Systems And Operations Management: Wal-Mart’s Material Management Techniques

Material management and structure of supply chain

Discuss about the Systems and Operations Management.

A Wal-Mart store founded in the year 1945 and headquartered in the United States is segregated in three main segments namely Wal-Mart International, U.S. division and Sam Club divisional store. The store specializes in supercenters, hyper retail outlets, discount stores, electronics, fast moving consumer goods, medicinal outlet, grocery and apparel section. Due to presence of various departments of the store the sourcing and distribution section of the company involves the participation of large number of suppliers. Beside the popular retail products Wal-Mart is also responsible for providing fuel and various types of financial services, including money orders, money transfers, cashing through check (Yahoo! Finance. 2016).

The in-house brand of the company includes food products such as Sam’s choice and Great Value. Pet food products brand such as Ol’ Roy, soft drinks beverage like Dr. Thunder and Soft Toy specialty brand known as Special Kitty. In supply chain perspective the distribution process of the in house brands deals with procurement of the raw materials, manufacturing and distributing the finished products. The third party brands deals with only the distribution of the retail products. The company is committed to follow an imperative which enables the company cost cutting strategies and better sustainability of the product. The company also ensures timely delivery of the items order through its ecommerce section. This provides the customers with the flexibility to get the desired product in appropriate time. The primary strength of the company lies in development of effective cost structures which allows the company to offer the best price in compare to its competitors. The present supply chain strategy of the company calls for an advanced procurement of the goods and gain a competitive advantage in terms of customer satisfaction (Corporate.walmart.com. 2016).

Material management techniques at Wal-Mart

The present system of the material management takes into consideration the following items into consideration:

Ordering as per reordering level- The reordering point of the company is the point of the company where the supply of the materials is to be done. The company typically sets the range between the minimum and maximum ordering level. This is performed in such a way that the quantity ordered for the reordering level and minimum level will be adequate to suffice the demands of the production requirements until the time the materials will be consumed. This particular strategy focuses on the maximum consumption rate and lead time for ordering of the materials. On attainment of this particular level the storekeeper at Wal-Mart begins with the process of generating the purchase requisition for each item. Reordering the items is mostly seen in cases fast moving consumer goods from groceries section, electronic items and day to day house items. These items determine the company strategies to order the materials efficiently so that it has sufficient amount of stock to meet the demand of the consumers (Nair and Jacob 2014).

Economic ordering quantity (EOQ) and ABC analysis of the inventory

1. Minimum Level ordering: The minimum level of the company suggests the lowest level in the inventory below which the stock of goods should never fall. This level also calls for replenishment of newer stock of materials which must replace the order stock of materials. This particular inventory technique is most suitable for those items which are of less and selective demand. This may include pet products and items from the Ol’Roy section of the departmental store.

2. Average Stock: The Company is also responsible for maintaining this stock of materials by considering the average of the minimum and maximum level of the stock of the materials. It is ideal for those products which are fast moving but of premium category, this will ensure that the availability of the products for the selective customers (Gray 2013).

3. Inventory budget preparation of Wal-Mart: The purchasing budget is prepared in advance in order to estimate the cost of the purchase of the materials of the products which are in house brands of the company. This also ensure that the estimation of the sales budget. The very first step in the budget plan of the inventory involves preparation of the sales budget. (Purchasinginsight.com 2016)

The purchase procedure of the orders are illustrated with the diagram as Follow:

4. Perpetual Inventory control: For the purpose of ensuring that the items of different segments are available on a continuous basis and monitoring of the stores purchase and the balance of the stock available at hand, the maintenance of the stock of goods through perpetual inventory is the center of efficient material management for the company. The perpetual inventory control cannot be implemented until the stores system has adequate amount of stock available at hand. The perpetual inventory system has a role in rotating of the inventory items as per the demand. This particular system of the material management is ideal for fast moving consumer goods. The process of stock count is monitored by an individual rather than the storekeeper. The effectiveness of the perpetual inventory depends on the choice of selection of the continuous stock (Neguse et al. 2014).

5. Vendor managed inventory: The use of this technology helps the company to track the inventory in a better way. This engages the suppliers to continuously monitor the inventory level to prevent any incidences of stock out. This particular has enabled the company to get a competitive edge in the retail business (Romano 2014).

The process of vendor managed inventory has been shown below with a diagram as follows:

Figure 1

Source: (Admin 2016)

The present strategy of the material management techniques includes economic ordering quantity and activity based cost analysis.  The EOQ helps the company to order in bulk quantities in lower amount of cost. Wal-Mart believes ordering of the products in bulk quantity to gain the lower price advantage. The lower is the purchasing cost, lower is the carrying cost of the materials. Hence the company takes into consideration the holding cost and ordering cost while deciding on the economic factors of purchasing of the materials (Teng et al. 2012).

The activity based costing system deals with prioritization of the different materials according to importance and demand of the items. This analysis is very common in the modern inventory management system as this allows for determining the ordering of the stock of items based on the demand of the various products. The items are segregated into three categories namely A, which are of the highest priority, B category items, which are moderate priority and C category of items which are of least importance. In this particular context of Wal-Mart’s inventory analysis, the inventory has been maintained through (Dalley et al. 2015).

The implementation of both the techniques has been shown below as follows:

Present ordering model of Wal-Mart with ABC analysis and EOQ
Product	Annual Demand (D) (million tonnes)	Cost (million $)	Demand x Cost((million $)	Units per order	Annual setup cost (S)	Holding Cost (H)	Order Quantity (E*)	% of total cost	Class
Electronics	60	127	7620	60	520	12	23	18%	B
Health and Beauty products	72	180	12960	51	430	11	39	25%	A
Sports & Fitness	42	154	6468	23	460	8	17	22%	A
Apparels	90	108	9720	65	760	14	19	15%	B
Gift Items	20	84	1680	23	289	6	8	12%	B
Groceries, household & pets	85	60	5100	72	620	16	14	8%	C
Total	369	713	43548	294	3079	67	120	1
A	Top 20% of total dollar volume
B	Below 20%
C	Below 10%

Where,

States the annual demand for the inventory

Denotes the setup/ ordering cost of each items

Holding cost or carrying cost per unit per annum

(Annual demand/ Number of units per order) (Order cost per order)

Annual setup cost = Number of orders placed per year x (order cost per year

Setup cost = (D/Q) S

Annual holding cost = (Q/2) H

E* (Economic ordering Cost) = √ (2DS/H)

The present supply chain structure of the company involves the following features

1. Selective links in the supply chain domain- For many years the company is having a reputation of maintaining few supplier’s involved in the distribution business. The company operates with its Vendor managed Inventory (VMI), where the manufacturers are responsible for the managing of the supply chain process (Morana 2013).

2. Strategic Vendor Partnership – The sourcing of the company has been possible through selection of the best vendors who can provide the products at best possible price. The company has major tie ups with those vendors who can provide several options for long term along with cost effective options. The company has further streamlined its business process by building the supply chain network with the best available suppliers o f the individual items in this way the company has been able to achieve improvement in the flow of the materials thereby reducing the amount of inventories (Lu C. 2016).

3. Cross docking inventory strategy: This process of inventory forms a major part of the Wal-Mart’s distribution strategy for the purpose of replenishment of the inventory. It refers to directly transfer of the materials from the inbound or outbound vehicles without the need for additional storage. This is achieved through unloading of the incoming trucks and directly loading the items into outbound operators, thereby eliminating the need for storage of the materials. The traditional supply chain activity involves storing of the products into warehouse and then transporting the respective items to different transit points. The cross docking approach is a modern approach which directly transfer the materials into other vehicles. This feature of the present supply chain system of the company has enabled the company in speeding the distribution process in a cost effective way. In order to achieve the best result for cross docking the staging process has to be always less than 24 hours.

The cross docking procedure has been represented with a diagram shown below:

Figure 2

(M.c.lnkd.licdn.com 2016)

• Hub & Spoke model: Wal-Mart is known as one of the leading companies to centralize its distribution system by implementation of the hub and spoke model. Initially the products were ordered centrally and the assembling was done at a warehouse, often referred as distribution center known as (Hub) and the distribution of the goods to the individual stores is known as spoke. This particular model has enabled the company to gain a significant advantage in reducing the cost of the products and centralizing the purchase procedure (Hosapujari and Verma 2013).
• Eliminating the intermediaries: The intermediaries have a critical role in linking g of the supply chain services in major segments of the company. Although the intermediaries policy of the Wal-Mart eliminates the need for the wholesaler and middlemen in facilitating the supply chain process. This has been possible sue to the internet which has enabled the organization in replacing the intermediaries. This strategy of Wal-Mart has been the primal reason for the lower cost of items. In case the goods had to pass though the middlemen then the prices would have hiked up. The ecommerce section of the company allows the company to directly order the product without the need for additional intermediaries. In year 2010 the company was able to generate 30% of the revenue generated through the online shopping section of the company (Gaebler.com. 2016).

The company provides multiple options to select its vendors from varied sections of the society. The different sectors of the source of the vendors of the company are related to areas such as designing and maintenance of the in-house brands of the company. The logistics management of the company is done efficiently through various types of informal and contractual agreements (Usanfranonline.com. 2016).

Collective contract with ACFTU

The contract signed between the trade union committee at Wal-Mart and All China Federations of Trade unions has been done in order to establish good labor relations which protects the legal rights and interests of Wal-Mart. According to this contract both the parties agreed to acknowledge and respect for the legal rights of the employees. This contract also ensures management of the labor working hours and compensations and also takes care of the employee’s health at workplace (Chan and Hui  2014).

Animal Welfare Contractual agreement

Wal-Mart and Sam’s club jointly are committed to cater the customers with safe, sustainable and affordable food along with promotion of the treatment of the animals. The continuous improvement process of the company has been possible through supply of fresh pork. Individual pork suppliers at Wal-Mart need to meet the new criteria. According to the contract Wal-mart and Sam’s club will accept fresh pork only after the accreditation by National Pork Board (NPB) and the quality assurance given by (PQA) (Corporate.walmart.com. 2016).

In addition to meeting of the stated guidelines the suppliers need to further ensure the following components:

• Each supplier should have on farm video for the purpose of monitoring the sow farms. The video monitoring will ensure 20% of the production supplied to Wal-Mart and Sam’s Club to achieve 100% coverage by the end of 2018.
• The contractual agreements further ensures disease prevention strategies, keeping of the records of the treatment and the outcomes, reviewing of the antibiotics and limit the medical antibiotic usage at ill or animals who are prone to more risk.

This particular set of policies has been agreed upon on Securities Exchange commission (SEC) to report on the products that are manufactured should contain the list of items as per stated by Democratic republic of the cong and the countries located near to the region. The company expects its suppliers to actively engage in adaptation of mineral sourcing dealing with the supply chain which are according to the guidelines of Organization for economic cooperation and development (OECD). The suppliers at Wal-Mart should further ensure that the goods available are not having any 3TG or conflict minerals which falls under human rights violations. The contractual partnership with the different vendors in the supply chain market is the newest efficiency program for the fleet management of the company. The double fleet efficiency has ensured 830 million cases for covering 300 million lesser miles. This shows the improvement of more 84.2% in compare to the previous base line. The collaboration with the vendors enhances the driving efficiency in multiple ways (Corporate.walmart.com. 2016). 

The associates and the vendors try to work in different ways to improve the efficacy of the driver in the following ways:

• Ensuring fair driving techniques which ensure reducing the idle time and shifting of the jobs for improving the performance related to transportation and logistics management.
• The contractual agreement with the tractor and trailers companies has ensured improved electrification, reduction in the weight of the transport vehicles, use of fuel efficient tires and advanced electrification has allowed the vehicles for improved performance.
• The partnership agreements has also allowed for efficient loading of the goods in the vehicle and following the appropriate routing of the merchandising vehicles (Co.Exist. 2012).

Wal-Mart is the largest mover and seller of goods in the world. Most of the goods sold at Wal-Mart in the U.S. are manufactured abroad, when arriving at the country they are stored at giant warehouses run by third party contractors, hired by the company. Agency workers and day laborers are responsible for handling of the warehouse operations inside Wal-Mart. The T-shirts section of the company the companies are made in Bangladesh. In this way Wal-Mart is the second largest importer of garments from Bangladesh.

The prototype truck of Wal-Mart is not only one of the most advanced vehicle which the company uses for procurement and distribution purposes but it also shows the potential of contractual agreements in improvement of the supply chain services. These technologies are game changing technologies for the supply chain business. Some of the partners in this project include Bill Kahn and Victor Garcia from “Peterbilt Motors”, Adam Hill from “Great Dane trailers” and Steve Gillete from “Capstone Turbine Corporation” (Coroflot. 2016).

The segregation of the vehicle parts on the basis of various partners of the company are shown below as follows

Component	Business partner Company	Managing Director name
Engine and Aerodynamics	Peterbilt Motors	Bill Kahn
Trailer	Great Dane Trailers	Adam Hill
Turbine	Capstone Turbine Corporation	Steve Gillete

The advent of modern technologies has allowed the company in tracking of the inventory and restocking of the shelves of the products. This ensures cost cutting of the services in compare to the competitors of the Wal—Mart. The state of art network infrastructure of the company ensures accurate demand forecasting of the products and prediction of the inventory. The use of RFID tags in the transportation vehicles and GPS technology has allowed the company to track the route and obtain the route selection on the basis of the shortest path. The use of bar code enables the company for universal identification and tracking of the products. The differentiating facility of the presence of retail link allows the various suppliers to forecast the demand and updating the dales data in real time. The sale data is displayed on the basis of cash registers and distribution center of the company.

The preexisting suppliers and manufacturers is able to synchronize their demand  projection schedule with the help of collaborative planning, replenishment and forecasting of the supply chain activities connected with the technology. This networking allows for the integration of the central database, point of sales system at store level and tracking of the routes and the vehicles through satellite system. The distribution centers of the company are able to track the customer’s purchases and demand.

The company is also known for using SAP for enterprise resource planning. This allows the integration of core functional areas with ERP. The production planning and procurement through real time linking with the ERP ensures that the company is able to properly monitor its stock value. The Wal-Mart labs have highly professional people who can provide prompt service to provide the shopping experience on the go. This allows the product to purchased online, social media and e stores of the company.

The use of RFID tagging in the pallets of the products helps proper scanning of the products from a distance. As the inventory management is a two way process the company has encouraged the usage of RFID tagging among its suppliers as well. The use of smart tags has enabled the company employees to quickly learn about products and identify stock in which needs to be closely monitored and also replace the products which are reaching at the reorder level.

The customers can are able to scan their own goods using their smart phones rather than picking up the items and taking them to the cashiers. This technology is available by use the app “Scan and Go”. It can be used to pay the entire bill of the items and used to speed up the process of bill payment so the customers can reduce the waiting time for each transaction. For ensuring the security aspect, the app does not store any details of the credit card information.  Moreover this app sends mobile coupons by tracking the buying history (Usanfranonline.com. 2016).

RFID technology has been implemented in wide range of industries, which includes retail and manufacturing and public sector industries. This allows the company to quickly pinpoint and quantify the merchandise which adds to the value chain of the business. This particular technology influence the Just in time inventory management of the company which allows the company to reduce the costs associated with inventory and handling of additional orders. The use of RFID tagging facility has enhanced the performance of the company both at domestic level and international level. The facility is present across 22 US distribution centers as on 2010. The system is implemented on the basis of a tag, reader and decoding device. The final is automated in the computer which is used to filter, collect and store the relevant data related to the stock. This has the potential to completely replace the bar code as the main drawback lies in the tearing and damaging of the bar code label (Sarma 2012).

Despite of the several advantages associated to the implementation of the RFID technology. The cost factor cannot be ignored which can range from $20 to $50 each and reader is even more expensive with an price tag of $500 to $3000. The largest cost is needed for the computer software which is the backbone of the entire technology.

The process of the RFID tagging has been shown below with the diagram as follows:

Figure 3

Source: (Therealminfo.files.wordpress.com. 2016)

According to Walton, (2013), the prototype truck combines for the various aerodynamics, advanced control systems, micro turbine hybrid power train and use of carbon fiber in all its vehicles has allowed the company to achieve  more objective and goals through the technological innovations. The technology trucks have conventional engines but it comprises of very sophisticated system which increases the efficiency and safety of the vehicles (Business Insider 2016).

The power train of the vehicle is made up of a turbine system. The sliding doors of the cars allows for a more Germanic aero design. The dashboard of the vehicle is fully electronic with customizable gauges and performance data that a particular driver wishes to monitor. The trailer is made up of all carbon fiber material with a single piece of 53 foot panels. The front of the trailer has a convex shape which improves the aerodynamics design of the entire package along with room for additional cargo space inside the trailer. Carbon fiber material is not only stronger than steel but it is lighter than fiber glass. This is the reason why it is chosen to highlight the technology of this equipment. The trailer is designed to accommodate the load capacity of a standard cargo. The gas turbines were built by Peter built in the 1960s, although it proved to be robust but the fuel efficiency was a lacking feature. With the advanced technology of the Capstone Turbine allows the truck to operate with natural gas and other fuels (Hyatt 2014).

This will allow Wal-Mart to achieve its goals of using completely renewable fuel in the future. This also ensures extremely low emissions and does not require after treatment or usage of any form of diesel emission fuels. The micro turbines works on the basis of air bearings so there’s no requirement for changing the oils. The turbines are further air cooled eliminating the need for large radiator which aids the aerodynamic design of the truck (Times, L. 2015).

The supply chain strategy of Wal-Mart has significantly improved through “Omnichannel” method of inventorying the items. This allows the company’s to make the inventories into all the warehouses of the company and make the products available both offline and online modes. The smaller amount of goods allows for heterogeneous distribution of the goods and adds to the ecommerce outgrowth of the company. The technique of overhauling of the inventory management has allowed the company to keep the inventory level under control and facilitate the stock level and sales of the company (Communications 2016).

The ecommerce division has the best interface to choose from the various brands of products and it offers a very easy navigation of the products. The main technology of the company is based on Bentonville, which puts major emphasis in implementation of the technology on its own and Global ecommerce based on the Silicon Valley, responsible for designing of the ecommerce division of the company. The ecommerce business alone has accounted for sales of more than $13 Billion. In order to stay in the highly competitive ecommerce business market, the company started on with a new app known as “Savings Catcher”. This particular app was tested in seven different types of market. This app allows the users to shop for the products by entering the receipt number and compares the weekly price available with the local retailers. If the items are available at lower prices in other regions the customer is awarded with a gift card with the difference of the products. The smart tracking technology in the mobile app of the company allows for automatic suggestion of the various products based on the purchase history of the consumers (Brondoni et al. 2013).

The company website tailors itself according to the needs of the individual customers thereby providing customized information to the consumers and suggest according to relevant purchasing history. The new “My store” section of the website allows the company to explore the various stores located nearby. The new store finder feature allows the customers to easily track the nearby retailers and visit the store with ease (Blog.walmart.com. 2016).

Conclusion

Wal-Mart with its state of art supply chain system has been able to generate more than $486 Billion in the year 2015. The process of supply chain is based on three main principles which incorporate distribution process, innovation and operating its own vehicles. The efficiency has been seen through improved product, cost effectiveness in the inventory and smooth flow of the operations. The Vendor managed inventory (VMI) helps to reduce the irregularities associated with the inventory, thereby making sure the products are always available in the shelves. The several inventory management techniques through reordering level, average stock, economic ordering and ABC analysis helps the company in forecasting and maintaining the adequate amount of inventory in the stock by keeping the cost low.  The sharing of database information from stores to point of sales has aided the supplier’s to ship more quantity of goods. The cross docking of the cargo ensures cost savings by eliminating the need to store the products in dockyard warehouse. The ecommerce section of the company has further ensured that disintermediation of middlemen and keeping the cost of the products significantly low. The supply chain operations are supervised by the purchasing managers, who are responsible to source the vendors and finalizing the deals for the various products. The integration of the supply chain operations with the existing links in the process has led to the success factor of the company to maximize the efficiency.

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