- Primary forecasting techniques and its applications in Wal-Mart
- Analyze the impact of production plans, master production schedules, rough cut capacity planning, workforce size, and carrying inventory as they relate to budgets for your chosen organization
- Compare and contrast how MRP usage would be different from selected organization and one of the opposite types of organization
- Compare and contrast the use of Material Requirements Planning (MRP) system concepts of Wal-Mart Inc.
Wal-Mart is considered as the king in American retail market and is a total solution for the shopping needs of the people in America. It also operates in some other countries. There is a full fledged operation management system in Wal-Mart which contributes much to the success of different stores under Wal-Mart.
Sam Walton, the promoter of the Wal-Mart Stores was always interested in using new technologies in the operation management process of the company, because he knew that its effectiveness determines the success or failure of that company.
Around two decades back itself, Wal-Mart introduced point-of-sales terminals which helped the company to know the exact position of the stock as and when required. The company also implemented a system for gathering the stock data of different Wal-Mart stores to the head quarters.
The logistics system in Wal-Mart is highly efficient and follows strict cost control which enables the company to offer goods to the customer at affordable and competitive prices. The company has a sophisticated system for connecting with the supplier. This system is designed in such a way that the suppliers will also be provided with the inventory information of Wal-Mart stores.
Primary forecasting techniques and its applications in Wal-Mart
Forecasting methods are mainly classified into two: quantitative methods and qualitative methods. Quantitative method is time series analysis in which demands are plotted on the time scale based on the past data and depicts the future demand. Qualitative method is based on the judgment about the casual factors underlying the sales and the effect of these causes in the future.
The business model adopted by Wal- Mart is capable of replicating stores across the country by avoiding competition. Manufacturers of Wal-Mart are very loyal and thus un-disturbed flow of goods is ensured. Customer demands in the market are better forecasted by them through analysis of gathered market information.
The supply chain strategy is their critical success factor. Collaborative planning, forecasting and replenishment are carried out by them periodically. By combining all the elements in the supply chain optimum production and marketing strategy is framed. To make better decisions, information is shared with the business partners and supply chain partners.
Open access data system is implemented by the company. Wal- Mart has entered into business collaboration with benchmarking partners. Through the participation of Wal-Mart and Warner Lambert, a pilot project is established for effective supply and demand forecast.
“The pilot prototype worked by importing initial forecasts from each end of the supply chain and scanning them to detect any discrepancies in supply or demand figures that exceeded preset exception thresholds. If exceptions were found, the software generated a notification to the appropriate trading partners, who then proposed revisions until they reached a shared forecast.” (Information technology, 2001).
Analyze the impact of production plans, master production schedules, rough cut capacity planning, workforce size, and carrying inventory as they relate to budgets for your chosen organization
CPFR method is adopted by Wal-Mart for forecasting the market demand. The collaborative efforts on supply and demand forecasting resulted in the formation of the Voluntary Interindustry Commerce Standards (VICS) CPFR Committee. With the assistance of this committee Wal-Mart gained 14 percent reduction in the store level inventory along with a sales increase of 32 % in the pilot test period.
Demand forecasting is carried out by using the Retailink data. Through this system they attained competitive position in the retailing industry. Through the retailink portal the suppliers of Wal-Mart are assisted with true demand forecast. Inventory estimation and demand forecasting are carried on scientifically through this system.
The True Demand provides advantages such as extended visibility, prioritized alerts, industry leading accuracy etc. Through the extended visibility over the stock in various stores of Wal-Mart suppliers can adjust the distribution in the optimum manner based on the demand in the market. By provision of prioritized alerts through the Wal-Mart metrics, the product distribution is better facilitated.
Through the patented technology and efficiently prepared algorithms, estimation on inventory requirements and demand forecasting is effectively carried out by them with high accuracy. For this purpose the detailed market data related to inventory requirements and lost sales are collected and analyzed.
This helps to avoid false positives in the demand forecasting. Through automated tracking, True Demand facilitates tracking of the effectiveness of changes in demand in the market. (Solutions, n.d.).
Compare and contrast how MRP usage would be different from selected organization and one of the opposite types of organization
In the service sector, offering low price to consumers with reduced purchasing cost is the main objective while purchasing materials directly from manufactures. Wal-Mart is a tough negotiator in procurement of materials. The steps followed by Wal-Mart are as follows:
- Meeting vendors – Wal-Mart believes in long term relationship with vendors mainly local and regional vendors and suppliers
- Understanding their cost structure, Wal-Mart procures only after making sure that the product is not available at a lower price.
The material requirement planning is done through a global data sharing system called Retail Link, which is designed to bridge the gap between the suppliers and the value chain. By viewing up-to-the-minute sales data, retrieving the inventory level data and downloading of purchase orders could be done through retail link of Wal-Mart.
Wal-Mart stores over 80,000 items in their warehouses and thus 85% of inventory is supplied by it. The replenishment is done in two days and the shipping cost is only about 3%. There are different sections in the distribution centre of Wal-Mart, which is categorized based on quantity of goods. “The inventory turnover rate was very high, about once every two weeks for most of the items.
Goods meant for distribution within the US usually arrived in pallets while imported goods arrived in re-usable boxes or cases.” (Wal-Mart’s supply chain management practices, 2003, p. 4). The sophisticated barcode technology and hand held computer systems, helps in the flow of materials in which the inventory levels information could be accessed by each employee.
To carry the stock to the Wal-Mart stores there are company owned trucks. The goods are transferred from distribution centers to stores in two days. Cross docking logistics technique is used to make the distribution process more efficient. “In this system, the finished goods were directly picked up from the manufacturing plant of a supplier, sorted out and then directly supplied to the customers.
The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores.” (Wal-Mart’s supply chain management practices, 2003, p. 5).
Dell is a pioneer and role model in the supply chain management mainly for a manufacturing concern. Dells supply chain strategy was ‘Direct Sale’. They have stuck to this strategy and they became successful in the computer-manufacturing field. Dell has a 12-month Master Production Plan that forecast the operations in the next 12-month period, which is continually updated by the changing market conditions.
Master Production Plan is prepared with the help of historical data of products, market regions and customers and through purchasing plans of its largest relationship customers. Master production plan thus prepared is converted into material requirement plan. “The material requirements plan divides a projected level of output into a matrix of different components, automated for Dell by the i2 “Trade matrix” module.
In certain ways, this matrix resembles a transactions table in what is known in regional science as input/output analysis. It provides Dell with the material requirements by component type for a certain level of final demand.” (Chapter 6, n.d., p. 230, para. 4). An exception action report is generated with the i2 tools that help to set up an order with the supplier.
Compare and contrast the use of Material Requirements Planning (MRP) system concepts of Wal-Mart Inc.
The retail sector giant Wal-Mart mainly uses 3PL (Third Party Logistics) which helps in exceptions in handling, supply chain integration etc in the flow of goods. Demand forecasting, requirement planning, transportation etc could be developed through 3PL which offers full visibility to inventories and rate of flow of inventories. The replenishment model or the material requirement planning of Wal-Mart has the following key aspects.
- Strategic relationships with suppliers: there is an open book policy with the retailer thus leading to a high degree of mutual trust and long term strategic contracts.
- Information sharing: on real time basis, key point of sale data are generated every two hours and shared with the suppliers. The shared data include rate of sale, volume of sale, available shelf space, SKU thus helping in replenishing the stock.
- Material flow with minimal handoffs: the suppliers without any inspections do re-stocking the shelves.
- As the payment to supplier occurs only when retailer sells products, there is a separation between the accounting cycles and replenishment.
The following figure shows the intelligent replenishment paradigm of Wal-Mart.
To conclude, in Wal-Mart the operation management is running efficiently with the help of different modern technologies. That is one of the main reasons behind the continuing success of the retail giant. The benefit of using advanced technology in supply chain management is that it can save money and time.
The operations management in Wal-Mart has a competent strategy for dealing with the complicated situations. Different aspects of the operation management are carried out efficiently and effectively. The purchasing process in Wal-Mart is designed systematically.
The purchase is carried out in such a way that there will not be any shortages of products. Simultaneously it makes sure that there is no excess stock of goods. With regard to supply chain management which is the core part of the operations management, Wal-Mart uses sophisticated technology for the smooth functioning of the supply chain process.
Chapter 6: The internet and the production network of dell computer: Operations: Global supply planning. (n.d.).
Information technology: A collaborative model to integrate delivery chain information: Spin-off cpfr® technology increases supply chain efficiency. (2001).
Optimizing 3pl through IT: significance of 3pl in the global economy. (n.d.). Syntel: Consider IT Done.
Solutions: Wal-Mart suppliers: Lift sales at the shelf. (n.d.). True Demand.
Wal-Mart’s supply chain management practices: Managing the supply chain: procurement and distribution. (2003). ICFAI: Center for Management Research.
Wal-Mart’s supply chain management practices: Logistics management. (2003). ICFAI: Center for Management Research.