Walmart is an American global retail store founded by Sam Walton in 1962 in Arkansas. It began as a small store based on the concept of selling more items at a lower price. Walmart has grown over the last five decades to one of the biggest retailers in the world with hyper- stores and warehouses throughout the globe. Walmart deals with a wide range of products and brands including furniture, electronics, kitchenware, groceries and clothes among others. In the course of the advancement and expansion of Walmart, the concept of procurement and supply logistics has advanced to become one of the primary sources of competitive advantage for organizations. Most global successful companies employ high-end procurement and supply logistics to gain the edge in the market by reducing cost in supply chain thus being able to give customers discounts and lower prices. Walmart sourcing and transportation is vital to its success and remains a source of its competitive advantage. Therefore, a look at Walmart’s sourcing and transportation techniques help understand the company’s strategic and unique procurement and supply management and its role of Walmart’s success.
Walmart is a retail store dealing with diverse products in type and brand. Knowledge of the types of stock Walmart handles is critical to understanding its sourcing and transportation processes. Walmart handles four essential types of inventory which are finished goods inventory, buffer stock, expected inventory and transit stock. Finished goods are the primary type of stock Walmart handles whereby finished products are transported to the company’s warehouses for storage to enable fast replenishment on the shelves since they sell regularly. Transit goods refer to stick that is held in transport as it is en route to the various chain stores across the globe. Walmart is a global company that utilizes the same suppliers for its stores hence some good take day to months to arrive at the respective stores to restock goods depleted in the stores. Buffer stock refers to the extra amount of products Walmart holds in its stores to sustain supply in case of unforeseen surges in demand. Lastly, expected inventory is the additional stock held in Walmart store-based of predicted increases in orders especially for seasonal items such as increasing stock before black Friday regarding the anticipated increase in demand (Greenspan, 2017). The different inventories are thus strategically sourced and transported to the warehouses through the well-established Walmart sourcing and transportation strategies.
Walmart’s sourcing and transportation approach is well defined, unique and exceptionally successful. Walmart’s sourcing strategy is driven by finding an everyday low price objective. The sourcing technique is a fully developed system heavily supported and reliant on technology. Walmart’s sourcing and transportation are characterized by three major aspects including its distribution methods, its transportation trucks, and technology. In supply, Walmart deals directly with manufacturers since 1980s. Walmart is well invested in sourcing suppliers by studying the market and meeting several manufacturers to identify the one who offers the lowest price. Walmart enters into supply contract when it is convinced that the supplier’s price is the least in the market. Walmart seeks to understand the cost structure of the supplier to ensure the supplier is cutting down on cost efficiently to a level that allows them to offer Walmart the lowest price (Nguyen, 2017). Walmart’s is, therefore, able to ensure low rates from the beginning of its sourcing process that ultimately enables it to offer low charges to customers.
Walmart’s operates on a vendor managed inventory whereby the supplier manages Walmart’s stock levels in their warehouses. The vendor managed the use of advanced information systems fully enables inventory (VMI) method. Typically, the supplier of a specific product, who in the case of Walmart is the manufacturer, accesses information on Walmart’s information systems directly, regarding their particular product stock in Walmart. The manufacturer is connected to Walmart’s operations through a point of sale systems, and satellite from the headquarters enables the connection. The supplier accesses data such as the rate at which their goods are selling and the available inventory levels. Depending on the stock levels and the rate at which stock is getting purchased, the supplier decides when to restock and send more inventory into Walmart’s warehouses. Walmart’s then takes over to transport the inventory to their warehouse by using their fleet of trucks (Greenspan, 2017). The supplier based inventory management system cuts off intermediaries hence enabling Walmart to obtain low prices without the additional costs of the intermediary; thus it can offer low prices for its customers. VMI methods also shorten the sourcing process by allowing suppliers to monitor stock levels and replenish accordingly hence ensuring there is no downtime on the shelves in Walmart thus consistent supply.
Walmart owns approximately 158 distribution hubs across its locations in the globe. The distribution hubs are extensively automated throughout, and each center is about one million square feet in size. Each hub is estimated to have over 5 miles of conveyor belts within it. A single distribution center serves between 90-100 retail stores within 200 miles distance to facilitate the distribution of the products within a day or two. Once the trucks pick the goods at the manufacturer, they take them to the distribution center for sorting and distribution to the retail stores. Walmart conducts substantive research during expansion to ensure that the distribution center is located at a place where 90 to 100 stores can be established around it. Walmart also strategically sources its drivers with a keen interest on competency and experience to ensure responsiveness. The drivers are carefully recruited, trained, assigned and supervised to ensure safety and efficient transportation processes (Mai, 2014).
Two important strategies characterize Walmart’s distribution methods which include cross docking and hub and stroke system. Cross-docking involves transferring stock directly from inbound logistics to outbound logistics (Lu, 2014). At Walmart, cross-docking is illustrated through the transfer of stock from the trailers coming from the manufacturer (inbound logistics) and sorting the products while loading them into the trucks headed to the retail store (Outbound logistics). Cross-docking takes place at the distribution center hence no inventory is held in the distribution center for long. Basically, at the distribution center, inventory is continuously delivered by trucks from the manufacturers. The stock is then temporarily held at the distribution center as it is sorted and repackaged usually for 24 to 48 hours and then it is loaded to trucks to be delivered at the retail stores. Cross-docking is beneficial in several capacities including reduced transport costs, reduced transportation time, low inventory cost and less inefficiency (Lu, 2014).
Walmart employs a hub and spoke model in its distribution network which has enhanced its ability to cut down on costs and ensure efficiency. The hub and spoke model is a paradigm of connections in the form of a wheel where all traffic travels along the spokes which are joined to the hub in the middle. Walmart does not hold any inventory in the distribution centers. In the hub and spoke model, Walmart has distribution locations relatively close to its retail stores with each distribution center serving a handful of stores with a 48 hours distance (Figueroa, Miller & Okimoto, 2012). With a convoy of over 6500 trucks and 50,000 trailers, the stock is picked from the manufacturer’s store thus enabling timely response to stock levels. The trucks increase the transport costs, but reduced stock levels balance them. The trucks deliver the inventory to distribution centers, and the stock is distributed to the retail stores within a day. The direct sourcing from manufactures accounts for 80% of Walmart’s sourcing. Other goods such as automotive products and pharmaceuticals are directly taken to the retails stores by sourced suppliers.
The trucks and trailers owned and used by Walmart in its sourcing and transportation also have a uniqueness that facilitates the Walmart supply chain needs. Walmart owns the Supercube trailer, and advanced trucks allow it to transport large amounts of products from the manufacturer at once. The Supercube is a 60 ft 6-inch trailer with a “snub-nosed truck” and a “drome box” that allows Walmart to transport 405 more products than a standard 53-foot trailer would carry. Walmart designed the Supercube in partnership with Innovative Trailer design in Mississauga, Ontario. Also, Walmart fleet of trucks is advanced with great technologies to make them more capable of transporting more inventories with low mileage. Walmart developed a futuristic advanced truck to offer advanced vehicle experiences and improve efficiency. The advanced truck is designed through several cost-saving features such as power turbines to save of fuel, and the body is designed from mostly carbon fibers saving about 4000 pounds of the standard trucks. The advanced truck is yet to be used, but its technologies provide a platform for future progress in Walmart’s transportation in regard to reducing mileage and transport costs while at the same time transporting more merchandise (Langer, 2014).
Walmart’s uses three important approaches to measure its sourcing and supply chain performance which include inventory turnover, stock-out rate, and inventory size. The inventory turnover defines the frequency at which the stock is getting sold out in the retail stores. Walmart’s systematic sourcing and transportation systems and being a retailer require high rates of inventory turnover. Stock-out rate refers to the rate at which the available inventory becomes inadequate to meet the orders in the retail store. Walmart’s pursues a low stock out rate in its sourcing and transportation techniques such that at no one time should the available stock be insufficient to meet the demand as that would amount to losses and portrays inefficiency. Lastly, the size of stock is critical to the success of Walmart process. Walmart seeks to hold less stock at any one times hence cutting down on stock costs. Therefore for Walmart, a small inventory size is desirable just enough to meet demand and cover demand until new stock arrives.
Another critical aspect of Walmart’s sourcing and transportation strategies is the use of high-end technologies to ensure efficiency and enable faster processes. Walmart is at the forefront of advancing technologies to attain its operational efficiency and hence allowing customers some savings. Given the just in time nature of Walmart’s sourcing and transportation strategies, speed and efficiency while at the same time reducing costs are vital. Technology is therefore instrumental in enabling its processes to run competently. The advanced truck is an example of the transport technologies Walmart utilizes in its sourcing and transportation to attain efficiency.
Another of the technologies in Walmart’s sourcing and transportation technology is the radio frequency identification technology (RFID). RFID is a technology that applies wireless electromagnetic fields to send out data with the aim of spotting and following labels attached to products. RFID labels can be attached to all product including cash, clothes and implanted in vehicles or people. Walmart is one of the biggest retailers in the world and with a complex supply chain system needs to implement high-end technologies to track its inventory. Therefore, Walmart uses RFID labels to recognize and follow its stock through the chain of supply from the manufacturer to the stores and ultimately to the customers. The RFID technology allows for rapid and straightforward real-time transmission of information on tags regarding a product. RFID tags have the capacity to hold and transmit more information than barcodes making them more efficient. RFID renders Walmart several advantages including minimizing the bull-whip effect and managing optimal stick levels as opposed to excess throughout the supply chain (West et al., n.d).
Collaborative planning forecasting and replenishment (CPFR) is another innovative sourcing strategy in Walmart. Prior to CPFR and in typical supplier-buyer relationships, buyer and supplier relationships were mostly adversarial and competitive with each seeking to advance their interests. The seller wants to sell as many products as possible to the buyer at the highest reasonable price while the buyer pursues the lowest price possible. CPFR is a form of joint logistics program where the supplier and the buyer work together to achieve their interests by planning logistics together, sharing predictions and information in the supply chain among others. Walmart first developed CPFR with Procter and Gamble in the 20th century constitutes one of the early implementations of CPFR. Currently, Walmart utilizes Retail link and Supplier scorecards to work together with Walmart suppliers on logistics planning, predicting and replenishment of inventory. CPFR improves the accuracy of predictions and attains substantial reductions in inventory levels. The process of CPFR is systematic and straightforward. Walmart as the retailer agent in the CPFR equation gathers data from the point of sale and developed demand predictions. The retailer the sets its sales targets and generates the plan which constitutes the sales targets, stock levels and the requisitions to the manufacturer of each merchandise as well as the period of demand. The retailer then sends the requisition to the manufacturer that in turn develops its order predictions in line with the retailer orders. The manufacturer then develops the production and stock levels for the products and in the specified periods (Rajesh, 2012). CPFR, therefore, pushes the supplier to be innovative and establishes close collaborative relationships between the supplier and the buyer and in the case of Walmart, between Walmart and the manufacturers of its products.
Walmart sourcing and transportation is not without its challenges. Coordinating large-scale global sourcing and transportation is a technical process that is susceptible to adversity and other negative impacts. The need for low costs and Walmart’s extensive involvement in supplier’s production are not entirely welcome. Walmart pushes for low costs from suppliers and the more they push the more suppliers to feel controlled by Walmart. Such outcomes strain supplier and buyer relationships making the sourcing process inefficient when suppliers fail to collaborate with the buyer (Springer 2017). Also, the use of RFID technologies is accompanied by a diverse issue. For one, collaborative relationships between supplier and buyer require input from both parties. Walmart’s requires its suppliers to possess similar technologies which may be expensive for the manufacturer to acquire and implement. Secondly, RFID technologies are faced by substantial privacy issue. RFID as the capacity to access individual information which the public fears will be used by Walmart to analyze the customers purchasing pertains and identifiers like credit cards and licenses’ among others (West et al., n.d). However, Walmart has attempted to mitigate the privacy issue by using the tags on packaging and removable areas instead of entrenching them in the clothes. Another key problem facing Walmart transportation is the last mile which are said to be the greatest challenge for transport logistics. The last mile problem refers to the difficulty of product reaching the point of consumption due to external factors such as traffic jams in urban areas or congestion in business areas. Last mile problem increases truck consumption of fuel and increases the delivery time which may amount to delays and stock-out especially for just in time inventories as in Walmart (Mitchell’s NY, 2016). Walmart tries to mitigate the challenge of the last mile by training its drivers sufficiently to mitigate the external factors. Walmart also establishes the most economical route for its trucks to ensure efficiency and avoid the last mile challenge. Ultimately, Walmart’s sourcing and transportation strategies are more effective than they are challenging and with strategic measures, it facilitates the company to achieve its objective of cost reduction.
In conclusion, Walmart has one of the most advanced and reputable sourcing and transportation systems characterized by high-end technologies and strategic processes. Walmart is a large-scale global retailer with stores in over 25 countries in the world and over 11, 000 stores. Consequently, it employs over 2 million employees and operates with revenue above $20 billion as of 2018. Also, Walmart retails a wide range of products manufactured and distributed by different companies and manufacturers. Besides the extensive nature of Walmart operations, it is a store centered on offering low prices to customers and allowing their clients to save on significant amounts by shopping in the stores. Walmart’s competitive advantage thus lies in cost-effectiveness that allows them to offer competitive prices in the market. Walmart attains the cost-effectiveness by instituting higher level, advanced supply chain and logistics management techniques that enable it to cut on inventory costs, transport costs and supplier costs. Walmart attains the cost efficiency by sourcing over 80% of its products directly from the manufacturer and utilizing its transport to get the products to its stores. The process of sourcing, transportation and distribution is managed through advanced and contemporary supply chain management strategies which ensure efficacy and thus enable Walmart to coordinate its processes towards it cost efficiency objectives. Ultimately, Walmart sourcing and transportation are among the top best in the global market drawing significant attention from other companies.