Discuss about the Transportation and Distribution Management.
Transportation and distribution organization is a system that allows organizations to manage their foreign and local transportation, tackling supply chain complication with integration to partner systems and one control layer for monitoring the lifecycle of transportation (Abel-Maksoud & Kawam, 2009). It also deals with the management of processes and resources used to deliver a product from a manufacture location to the point of sale. The purpose of this essay is to discuss and evaluate the usefulness of three aspects of the shipping management at Wal-Mart, namely incoterms selection consideration, carrier selection criteria, and carrier relationship management.
Wal-Mart started small, with one discount store and the simple concept of selling more for less (Anderson & Dekker, 2009). Today, the organization is recognized as the largest retailer in the world, having over 250 million customers and over 11,000 stores. Wal-Mart’s products are generally varied and include health and wellness, groceries, entertainment, stationery, household appliances and auto spares. Its main competitors are Kroger, Safeway and Costco. The company has recently initiated the strategy of anti- unionization and therefore allowing employees to have their unions. Wal-Mart has also initiated a strategy in the change management where they make use of their political capital wholly so as to expand internationally (Bitran, Gurumurthi & Shiou, 2007).
In this part, we shall discuss three main aspects of transportation management in relation to Wal-Mart. These aspects are incoterms selection consideration, carrier selection criteria, and carrier relationship management.
Incoterms or international commercial terms refer to a set of foreign guidelines for the explanation of the most commonly used trade terms (Bowersox, Closs & Cooper, 2009). Wal-Mart acknowledges that the application of these rules to retailing and buying agreements makes worldwide trade easier and assists partners in different nations understand one another. Incoterms usually determine who caters for the cost of each transportation part, who takes up the risk of loss at any given point during a foreign shipment, and who is accountable for receiving and loading of goods. As Wal-Mart transportation management has observed, most often, parties to an agreement are unaware of the distinct trading practices in their respective nations. Such lack of knowledge leads to conflicts and misunderstandings between suppliers and customers (Cai, Chen & Hsiao, 2013). Given the fact that Wal-Mart is an international company, whenever it buys and sells goods internationally, it must agree on its respective duties during the transaction with its business partners. It is the desire of the company to do more direct importing rather than the rough agents. There are separate teams which are responsible for handling private label products.
As an aspect of transportation and distribution management, incoterms are of different kinds, for instance Cost and Freight (CFR) where the seller fulfills his duty when the products pass the ship’s rail at the shipping port (Abel-Maksoud & Kawam, 2009). The seller bears all the costs of export, freight, customs clearance, and costs required to transport the products to the port of intention. Cost, Insurance and Freight (CIF) is where the seller is expected to obtain minimum insurance coverage only to destination port for the value of the products. On the other hand, the purchaser assumes the risk at the time the products are moved on board the ship despite the fact that they are covered by an insurance policy. Notably, this term is only used for inland waterway or sea transport. Carriage and Insurance Paid (CIP) is another type of incoterm where the seller caters for the costs of freight transportation required to transport the products to the location agreed with the purchaser (Anderson & Dekker, 2009). This particular incoterm can be utilized in any mode of transport.
At Wal-Mart, Free on Board (FOB) kind of incoterm is used. Here, the seller fulfills its duty to deliver the products once they clear the ship’s rail at the port of shipment. The seller does not pay for the shipment. However, s/he is required to ensure the products are cleared by customs for export. This term is only used for transportation by inland waterways or sea. Presently, the organization’s management believes that this is the most appropriate incoterm to use. A more suitable incoterm that Wal-Mart can consider using is Carriage Paid To (CPT) where the seller pays the costs of freight transport required to transport the goods to the location agreed with the purchaser, including shipping and export permits, but not insurance costs (Bitran, Gurumurthi & Shiou, 2007). This type of incoterm can be utilized in any mode of transport. Delivery at Frontier (DAF) can also be used at Wal-Mart where the seller delivers to the agreed location at the border, but liability ends before the delivery is cleared at customs (Bowersox, Closs & Cooper, 2009). The products are made available to the purchaser in the means of transport.
Historically, Wal-Mart has utilized its distribution and procurement skills to overwhelm and overtake its smaller and less efficient competitors. As the organization progressed, it is now the industry leader in supply chain innovations as well as best practices. The authority and absolute size of Wal-Mart and its intense follow-through have allowed the company to continue being an industry leader in supply chain practices (Cai, Chen & Hsiao, 2013). Wal-Mart suppliers are now expected to adjust their shipping schedules and order processing so as to meet the company’s deadlines. In turn, the shippers will be applying pressure on their carrier partners to speed up freight movements. Re-evaluation of their lead times and monitoring of carrier performance will have to be done to ensure they do not put their Wal-Mart business at risk. Carriers are expected to revisit transit times and route plans so as to ensure they are achievable and realistic on a regular basis. All these fall under the recent strategy by Wal-Mart dubbed ‘Must Arrive By Date’ or MABD (Abel-Maksoud & Kawam, 2009).
American organizations delivering products to Wal-Mart distribution centres must begin to distribute within a given time frame leading up to a MABD date. This condition at first applies to distributors that deliver prepaid and truckload goods to the company’s DCs where the monthly benchmark is set at 90% (Anderson & Dekker, 2009). Companies falling short of this particular target will be penalized. This means that any company that delivers shipments prior to or after the 4-day window will have to pay a charge equating to 3% of the cost of goods sold (Bitran, Gurumurthi & Shiou, 2007). The newly implemented strategy offers shippers with the chance to better leverage their whole freight volumes and drive more round trips together with constant move planning. It is clear that Wal-Mart’s latest supply chain undertaking will have significant implications for carriers and shippers in that it will cause various organizations to reevaluate their carrier performance and capabilities. It will also encourage organizations and retailers in other industries to carefully follow up their triumph of Wal-Mart’s program, taking into consideration the adoption of similar initiatives that can drive more cost savings out of their inbound freight disbursements (Bowersox, Closs & Cooper, 2009).
Recently, Wal-Mart transportation has awarded twelve trucking and transportation partners as part of the retailer’s 2015 Carriers of the Year (Cai, Chen & Hsiao, 2013). It has awarded the designation to organizations that offer transportation support to the company’s stores located throughout the continental United States. Over the past year, each of the chosen carriers has shown a commitment to customer service and creating innovative solutions in an evolving yet enormously significant business. Wal-Mart has established quite a swirl in its retailer community as it progresses forward with plans to conquer inbound transportation management for most retailer shipments to its distribution stores and centers. Nearly all retailer shipments to the company are controlled by the retailer and in some instances Wal-Mart chooses the carrier and pays for the freight. However, the retailer is expected to work with the designated carrier to carry out the shipment. For Wal-Mart retailers who utilize complete delivery pricing, a probable effect will be that they will not enjoy some existing transportation benefits (Abel-Maksoud & Kawam, 2009). The company cites that it is actually superior in logistics than its suppliers, something which may be true given its large number of trucks and complete network density, offering chances to minimize empty miles that are not accessible by most organizations.
Effective carrier relationship management can be compared to the precision dancing of a ballerina (Anderson & Dekker, 2009). This means that a company’s carrier must uphold equilibrium by promoting on behalf of distributors all while improving the business outcomes for carrier partners. Wal-Mart is well aware of the fact that without their carriers, they would not be in a position to deliver quality service to their customers. From purchasing agents, receivers, and shippers to carriers and third party logistics organizations, everyone tends to have an opinion on how to minimize trucking costs. However, they all agree to the fact that in order to help save money, shippers need to create firm relationships with their less-than-truckload carriers (Bitran, Gurumurthi & Shiou, 2007). As Wal-Mart has realized, this can be done by working with the carrier to determine which lanes and freight are most appropriate. Furthermore, if the company intends on holding their carriers to their commitments, then Wal-Mart should honor its loyalties to them. Additionally, good information is significant to carriers in the course of bidding. Such information assists the carriers to plan appropriately in terms of locations and any specific freight features, and for seasonal transformations in volume.
Transportation and distribution management can be quite stressful, particularly if a company regularly finds itself dependent on load boards for finding carriers at the last minute of a shipment. It is in such situations that organizations find themselves desperate in making decisions that they do not want to make, for instance moving shipments at a financial loss or operating with motor carriers the company has no knowledge of (Bowersox, Closs & Cooper, 2009). That is why the strongest and victorious freight brokerage operations are those who take time to establish firm, long-lasting relationships with their carriers. Notably, supply and demand oscillations can stress commitments and place much emphasis on the nature of relationships, which are either strengthened or destroyed in the course of dialogues. A sense of trust is considered to be a necessary condition for relationship-oriented discussions. Relationships between individuals or organizations cannot be ignored as they tend to directly affect the level of trust. Carrier sales personnel rarely change careers, but often change companies. Therefore, the nature of the relationship must broaden beyond two individuals or companies. Establishing trust with novel parties, especially executive level personnel is of much interest for all parties involved.
With reference to Wal-Mart, there is an appropriate type of carrier relationship to be built with the carriers in addition to the process of establishing the relationship. The organization can implement In-House relationship where it can hire trucks for transportation and distribution of its products. Today, the transportation sector has transformed and for many companies, it is not a wise business decision to own their own trucks. Moreover, the companies have chosen to get rid of the hassle of having their own trucks and letting another company become their In-House carrier (Cai, Chen & Hsiao, 2013). As a way of establishing such a relationship, Wal-Mart needs to plan appropriately and ensure that communication lines are open. There should also be risks and/or reward sharing where each of the parties involved are liable. By so doing, the company will ensure that customers get value for their money in terms of quality of goods and services delivered. It will also ensure that nothing is damaged in the course of transportation and distribution of the goods. Additionally and as already indicated, there should be trust and commitment between Wal-Mart and its In-House carriers.
Conclusion
Looking at what has been discussed above, transportation and distribution management refers to a system that enables companies to control their international and domestic transportation, addressing supply chain complexities with integration to partner systems and one control layer for watching the lifecycle of transportation. We have also looked at the three main aspects of this particular system which are incoterms selection consideration, carrier selection criteria, and carrier relationship management. Wal-Mart has been chosen as the organization for study where today, it is acknowledged as the largest retailer in the globe, having over 250 million customers and over 11,000 stores. Notably, transportation and distribution management can be quite stressful, particularly if an organization constantly finds itself relying on load boards for finding carriers at the very last minute of a shipment. It is in such situations that companies find themselves desperate to make decisions that are not suitable. Thus, the strongest and most triumphant freight brokerage operations are those who take time to establish firm, long-lasting relationships with their carriers. It is also clear that Wal-Mart’s latest supply chain undertaking dubbed ‘Must Arrive By Date’ (MABD) will have influential implications for carriers and shippers in that it will cause many companies to reassess their carrier performance and capabilities.
References
Abel-Maksoud, A., & Kawam, M. (2009). ‘Relationships amongst value creating variables in an international freight forwarding and logistics firm: Testing for casuality.’ Journal of Applied Management Accounting Research. Pp. 63 – 78.
Anderson, S.W., & Dekker, H.C. (2009). ‘Strategic cost management in supply chains, Part 1: Structural cost management.’ Accounting Horizons. Pp. 201 – 220.
Bitran, G.R., Gurumurthi, S., & Shiou, L.S. (2007). ‘The need for third-party coordination in supply chain governance.’ MIT Sloan Management Review. Pp. 30 – 37.
Blanchard, D. (2010). Supply Chain Management: Best practices. Hoboken, NJ: John Wiley & Sons.
Bowersox, D., Closs, D., & Cooper, M.B. (2009). Supply chain logistics management. 3rd Edition. New York: Irwin/McGraw-Hill.
Bowersox, D.J., Closs, D.J., & Cooper, M.B. (2013). Supply chain logistics management. New York: McGraw-Hill Higher Education.
Cai, G., Chen, Y., & Hsiao, L. (2013). ‘Probabilistic selling, channel structure, and supplier competition.’ Decision Sciences, 44(2). Pp. 267 – 296.
Chopra, S., & Meindl, P. (2009). Supply chain management: Strategy, planning, and operation. Upper Saddle River, NJ: Pearson Prentice-Hall.
Gattorna, J. (2009). Dynamic supply chain alignment: A new business model for peak performance in enterprise supply chains across all geographies. Farnham, England: Gower Pub.
Heizer, J.H. (2013). Operations management. New York: Pearson.
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