cross-docking at distribution centers ensures that goods….....

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