Introduction
Walmart is one of the largest retail companies globally, and its success can be explained by the constant improvement of its supply chain processes. In the case described by Johnson (2015), the operations of Walmart China are also subject to change, and the focus is on enhancing the quality of suppliers, sourcing, and storage. The completed work has already transformed Walmart into a strong competitor in the country. However, the industry’s suppliers still have low efficiency in reaching the company’s financial and logistical goals.
Demand Forecasting
Walmart is a retailer that carries a wide variety of goods, including food, household appliances, clothing, technology, and more. Thus, customers’ needs are broad—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 (Johnson, 2015).
Suppliers’ capabilities must be well-developed to meet client expectations and maintain a steady supply of goods consistent with the demand. As a retail chain, Walmart has a rapid product flow that changes according to seasons, weather, local and national events, and buyer preferences. For example, celebrations and holidays increase the demand for certain products, such as meats, vegetables, alcohol, toys, and more (Metzger, 2021). Suppliers must temporarily increase their product deliveries, and more stock may be necessary for stores or distribution centers to keep the costs low.
The case study reveals several factors in the 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, limiting 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 its reorder inventory points without an effective distribution center are inefficient.
Additional problems exist due to the distance of stores from the suppliers and distribution centers and the different requirements for transporting and storing goods. Walmart China works with several local and international distributors and sources goods according to demand. 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 major 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.
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.
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. Thus, the business selects suppliers that agree to this arrangement and passes on companies that want to deliver goods directly to the final destination. Here, the need for improvement is creating a system that would evaluate potential suppliers according to their ability to participate in this model.
The current sourcing strategy does not meet all of Walmart’s demands. As noted in the case study analysis, the number of suppliers is still high, and their performance often lacks quality (Johnson, 2015). 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. Thus, Walmart has to update its sourcing network and select suppliers based on their ability to adapt to the new guidelines.
Currently, these businesses do not meet Walmart’s quality standards. For example, it often has to overstock as some suppliers do not offer small quantities of goods or do not agree to deliver to the distribution center (Johnson, 2015). They do not meet steady-state and peak demand as they do not possess 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. 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 digital transformation offers. 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.
Conclusion
Walmart’s success greatly 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.
References
Johnson, F. (2015). Walmart China — Supply chain transformation. Web.
Li, S., He, Y., & Zhou, L. (2021). Dynamic sourcing strategies for supply disruptions under consumer stockpiling. Complex & Intelligent Systems, 1-13. Web.
Metzger, J. (2021). How Walmart is navigating the supply chain to deliver this holiday season. Walmart. Web.
Ren, S., Chan, H. L., & Siqin, T. (2020). Demand forecasting in retail operations for fashionable products: Methods, practices, and a real case study. Annals of Operations Research, 291, 761-777. Web.