Introduction
Walmart is one of the largest retail companies globally, and the constant improvement of its supply chain processes can explain its success. In the case described by Johnson (2015), Walmart China’s operations are also subject to change, and the focus is on enhancing the quality of suppliers, sourcing, and storage. The recommendations for forecasting demand, purchasing sources, shipping, and warehouse will be discussed based on productivity achievements, expenditures, and sustainability.
The viability of the suggestions is evaluated in light of Walmart’s logistical restrictions in the case study. Specific examples support these assertions to illustrate the claims regarding the company’s supply chain. It states that the completed work has already transformed Walmart into a strong competitor in the country. However, the industry’s suppliers still need more efficiency to reach their financial and logistical goals. Supply chain management recommendations discussed in the current paper aim to reduce business development risks and decrease costs.
Executive Summary
The purpose of the brief is to provide the leaders of Walmart China with a thorough evaluation of the company’s supply chain system. The critical aspects of the business functioning will be emphasized from the perspective of the independent consultant hired by Walmart to ensure objectivity and credibility (Rushton et al., 2022). The organization’s warehousing, logistics, and sourcing demands do not always correspond to the real opportunities Walmart China possesses. Forecasting the potential challenges and the ways to resolve them is effective in understanding the existing business environment and finding opportunities for stable growth.
The findings that will be helpful in the subsequent strategic change in Walmart China include several essential spheres. For instance, the recommendations concerning forecasting focus on the need to make parallels between Walmart China’s experience and the distributions in the United States and Europe. Even though there are certain peculiarities in the local organizations, the overall structure of supply chain management is similar (Rushton et al., 2022).
The recommendations to implement in sourcing include appealing to local producers of perishable goods to decrease the time needed to store these items in the distribution centers. In addition, sourcing recommendations focus on applying regulations to the quality of suppliers collaborating with Walmart China. The changes that might improve transportation are connected with the reorganization of logistics, the regulation of shipping prices, and working with third-party companies that provide these services. The recommendations concerning warehousing interact with the topics of building new distribution centers that have specialization based on the type of goods they contain.
Demand Forecasting
The product flow in Walmart China depends both on the capabilities of the supplier and the needs of customers, which makes this sphere challenging to regulate. Walmart is a retailer that carries various goods, including food, household appliances, clothing, technology, and more. Thus, the customers’ needs are broad as they come into the store hoping to find everything they may need without visiting several different locations or shops. Furthermore, due to Walmart’s branding, consumers expect high quality and low product prices from their experience in this supermarket, and Walmart has to support its reputation (Johnson, 2015). Therefore, suppliers’ capabilities must be well-developed to meet client expectations and maintain a steady supply of goods consistent with the demand.
The potential balanced decision to keep waste and costs low is connected with improving the supply and demand in the company’s logistics. As a retail chain, Walmart has a rapid product flow that changes according to seasons, weather, local and national events, and buyer preferences (Rushton et al., 2022). For example, celebrations and holidays increase the demand for certain products, such as meats, vegetables, alcohol, toys, and more (Metzger, 2021). As a result, suppliers must temporarily increase their product deliveries, and more stock may be necessary for stores or distribution centers to keep costs low (Metzger, 2021). It states that the significant aspect of establishing a balance between costs and waste is the flexibility of the supply chain managers and their focus on adapting to clients’ needs.
Evaluation
As mentioned, Walmart China has a complicated supply chain structure due to its size and many suppliers. In 1996, Walmart expanded into China and launched the country’s first Sam’s Club retailer in Shenzhen, the province of Guangdong (Johnson, 2015). The organization had 416 locations open in 166 cities as of August 2015 (Johnson, 2015).
The first supermarkets were enormous; they averaged 182,000 square meters in size and housed 20,000 different merchandise items (Johnson, 2015). These products included general goods, necessities, groceries, and fresh food. Walmart found it was inefficient for suppliers to transport their goods to stores because they had 15,000 to 20,000 stock-keeping units, or SKUs, in their retail outlets (Johnson, 2015). To improve things, Walmart allowed suppliers to send goods in full truckloads, full shiploads, or more affordable increments (Johnson, 2015). The statistical information shows the peculiarities of the Walmart China supply chain that determine the leaders’ strategic choices.
The case study reveals several factors in supplier quality of operations that undermine Walmart’s success. First, the suppliers have only recently begun working with the centralized shipping that Walmart introduced (Johnson, 2015). Wary of the distribution centers’ old fees and the habit of delivering goods directly to stores, this prevents Chinese distributors from working with Walmart, which limits the company’s choice of available suppliers.
Second, it is noted that the suppliers lack efficient planning and demand forecasting strategies, providing low-quality capabilities for restocking goods (Johnson, 2015). The current demand for the stores is approximately 90,000 cases per day at peak times, and 70% of that number is the daily average (Johnson, 2015). Analyzing the quality of suppliers, there is a high risk of suppliers being unable to meet this demand. The lack of a computerized forecasting system implies that Walmart has to overstock goods and reorder inventory points without an effective distribution center, which leads to inefficiency.
Additional demand forecasting constraints exist due to the distance of stores from the suppliers and distribution centers, as well as the different requirements for transporting and storing goods. Walmart China works with several local and international distributors and sources goods according to demand (Johnson, 2015). However, changes in customer needs may create scenarios where transportation times are too long, as the desired goods are produced far from the distribution center. Moreover, the distribution of perishable goods that require same-day shipping is a significant issue, as suppliers and Walmart must keep a strict schedule for transporting these products from the producer to the store. At the same time, some perishable products cannot be stored or transported with other goods due to the risk of contamination.
Recommendations
It is possible to make parallels between the experiences of other countries in supply chain management and compare them to the Chinese example. The classic staple supply flow, which permitted inventory storage for a brief duration, was employed by American logistics centers. The cross-dock flow was employed by European distribution centers, which gave them more flexibility and enabled requests to be accepted and delivered on the same day. China predominantly used the ship-direct-to-store strategy, and using the model was an additional problem for forecasting demands and organizing suppliers (Rushton et al., 2022).
The sellers were ineffective and impractical since they kept approximately 20,000 stock-keeping units within and across outlets. Due to the 29 independent buying offices being served by only five distribution centers, the shipment delays resulted in nothing on the shelves. The individuals who opted to purchase through the network paid storage expenses and faced delivery delays for several weeks (Johnson, 2015). This information shows that the existing supply system was ineffective, leading to dissatisfaction from vendors and clients who refused to invest in Walmart distribution centers due to rising expenses, subpar service, and high charges.
The recommendations for improved alignment of supply and demand in Walmart China should focus on adjusting the distribution centers to retailers’ needs. Retailers might place excessive orders and hire storage facilities if the costs for these services are adequate and consistent with the prices on the market (Rushton et al., 2022). Another recommendation is to adopt the strategic decisions used by American and European distribution centers, which facilitate the logistics of goods and their timely supply when needed. These two points assist Walmart China in making supply and demand more balanced and improving the organization’s work.
Sourcing
Walmart’s current network sourcing strategy continues to evolve. The company has dramatically reduced the number of suppliers from 2.658 to 820 (Johnson, 2015). This change demonstrates that Walmart has chosen to work with a limited range of businesses, valuing the quality of their goods and operations. However, it also reveals a potential issue of chain disruption when a supplier with unique goods cannot deliver products on time (Johnson, 2015).
Moreover, Walmart has introduced distribution centers to the supply chain, which now serve as a point between suppliers and Walmart stores to transport or store goods until they are needed (Johnson, 2015). Thus, the business selects suppliers that agree to this arrangement and passes on companies that want to deliver goods directly to the final destination. There is a need for improvement in creating a system that would evaluate potential suppliers according to their ability to participate in this model. These changes leave opportunities for the subsequent development of Walmart China, which is essential for business growth.
Evaluation
The current sourcing strategy meets only some of Walmart’s demands, which means there are opportunities for development and improvement. As noted in the case study analysis, the number of suppliers is still high, and their performance often lacks quality. In addition, the company introduced online stores, which are likely to increase demand and decrease the time it takes to replenish products at stores and distribution centers (Johnson, 2015). Thus, Walmart must update its sourcing network and select suppliers based on their ability to adapt to the new guidelines.
Currently, these businesses follow Walmart’s quality standards. However, for example, it often must overstock as some suppliers do not offer small quantities of goods or do not agree to deliver to the distribution center. In addition, they do not meet steady-state and peak demand as they need a comprehensive forecasting system to automate these processes (Johnson, 2015). As a result, issues such as the lack of products on the shelves and loss of profit due to overstocking are present in the system. Therefore, a change in the sourcing network strategy is needed to address these problems.
Recommendations
To optimize the network sourcing strategy, Walmart has to introduce new technologies for selecting and working with suppliers. Firstly, the retailer should improve its distribution center participation rates by introducing benefits for suppliers who choose to work within this system. Such benefits include lower fees and better offers for digital transformation. For instance, Walmart can offer to participate in its system that combines logistics and supply and demand forecasts, allowing suppliers to instantly see which products are currently needed (Ren et al., 2020).
Secondly, Walmart should develop a new process for evaluating supplier quality, including their ability to forecast demand in collaboration with Walmart (Li et al., 2021). This decision may lower the number of available producers and increase their efficiency. Automating forecasting and restocking processes can improve the sourcing network and reduce the risk of empty shelves in emergencies.
Significant sourcing changes were required since Walmart China was a locally owned corporation. Various stores dispersed across different areas of China should constantly communicate with the centralized shipping facilities. This ultimately results in a method of maintaining inventory on shelves and a speedier, more effective method of acquiring products (Rushton et al., 2022). It is particularly relevant for food products, which will be packed better and remain fresher for longer.
It is also possible to recommend alternative local production producers to improve sourcing quality. Suppliers should follow the standard checking procedure to understand Walmart’s corporate social responsibility guidelines and provide customers with high-quality and sustainable products. It is recommended that the suppliers’ licenses be checked to ensure that Walmart China’s sourcing corresponds to the organizational standards (Rushton et al., 2022).
Enhancing cooperation between distribution centers and suppliers and following the procedure of checking all sources is recommended. The newly installed distribution centers collaborated with third-party logistics. They supported customers through pass-on activities, which worked well for servicing the shops, as quantitative research shows (Rushton et al., 2022).
The distribution centers’ capital expenditure was lower, but their ineffective manual procedures and systems constrained their capability; newly established companies were not expandable or viable over the long term. Third-party logistics needed to be trained to function in that kind of setting (Rushton et al., 2022). The data gathered from a supplier health inspection procedure, which comprehensively assesses the evaluated organization’s present and future viability as a partner, can subsequently be added to the source’s risk assessment.
Transportation
At this moment, Walmart’s transportation network is relatively effective, and it is one of the factors determining its success. Walmart’s supply chain is efficient and capable of responding quickly to emerging problems as they arise. However, there is always an opportunity to improvise and optimize the logistics planning process to increase productivity (Vipin, 2021). In the case of Walmart, possible cost savings without sacrificing performance include the deployment of remote-controlled trucks, which save drivers’ costs in the long term.
As the case study shows, Walmart possessed 29 independent purchasing centers nationwide with a dry functional network. Five distribution centers serviced all of these shops, and suppliers and customers were uninterested in using the distribution system due to rising costs and poor service. When the commissioned giant cube vehicles were fully loaded, which was over 7,000 instances, Walmart sent them off, and shipping could have a two-week waiting period (Johnson, 2015).
Most of Walmart’s 20,000 suppliers were also wholesalers, and Walmart lacked the authority to control them (Johnson, 2015). Minimum order amounts were imposed due to insufficient order volumes, and wholesalers could not meet the terms. The problem is that every Walmart China vehicle is company property, and employees are recruited directly to transport goods.
Evaluation
The influence of transportation network limits on overall supply chain operations is related to the process of evaluating items’ priority and more urgent air delivery routes. For example, this happens if a customer chooses a fast delivery option and needs the goods urgently within a few days (Vipin, 2021). However, this type of delivery is more costly, increasing the cost of the overall supply chain operations.
To rationally organize the movement of traffic flows, estimating the maximum flow in the network, finding the most efficient flow distribution, and identifying bottlenecks are necessary. According to statistics, the narrowest roads are, on average, 130 miles from the store, and sections are on toll roads (Cariou & Notteboom, 2022). This situation happens because traffic on local roads can be difficult due to their poor quality, and with queues on toll roads. The remaining sections belong to a high-quality transportation network.
Constraints within the transportation network are the network’s flow and bandwidth limitations. Despite the speed limit on expressways for safety reasons or to increase capacity, only a limited number of vehicles carrying goods to Walmart can still move on the roads (Johnson, 2015). This is reflected in the time the network’s ground transport spends on the way.
In terms of time, the most optimal modes of transportation are being used. However, in the case of ground transportation, Walmart multiplies time for lower costs (Vipin, 2021). In terms of cost, the most optimal modes of transportation are applied. To do this, the network does not use the northwest corner method, which ignores the cost of transportation during deliveries, but the least cost method (Rushton et al., 2022). When it is necessary to make the fastest deliveries, Walmart chooses air logistics (Cariou & Notteboom, 2022). However, costs are growing significantly simultaneously, and although an additional payment from the client covers them, the cost item is still growing.
The correct modes of transportation are being used based on quantity. Therefore, Walmart must consider the indicators that characterize the performance of the rolling stock. To calculate quantity, the network uses the number of rides, the total distance of transportation and mileage with cargo, and the volume of transportation and transport work (Cariou & Notteboom, 2022). At the same time, the indicators characterizing the degree of use of the rolling stock of truck transport are taken into account to avoid increasing the cost for the sake of quantity in the future.
Recommendations
Given the identified constraints, it is possible to enter cars by remote control to improve the transportation network. For example, this will reduce costs by 20% since drivers will not need to pay for business trips on difficult road sections (Vipin, 2021). Cross-docking, which is employed in perishable distribution centers, can minimize building costs, investment, and expenses, as Walmart has already highlighted. The number of product lines handled by the storage system mentioned earlier is limitless. With many stores, though, this strategy slightly loses its effectiveness (Rushton et al., 2022).
For establishments farther out, staple stock warehousing techniques are the most vigorous defense against supply problems. Delivery times are typically a single day, and staple stock can supply many businesses (Rushton et al., 2022). According to Chinese rules, hazardous goods must be marked appropriately and kept in authorized locations (Davies & Westgate, 2018). Each item should come with an information sheet on safety. Walmart personnel should receive training on managing and containing dangerous products (Davies & Westgate, 2018). Therefore, the recommendations to improve transportation in Walmart China focus on various aspects critical for the company’s functioning.
Warehousing
The leaders of Walmart China actively discuss problems with the distribution centers. As the case study states, Walmart changed its warehouse management approach relatively recently. The company currently runs nine so-called ambient distribution centers, which carry general retail and nonperishable grocery items, and 11 perishable distribution centers that work with the circulation layout and cross-docking (Johnson, 2015).
After arrival, perishable products are moved into the outbound transportation section (Johnson, 2015). All nine dry distribution centers are constructed using staple stock. An ambient distribution system stores 15% of its volume of basic stock, which assists in keeping infrastructure expenditures in check (Johnson, 2015). Walmart realized that this might be the best way to set up its new business and provide support to all of its shops.
Evaluation
The Walmart warehouse network is a micro logistics system, a structured economic system for managing material and related flows, the interrelated elements of which are competently managed. Walmart’s warehousing network is located on the territory of the main store. Therefore, the warehouse has all the conditions necessary to store food products (Johnson, 2015). In addition, most of the updated Walmart centers include the addition of high-speed mobile bots and high-speed palletizing robotics, which significantly accelerated the work with the inventory.
Certain constraints exist in keeping potentially hazardous goods, perishable products, and other items in one distribution center. For instance, three distinct temperature zones were required to store perishable goods. Nevertheless, the locations were ineffective and possessed a small capacity. Employees did not receive instruction to operate in that setting at the sites because they used outdated procedures, which creates additional danger if hazardous goods are stored together with food (Davies & Westgate, 2018). It allows stating that the typical distribution of goods in Walmart China was neither sustainable nor efficient and required changes.
Several products that are sold at Walmart need careful management. Aerosols, pigments, inks, and motor oil are a few that are dangerous by provenance. Manufacturers and storage are subject to national rules and regulations. The most stringent chemical regulation law applicable to China is Decree 591, which governs dangerous compounds along the whole supply chain, from production to shipment to transportation and finally to use (Davies & Westgate, 2018). Therefore, Walmart China should follow the legal regulations concerning potentially hazardous products in its warehouses.
Recommendations
The requirements and recommendations for appropriately meeting current and future storage needs consist of regular, prompt changes influenced by strategic decisions and external and internal factors. These include changes in demand for the goods being sold, the emergence of new customers, and customer requirements for the level of service (Vipin, 2021). In addition, seasonal changes associated with a change in pricing policy or an increase in the service radius from one warehouse are recommended.
Walmart’s current warehousing infrastructure adequately meets storage needs. To calculate the required warehouse space, Walmart uses the maximum inventory indicator expressed in conventional two-axle wagons (Johnson, 2015). Therefore, the network calculations are optimal for the assortment supplied to it. The eventual expansion requirements of Walmart’s operation may occur during seasonal sales.
The need for goods increases during major holidays, such as Christmas, Thanksgiving, or Independence Day (Cariou & Notteboom, 2022). Therefore, it is necessary to use a large warehouse area for this period. This seasonal need for expansion can be realized by renting new and unused premises without significant holidays.
The constraints or restrictions involved in the possible locations are that Walmart supplies food to its warehouses. Therefore, there should be no harmful industries nearby on the territory of possible locations (Johnson, 2015). In addition, to display products as soon as possible and retain their freshness and presentation, warehouses should be located in short proximity to the store itself; too far from the nearest Walmart branch is not suitable.
Since Walmart supplies food products, they do not need special handling since there are no hazardous materials. However, some products, such as meat, milk, and ice cream, require a particular temperature regime (Vipin, 2021). Therefore, they are transported in cold storage rooms where freon gas is used (Vipin, 2021). It is explosive, so the cameras are regularly checked for leaks, and a unique identification mark is glued to the carriers’ cars.
The impact of Freon on warehousing for the current mix of products that Walmart’s SCM is handling is to be extra careful with open fire. For example, to avoid fires, employees are prohibited from smoking in the vicinity of the warehouse (Cariou & Notteboom, 2022). In addition, periodic verification of the service personnel’s knowledge of the rules, regulatory documents on the maintenance of the refrigeration system, and labor protection increases the warehousing costs and the requirements for employees.
Conclusion
Walmart China’s supply chain was examined to see how well the business could serve its partners and consumers. By recognizing prediction limitations, Walmart China can enhance efficiency. The organization can apply standardized processes for assessing sources and use suitable quantitative techniques to identify the best suppliers. Walmart China can upgrade its warehouse management technology and control the transportation system.
Finally, the company can build a distribution facility in a prime location that supplies nearby retailers and functions as a prototype for others. The construction of perishable distribution centers should solve the problems mentioned in the case study. Walmart is a multibillion-dollar company that uses flexibility, versatility, and coordination to create optimal supply chains.
The success of Walmart dramatically depends on the quality of its supply chain. The company encounters several issues when working with suppliers and forecasting demand, such as long travel times, low quality of supplier organization, and reluctance to change processes. As Walmart offers various goods, including products with a short shelf life, it must develop an efficient sourcing network to meet customer demand without overstocking.
To overcome these issues, Walmart can offer benefits for suppliers to work within the system, influencing them to improve their processes. Furthermore, Walmart should develop a new approach to assessing the quality of producers. Finally, the retailer should automate the processes of forecasting and ordering to ensure that it always offers fresh products and never has empty shelves.
The recommendations made in this paper are feasible because they follow the positive examples of organizing supply chains of similar character. As mentioned, the American and European examples of Walmart were taken as role models to determine the solutions to the existing issues with Walmart China. Even though Walmart China has certain constraints in supply chain management, finding optimal ways to overcome these challenges and develop the working system is possible.
References
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