Walmart Supply Network

Walmart’s Supply Network

Regent University

Abstract

Walmart’s supply network gives it the highest sales per square foot, inventory turnover, and operating profit of any discount retailer in the world (Lu, 2014, para. 12). Strategic partnerships with suppliers create a competitive cost advantage by driving costs out of supply chains (Lu, 2014, para. 4). These partnerships create a network of global suppliers, warehouses, and retailers that communicate like a single organization (Lu, 2014, para. 6). Walmart has been both praised and ridiculed for its pressure on suppliers to reduce cost; to these critics, we let the numbers do the talking. In this paper, I will evaluate Walmart’s strategic relationship with suppliers through an economic and biblical perspective. I analyze aspects of Walmart’s business relationship with its suppliers such as benefits, contributions, and other impacting factors. I explain Walmart’s strategic use of tools, data, procedures, and systems and their attributing influences on success.

Walmart’s Supply Network

Walmart is the world’s largest and arguably greatest logistical and operational organization of all time. The retail giant operates 11,000 stores in 27 countries with an average inventory of $32 billion (Lu, 2014, para. 1). This entire inventory is rotated almost every month to reduce overhead costs related to inventory management (Morales, 2010, para. 8). Walmart employs over 1.3 million employees in over 5,000 stores in the United States (Robinson, 2015, para. 1). Each of these stores provides consistent inventory with low prices due to its excellent logistical and supply chain management. This supply network gives Walmart the highest sales per square foot, inventory turnover, and operating profit of any discount retailer (Lu, 2014, para. 12). They embrace technology and pursue innovative methods to track inventory and restock shelves. Walmart has the largest information technology infrastructure of any retail company in the world (Robinson, 2015, para. 3). Walmart also operates its own fleet of trucks that are lighter and more fuel efficient that its competitors (Mathers, 2015, para. 5). They have taken a holistic approach to developing innovative solutions for loading, routing and driving techniques. They collaborate with tractor and trailer manufacturers to find the most efficient strategies for moving goods between stores and distribution centers (Mathers, 2015, para. 6).  In addition to integrating more effective technologies and collaboration to move freight, Walmart also uses its tremendous purchasing power to drive down cost from suppliers. Retail and consumer goods manufactures realize how valuable a strategic partnership with Walmart can be; this gives the retail giant leverage to influence and push suppliers to provide very low prices (Morales, 2010, para. 3). Walmart’s low-price strategy profitability owes its performance to competitive cost advantages.

Walmart creates a competitive cost advantage by driving costs out of supply chains (Lu, 2014, para. 4). They continually search for products at the best price from hundreds of vendors. Suppliers who offer the lowest possible prices are awarded long-term and high-volume purchases from the retail giant (Lu, 2014, para. 5). Walmart then places a large amount of inventory management on the suppliers to incentivize nearly 100% order fulfilment on merchandise (Robinson, 2015, para. 7). This vendor managed inventory requires cooperation and collaboration to ensure products are always available on store shelves. This partnership creates a network of global suppliers, warehouses, and retailers that communicate like a single organization (Lu, 2014, para. 6).

Walmart’s Relationship with Suppliers

Walmart has always had a reputation for demanding lower prices from vendors. They profitably execute their low-cost strategy by exerting power over suppliers to bring the lowest possible prices to customers; however, some say that goal is never reached. Walmart continually demands suppliers to work harder on trimming delivery costs, reducing re-orders, and reducing out-of-stock problems (Sit, 2017, para. 6). This pressure can cause suppliers to reduce employee pay or overwork employees to maintain margins of growth. Every year reports emerge of suppliers laying off employees and closing U.S. plants in favor of outsourcing products from overseas (Fishman, 2003, para. 4). Walmart is creating a new model of retailer-supplier relationships, with much less sense of partnership than in the past (Gonzalez, 2015, para. 14). Vendors are given a new business model consisting of computer-monitored work through offshoring and outsourcing (Gonzalez, 2015, para. 15). Eventually suppliers will not make any products at all. They will just import them.

Analyzing Walmart’s business relationship from a Biblical status showcases that Walmart’s concerned only with compliant vendors. Walmart works with people of all religions and backgrounds, so they do not fall under the trap of Christian dualism, however, Walmart falls short of transforming these people. Walmart shows little evidence of being the light with vendors who are unbelievers; they only focus on finding vendors who comply (Shearer, 2015, para. 3). They lack a Christian relationship that focuses on God-grounded confidence, even if their business strategies are economically efficient.

Walmart challenges itself to continually improve in its ability to handle, move, and track merchandise, so why not expect the same of its suppliers (Fishman, 2003, para. 17). Walmart is known for assigning specific delivery windows to vendors; either you’re there, or you’re not. This leadership changes organizations for the better and benefits customers (Fishman, 2003, para. 19). Walmart impels the companies it does business with to become more efficient and focused. Suppliers begin to reconfigure their distribution system to turn themselves into shadow versions of Walmart (Fishman, 2003, para. 25). Walmart also awards suppliers who introduce new products that consumers need (Sit, 2017, para. 9). New products do not have price benchmarks, historical data, or even competitors. So, vendors are encouraged to innovate to receive higher prices and higher margins (Sit, 2017, para. 10).

Impacting Factors

Tools. Walmart has popularized an inventory management system called cross-docking. Through cross-docking, inbound shipments are unloaded directly into outbound trailers at distribution centers (Soni, 2015, para. 1). Cross-docking can lower the time required to transport merchandise; it lowers the inefficiencies in the supply chain system and saves the retailer and supplier billions in storage cost (Soni, 2015, para. 2). Walmart and its suppliers leverage its logistical volume into core tactical proficiencies-leading to lower costs and tremendous benefits over their competition (Soni, 2015, para. 3). Although this distribution method has been around since the 1930’s, Walmart is known in the retail industry as the cross-docking king (Soni, 2015, para. 3). Since the 1980’s Walmart has utilized a system of Satellite interaction to monitor each transaction at every store; having this essential foundation component already established was critical in establishing a reliable cross-docking network (Soni, 2015, para 5). This distribution technique is a prime example of how optimized logistical operations can offer strategic partners the competitive edge to increase profits.