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The field of logistics is undergoing some rapid developments, in both the scientific research as well as in commercial practice. There is now a host of new contents, viewpoints and terms that exist now, and didn’t exist then. Organizations increasingly find this field a very key department, owing to the fact that it supports the business strategy of any organization. The supply chain is a key element in the business function of any organization, and therefore it has found a place in the business research field. For this reason, therefore, the supply chain strategy of organizations are being incorporated in the business strategy of the business. The profitability of the organizations has been seen to be tied to the success of the supply chain of the organization, hence the growing decisions by organizations to incorporate supply chain to the business strategy.
Before looking at the role the supply chain plays in the business strategy of an organization, we have to first look at what supply chain is, and its importance. Golinska (2014) defines supply chain as “the networks of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer” (p. 172). In simple terms, Golinska (2014) says that supply chain is a network that is created amongst the different companies that produce, handle and/or distribute the same product. The main aim of this network is to get the goods from the production point to the level where the consumer uses the product. The chain includes the steps taken to get goods or services from the supplier to the consumer. As stated before, it is a very crucial process for organizations, and many organizations strive to have an optimized supply chain mainly because it usually translates to reduced operational costs for the company.
Supply chain management therefore, is the systematic and strategic coordination of all the traditional functions of the business as well as the tactics used in these business functions, either within a particular company or across businesses. These businesses or the particular company should have the supply chain, for the reason of improving the performance of the supply chain collectively or as individual companies (Hugos, 2011). It involves the management of how goods and services flow. Supply chain management from that definition includes how the work-in-process inventory, raw materials, and the final products are stored, acquired and distributed from main point of origin to the final point of consumption. Managers these
days realize that getting their products to the customers faster than their competitors will improve
their company’s competitive advantage (Asefeso, 2014). To remain competitive, therefore, companies have realized that they must incorporate supply chain and find solutions to the issues that face Supply Chain Management in their companies.
Another reason why an effective supply chain management is important is because faster product availability to the customers is key to increasing the sales of the business. Clearly, the Supply Chain Management plays an important role in the moving of goods faster to to their intended destinations. There is a profit advantage that is substantial for the extra time that the product is in the market, and the competitor is not. Being in the market before the competitors or having a constant supply of products in the market increases the chances of getting more orders from the consumers as well as more market share. How fast a business can deliver a product to the market can make or break the sales of the business.
Supply chain management also impacts customer service to a great extent. By making sure that the right product quality, quantity and assortment are delivered in at the right time is can boost the sales of the business. In addition, the products have to be available at the location that the customers expect them to be. All the functions of the supply chain management are tied to the customer, who is the most important aspect of the business. Every business’ main aim is to make profits, and these profits won’t be made possible in the absence of customers.
When it comes to the operational cost of the organization, supply chain management has a huge impact on the cost incurred by the organizations. Firms value supply chain management because if efficiently utilized, it can decrease the usage of fixed assets e.g. warehouses, plants, and vehicles used in transportation in the supply chain. This offers a great relief to the organization, knowing that the good are in the market, subsequently reducing the costs involved in the functions of storage and transportation. Also, the cash flow in and out of the business is increased because if the delivery of the goods can be expedited, then the profits will be received quicker than if the goods just lied in the warehouses.
In conclusion, it is quite evident that Supply chain helps us streamline everything in the business world, ranging from the day-to-day product/services flow, to handling the unexpected market natural disasters. Any organization that is armed with the tools and techniques that the supply chain management offers, it will be able to properly diagnose any problem faced in sales, while at the same time increasing the competitive advantage of the organization.
Case: The integration of Walmart’s Business Strategy to their Supply Chain
Walmart is an American retail corporation that operates a chain of discount stores and warehouses. It is the largest retailer in discounts in the world, with its headquartered in Bentonville, Arkansas. Currently, Walmart operates in 28 countries, having over 11,000 stores in those coutries. 28 countries it operates under different names in different countries. It started off as a small retail chain back in 1962.
The successes of Walmart are tied to its strong business strategy. Last year, Walmart’s CEO outlined a strategic growth plan that is meant to help them do better in the market, as a matter of priority. The strategic plan is based on the fact that everyone in Walmart has to improve, for the general vision of the retail corporation to be realized. In a long time, Walmart has been combining a strategy of cost leadership as well as product differentiation. They provide a very wide variety of products and services, which have the same or even better quality, at a cheaper price than their competitors. They put most of their efforts in looking for various ways in which they can lower the operational, so as to maintain competitive levels of differentiation.
The major reason attributed to Walmart’s success lies in the fact company believing and concentrating on only one single business venture, which translates to more than 95% of walmart’s revenue coming from their grocery business. For the longest period, this strategy of engaging in only one business has contributed immensely in the success of Walmart. These retail stores company has also successfully penetrated the global market, mainly because of the application of multinational business strategies. This strategy involves the treatment of different countries differently, according to their specific needs. The consumption needs of consumers in different countries is different, and it therefore takes effective market segmentation strategies to serve every market according to their need (Lamb & Hair, 2012).
Last year, Walmart decided to increase the scope of their operations, and came up with additional business strategies to increase their clientele, boost their sales and their profit margins. This strategy, according to the CEO primarily focuses on improving the customer’s experience. They hope to increase the customer experience by focusing on four important customer dimensions, which are price, experience and access and assortment. These are the key dimensions which are the basis of every customer’s shopping decision, according to Walmart’s CEO. Walmart acknowledges that their customers have a desire for more assorted items for more choice, hence the need to focus on product assortment. Walmart knows what their customers want, which is very good for their business. Every business must strive to know what the customer wants, so that they tailor their products and services to the needs and wants of the customers. Walmart knows that they deal with value-conscious consumers, who come from every walk of life and from all income levels. In this regard, the price matters to them a lot. To fulfil this need, the company needs to offer competitive prices for their goods. This means that they have to operate under even lower costs, if they have to remain the price leaders in the market, across a broad assortment. Finally, customer experience has everything to do with customer service. Walmart looks forward to improving their customer service, and they promised to invent new various ways to delight and surprise their customers.
Walmart’s supply chain
The overall methods of supply chain management employed by Walmart may differ to some extent from the main supply chain components as we know them: integration, purchasing operations and distribution. The retailer has refined its methods where their supply chain begins with purchasing, where the managers determine which products are likely to sell, find vendors for the products and arrange deals. The operations part of a typical supply chain focuses on the demand planning, forecasting and finally inventory management. Forecasts help estimate the consumer demand for products based on the historical data available, external factors such as promotions and sales, as well as changes in market trends or competition. Demand planning is next, and it is useful in the creation of accurate forecasts, which is a critical step towards effective management of inventory. The inventory levels are usually compared to the forecast so as to ensure that the warehouses have enough inventory to meet the market demand, and making sure that the inventory is not too much. At this first stage, Walmart usually embarks on strategic sourcing of products, so as to find products at the best price from any supplier who can ensure that they can meet Walmart’s demand. On finding such vendors, the company puts in place strategic and strong partnerships with these suppliers, where they offer them the potential for high volume purchases as well as long-term partnership, and in exchange, the vendors’ prices should be as low as possible.
As an inventory tactic, Walmart uses Cross docking, which is a logistics practice, and is at the center of Walmart’s strategy to balance its inventory. Cross docking is the direct transfer of goods and products from inbound truck trailers directly into outbound trucks, railcars or trailers (and vice versa) for dispatching, without any extra storage in between (Ray, 2010). Suppliers and vendors have been delivering their products to Walmart’s centers of distribution, where the product is loaded immediately to outbound trucks for delivery to other Walmart stores. They do this to keep their inventory as well as the transportation costs down, while at the same time saving on time and eliminating inefficiencies.
Technology plays a vital role in the supply chain of Walmart. It basically lays the foundation of the supply chain. This is because Walmart has invested a lot in Technology, having one of the biggest infrastructure of information technology, of any privately owned company in the world. It has state-of-the-art technology as well as a network design that allows Walmart to forecast demand their product demand, predict inventory levels, come up with efficient transport routes and manage the customer relationships and service response logistics. In the relentless pursuit by Walmart to come up with consumer prices, they have embraced information technology to become an innovator.
In the recent years, Wal-Mart has been using radio frequency identification (RFID) tags, which basically use the numerical codes on the products that can be scanned to track pallets of the merchandise that is moving along the supply chain. Because inventory should be handled by both its suppliers and Wal-Mart, Wal-Mart encourages its suppliers to use the RFID technology as well.
In conclusion, we can draw some conclusions on Walmart’s supply chain. First, it is one that saves on time and money. The factor of saving on money, is especially very crucial, given their business strategy. The reason why it is important is because in their strategy, they had outlined providing competitive prices for its products is one of the things they are focusing on. To do this, they have to definitely engage in operations that will cut on the cost of running the stores. This is very well integrated in their supply chain. First of all, they strike very good deals with their vendors/ suppliers. These are deals that are very low on prices, therefore translating to even cheaper goods for their customers. While it is not to clinch such deals from suppliers, the in return offer their suppliers an opportunity for a long term working relationship, with plenty of purchases, owing to their large clientele. Also, their supply chain is one that is modelled in such a way that every process cuts on cost. Cross docking also ensures that Walmart saves on the cost of storing the products, since they are offloaded as they are being loaded to distribution trucks and vehicles. This is a strategy that saves a great deal of time that is used in the storing of the goods that the warehouses. Indeed supply chain management is about cost cutting, as Cuthbertson, Cetinkaya, & Ewer (2011) explains.
The idea of having their product cross-docked resonates well with their business strategy, when they intend to increase their customer experience. This is because part of improving the customer experience is having the find the products they want right on the shelves when they want them. Cross docking the products ensures that the stores are not short of any product, and this will definitely give Walmart and edge over their competitors. Combined together, the business strategy aimed at giving the customers a wonderful experience, capped with assortment for their products.
However how integrated Walmart’s supply chain is to the overall business strategy, it still can do more in that area. An example would be to include marketing expenditures, including the costs, the resource limits as well as the anticipated impact of the demand of the proposed marketing initiatives, into their supply chain plan, so as to maximize on the corporate profitability. It is without a doubt that the main aim of Walmart is to increase profitability.
As a multinational company, it is evident that Walmart is facing the challenge of globalization. The challenge presented in this context is the challenge of having suppliers in every nation that Walmart operates in. Walmart should therefore also come up with the supply chain strategies that will also handle globalization supply. Once a company expands its operations to other countries, it calls for having different suppliers. The reason behind having different suppliers is because of the different needs of every target market. Walmart should be concerned with its satellite stores as much as it is with the mother stores. Therefore, in alignment with its business strategy, Walmart should put in place a clear supply chain strategy for the global market, which incorporates the cultures where the different stores operate in.
In conclusion, it is clear that supply chain and logistics management is very important in any business. This is because of the attachment it has with the profitability of the company. The profitability ties is because supply chain is usually linked to supplying the products in the market. Then aligning of the business strategy to the supply chain is therefore very important, as trends increasingly indicate that the profitability strategies of companies may have their solutions in the supply chain. The supply chain involves a number of activities that range from the raw material acquisition to the dispatching of the end products. It therefore does not make sense to have a business strategy that is not linked with the supply chain of the organization, unless the organization is not serious with profit making.
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