What Attributes Demonstrate the Effectiveness of Wal-Mart’s Supply Chain?

1. What attributes demonstrate the effectiveness of Wal-Mart’s supply chain?

Wal-Mart’s supply chain effectiveness can be attributed to their early self-distribution strategy, power over their supplier network, efficient store layouts, investments in information systems, and proactive customer service. Wal-Mart’s self-distribution strategy removed distributors from the supply chain giving Wal-Mart greater control of orders and prices. Their “house of brands” strategy and global sourcing of private label merchandise increased sales and generated higher margins, allowing them to invest profits to improve operations and streamline processes throughout the supply chain.

Wal-Mart gains economies of scale by developing stores within a day’s drive of their distribution centers. This “hub and spoke” design further benefits Wal-Mart by locating stores in easy accessible, low-rent areas. Their efficient logistics network, with a large truck fleet, includes a “backhaul” system to generate revenue for return trips and cross-dock high turning items to reduce storage time.

Investments in information systems, such as a central database that manages the entire supply chain, point of sales systems, and systems that allowed for better communication, forecasting, and inventory control led to greater efficiencies. Retail Link allows for data analytics for every sale made since the 1990s. Improvements in shelf-space allocation were made by giving suppliers access to this data and creating “category captains”. And, Wal-Mart had first mover advantage regarding the use of UPC barcodes, RFID, CPRF, and VMI programs. Wal-Mart employs an EDLP strategy and price rollback campaigns to keep prices low and a loyal customer base.  These measures to improve forecasting and stabilize prices help to mitigate the bullwhip effect.

2. How does Wal-Mart’s performance compare to its competitors? Is it performing better or worse? How?

In terms of revenue, Walmart had $418,952 in 2011, far greater than the field of competitors.  From 2002 to 2011, Wal-Mart revenue has grown 48% from $217,799 to $418,952. By comparison, Target’s revenues increased by 37%, Kroger by 43%, and Safeway by 26%. However, Costco, Dollar General, and Tesco all saw over 50% growth. Furthermore, they all pale in comparison to Amazon, Dollar Tree, CVS, and Sears, all of which saw roughly 90% sales growth in the same time period. From the perspective of net income, Wal-Mart has seen over 60% growth in the same time period, greater than Target (43%) and Costco (54%), but not as much as Amazon (92%), Dollar Tree (102%), CVS (80%), and Sears (72%). However, operating expenses for Wal-Mart have risen only by 55%, this is well below the competitors that are doing better than Wal-Mart in terms of change in revenue and net income, namely Amazon (92%), Dollar Tree (96%), CVS (66%), and Sears (86%). (Figure 1).