Evaluating Walmart's Supply Chain Management: A Porter's Value Chain Analysis

Establishing a new venture at Walmart requires a specific approach to supply chain management and logistics. Before launching any initiative, it is essential to understand the company's identity in terms of its supply chain and logistics operations. This can be achieved through value-chain analysis, which helps identify areas for improvement and opportunities for innovation.

Contents
Background of Walmart..............................................................................................................................2
Supply chain management at Walmart........................................................................................................3
Models of supply chain management..........................................................................................................4
Support activities.........................................................................................................................................8
 Human resource management..........................................................................................................8
 Technology development.................................................................................................................8
 Firm Infrastructure...........................................................................................................................9
 Procurement.....................................................................................................................................9
Kraljic portfolio purchasing model............................................................................................................10
Strategic Positioning..................................................................................................................................12
Two bin system in inventory management................................................................................................13
Waste management....................................................................................................................................14
Structural/ strategic decisions in physical distribution...............................................................................15
Tim wood value added activity..................................................................................................................16
CSR/ sustainability/ modern slavery and ethics.........................................................................................18
Challenges.................................................................................................................................................19
Recommendations.....................................................................................................................................20
Conclusion.................................................................................................................................................21
References.................................................................................................................................................23
1

Background of Walmart
Walmart deals with the retail business in all apparels, housewares, electronics and food and non-
food products and services. The successful operation of this organization makes this store the
world’s largest retail store chain and this company has approximately 11,453 stores worldwide.
This retail store is founded by legendary Sam Walton in the year of 1962 and before he started,
Sam Walton owned a chain of stores in the US. The main aim of Walmart is to offer the products
and services according to the needs of customers either it’s related to housewares, electronics,
clothing and general services. Walmart is serving more than 138 million people every week in
the world. The Walmart main motto at the time of establishment was ‘lower price anytime,
anywhere’ and this is unchanged from 1962. Moreover, customers used to call this store the
Discounting Store. As per the records of financial report in 2015, the company achieved revenue
of $485.7 billion and approximately 1.8 million employees are working in 50 states stores as
well all the international stores in Argentina, Mexico, Brazil, and Canada etc. across the world.
The market Capitalization of this retail store is around $195 billion as of December 2015 (Lu,
2014).
Mission- The mission of the Walmart is low price every day and also the other mission is to
provide the best online shopping experience for the customers with the use of technology and to
give customers a huge variety of products at low prices with guaranteed satisfaction and friendly
service on convenient hours. Sam Walton takes care of the quality work and the needs of the
customers. The main focus of Walmart is to provide the best quality services to its customers so
that they will visit and shop in this departmental store again and again. The goal of the Walmart
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is to make the life of customers easy by the way of offering quality services at reasonable prices
and fulfill the needs of the clients whatever they want.
Supply chain management at Walmart
Supply Chain Management plays a very significant role in the success of Walmart because
Inventory management models help the company to find out the quantity of stock that is
delivered to the retail stores twice of every week and this stock is very limited and it’s very
important to check that each store is getting the required stock what they want. This quick
service of shipment of stock is easy and feasible for Walmart because production houses are
situated near to Walmart distribution headquarters. Inventory is managed by the workers and
they are taking care of in how many batches the stock is to be delivered and what should be the
quantity. The individual’s needs are dynamic and keep on changing from time to time, so it is
recommended to analyze their demands. Several methods can be adopted to know their needs,
for an example, a questionnaire method, surveys, personal interview, etc. This can be done by
appointing professionals and trained employees to collect the data of employees and motivate
them accordingly using such methods. All individuals are different and come from a different
background so this is why their choices vary (The University of Western Ontario, 2003).
There are some issues that can arise at the time supply chain management, these issues are:-
1. Movement and storage of raw materials: Since the raw materials are delicate and the
storage has always remained an issue in the perfume industry, it becomes difficult for the
companies to handle fragile materials.
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2. Work in process inventory: The next problem which the perfume industries encounter is
management of work in process inventory and maintenance of true and accurate data
(Marcilla, 2014).
3. Goods to be supplied from point of origin to consumption: The process of supplying
goods from point of origin to consumption is quite a cumbersome process and involves
many intermediaries which make the whole system very slow (Flash Global, 2015).
The issues that are visible are related to the logistics and SCM in the Walmart. The suitable
strategic approach should be planned to face suitable conditions. The two strategies are identified
on the wide levels that are identified as the strategic supply chain management and the Just in
Time Policy. Both these policies are helpful in defining the suitable approach in the specific
direction and with the help of these aspects; it could become easier to manage the perspectives
and issues related to the SCM. Both these strategies are well organized, managed, object oriented
and focused in nature. The quantifiable strategy is also considered in respect to Walmart to
manage the aspects in a suitable way (Natto, 2014).
Models of supply chain management
Apart from all, the maintenance of the customers’ goods and logistics in an appropriate manner
is also identified as the best function carried out by the strategies defined for SCM. For making
the smooth flow of supply chain management and to manage logistics, the retail supermarket
brand introduces its various innovative projects in France, New York, Sydney and Melbourne.
To attract the customers, the brand also merges with the other retail markets. These products are
successful in managing their brand identity worldwide and in the retail market of UK. This
merger not only helps in supporting the organization in making the financial aspects successful,
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but by this, the logistics and supply chain management of the organization can also be
maintained in the right direction (Xu, et al., 2014).
1. Porter’s Value Chain
Talking about the First tool of Supply Chain management is the Porter’s value chain Model
and the five forces model was developed by Micheal Porter to analyze the competitive
environment in which a product or company works. Porter’s model is the number one tool of
supply chain management and it can be well explained with the help of the following figure:
(Cambridge, 2016)
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New Market Entrants: For Walmart there is no threat of new entrants. The reason for this low
threat is that the costs for Marketing, production, and distribution are already divided over units
of production that lowers the cost of production. For new entrants it is not an easy task as it is
very difficult for them to compete and achieve its aim as in the starting point, the huge amount of
funds or investments are needed to enter into the industry (Mann & Kumar, 2009).
Supplier Power: There are lots of people in the retail business who supply the raw material in
the retail industry and the raw materials are adequate and can be offered to the many rising
countries. Due to this reason the bargaining power of suppliers is low.
Buyers Power: The bargaining power of buyers of Walmart is reasonable as Walmart
customers’ switching cost is low and the products offered by Walmart are at affordable prices. In
the Retail business, the customer is the only one that is very flexible in choosing the Store across
a number of other brand retail stores. The High Brand Loyalty of Walmart also the low
possibility of customer integration is the reasons of lowering the bargaining power of buyers
(Crain & Abraham, 2008).
Development of Substitute Products: In this competitive industry, there is always a high threat
of substitute products. There are many substitutes or can say competitors of Walmart that are a
threat to this Retail industry like Sainsbury, Costco Corporation, Tesco PLC, Metro Group,
Home Depot corporation, Kroger, Amazon company etc. the Sam said, for him the biggest
competitor is Costco Corporation and because of this, high availability of substitute or
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competitors leads to the huge threat for the retailers. There are many chances of Customer
switching because of the price comparison for the same product of a different brand.
Porter in his model also introduces two activities-
 Primary Activities- These activities are the part of logistics management as it includes
inbound logistics, operations, outbound logistics, marketing and sales, service etc.
 Support Activities- These activities provide help and support to all the primary activities
and these include Human resource management, technology, Firm Infrastructure and
procurement.
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Support activities
 Human resource management
Organizations like Walmart have different kinds of employees and it is very important to retain
the employees for as long as it is possible. Recruiting new employees in an organization involves
a huge amount of expenditure and time as well. So, it is important to keep the employees happy
and satisfied so that they can work for an organization for quite a long time. It promotes the
brand image of an organization and helps in building the goodwill of the organization as well.
Every individual is different and so are his needs. Some needs monetary incentives for
motivation; some needs non-monetary incentives some needs both. The motivational programs
should be conducted after regular intervals to keep the employees on track. The leaders and
supervisors should be friendly and should help the employees in achieving their goals. For
example, if we provide non-monetary incentives to the employees who feel highly satisfied when
they receive monetary incentives, it will ruin the whole purpose of providing rewards. So, this is
very important to know what the needs of employees are. Various monetary and non-monetary
incentives are getting evolved these days and organizations are using various tactics to motivate
their employees. Motivation is basically inducing the employees to work.
 Technology development
As we know that technology changes the life of people. Similarly, Technology plays a significant
role in Walmart’s supply chain also. Walmart has the largest information technology
infrastructure because its state-of-the-art technology and network design helps the organization
or Walmart to identify the demand, continue tracking and forecasting of the stock levels,
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management of the customer relationships etc. For example, Walmart is the first company in the
world who implemented the use of Universal Product Code Bar Codes with the help of which all
the data and store level information is collected and analyzed (Cambridge, 2016).
 Firm Infrastructure
The firm infrastructure refers to the organization structure and management as it includes the
different departments of Walmart like finance, planning, legal, public affairs, and quality control
management.
 Procurement
Procurement means how the raw material is to be arranged and from where it is obtained.
Walmart has many distribution channels and suppliers across the world. Procurement includes
the direct contact with suppliers through any middle man and maintain cross border relation with
suppliers for the inventory purposes (Jafry, 2012).
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Kraljic portfolio purchasing model
Peter Kraljic created the Kraljic Portfolio Purchasing Model and this model is the very popular
model used by the companies across the world. The main motive is to help buyers to increase the
supply security and decrease the costs, by the way of making purchasing power. According to
the Kraljic, purchasing must become the management of supply.
The model involves four steps:
1. Purchase classification.
2. Market analysis.
3. Strategic positioning.
4. Action planning.
Purchase Classification: The first step that involves in this model is the classification of
purchasing into two determinants one is supply risk and profit impact.
 Supply risk is defined as low to high. This risk can be occurred due to the reason of the
shortage of raw material, or natural disasters, or when there are few suppliers (Vliet, 2014).
 The impact of profit is high when the product adds value to the output of organization of
Walmart. The high impact on quality is the reason of the high proportion of profit.
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(Vliet, 2014)
 Strategic items (high-profit impact, high supply risk).
 Leverage items (high-profit impact, low supply risk).
 Bottleneck items (low-profit impact, high supply risk).
 Non-critical items (low-profit impact, low supply risk).
Market Analysis: This involves the analysis of the market by using the porter’s five forces
model explaining the bargaining power of suppliers and buyers.
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Strategic Positioning
After doing the analysis of the market and classification of purchasing, the next step is to make
the strategies and all the items need to be added to the purchasing portfolio matrix (Caniels &
Gelderman, 2005).
Figure 2 – Purchasing Portfolio Matrix
Action Plans: There are three purchasing strategies obtained which are described as follows:
 Exploit – to reduce the risk involved in supply by making high buying power to secure
reasonable price and essential long-term agreement with the supplier.
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 Balance – This is the middle situation between the exploitation approach and the
diversification approach.
 Diversify – Walmart reduces the supply risks by looking for the alternative supplier and
products.
Two bin system in inventory management
Two bin systems are common models of gathering and moving manufacturing lines from where
the substances are added to the item being manufactured. It is clear from the name that the two
bin system is composed of two bins - one is drawn of the materials and another Bin is still full of
the safety stock. The Walmart follows the FIFO system (first in first out) as this model is exactly
the similar to this because the first bin is completely depleted the worker and switches to the
other bin (Team, 2009).
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Waste management
Walmart introduced Quest Resource Management Group, that basically involve in the
management of waste material and it is basically a recycling program for the wasteful materials
like tires, Motor oil, eat rendering collections, etc. and convert this item into environmentally
sustainable.
Quest main focus was to generate the revenue from organic waste, and although the revenue
from this is not covering the entire cost of this model and to recover this cost the industry have to
look at mixed organics instead of a waste Material. Walmart is looking for the good
opportunities to gain maximum value on organic waste.
Walmart and Quest have noted some key points during recycling program:
Containers: in Walmart, the containers are locked to make a control over the organic material
deposited on them, preventing contamination (Worley, 2014).
Trucks: Truck is considered as the important part of maintaining all the organic material and
shifting this into the other place for recycling. It is a mode of transportation, which is important
for the Waste management.
Training: To get a success an education and training program is important, to make it clear that
all the waste material is properly differentiated and the stream is clean.
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Structural/ strategic decisions in physical distribution
Walmart has a very strong distribution channel as compared to the other retail stores that
facilitate the company to deliver items to the stores in every store within 24 hours. Similarly to
deliver in America and Asian Outlets, it will take less than 40 hours to deliver the goods.
Walmart is the only industry that takes only 15days to get a product out from the production
house to stores whereas another company standard is less than six months (Perner, 2008).
Here are some of the factors that consider at the time of deciding the strategy in distribution: -
1. Time is given in selecting the product in given category
2. Comparison of products,
3. Type of products and services considered for the comparison purpose, for example frozen
yogurt vs. cookies in a mall,
4. Complementing products if any placed nearby (Wei, et al., 2013).
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Tim wood value added activity
Here TIM OOD stands for the 7 wastes activities that add value to the output of the Walmart.
 T - Transportation
 I - Inventory
 M - Motion
 W - Waiting and delays
 O - Over Production
 O - Over Processing
 D - Defect
Transportation: - This is the important part as the Walmart need to transport its products from
office to office, floor to floor, building to building and Trucking to other places like warehouses,
other states (Team, 2016).
Inventory: - Inventory Management plays a very significant role in the success of Walmart
because Inventory management models help the company to find out the quantity of stock that is
delivered to the retail stores twice of every week and this stock is very limited and it’s very
important to check that each store is getting the required stock what they want.
Movement: - It is similar to transportation, but this involves the movement of equipment and
operators like inter-office shiftiest, moving to the storeroom etc.
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Waiting: - This is the waiting for the next process and sometimes delays in the manufacturing
and delivery cost the company more and waiting for the non-productive items like copier,
scanner, emails, and computers
Over Production: - The Walmart is not facing the problem of overproduction as it already
provides the basic need products and focuses more on quality, so there is no such kind of needs
of reproducing the items.
Over Processing: -The meaning of over processing is to complete the work for the customer
more than he actually wants. The products offered by the Walmart are beyond the expectations
of the customers (Manrodt & Vitasek, 2015).
Defect: - Providing defective products to the customer may lead him to switch from one retail
store to another because for people, money is very important and they won’t like to spend their
money on the broken or defective piece.
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CSR/ sustainability/ modern slavery and ethics
Environment: One main focus of corporate social responsibility of the company is
the environment. Walmart focuses on not harming the environment and manufacturing all their
products without causing any damage to the environment. The environment is the main focus as
it is very imperative for the people to live in a clean and green environment (McMillon, 2016).
Philanthropy: Walmart practices social responsibility by giving to various charitable
organizations. Out of the revenues of the company, a few amounts are donated to the charitable
institutions and this is done for a philanthropic purpose, for the welfare of mankind.
Ethical labor practices: The employees are treated fairly in the company and they are always
given with initiative to come up in front and work for the company. Walmart focuses on
retaining its employees and making them feel an integral part of the company so that they can
work for the company enthusiastically and with full zeal. The employees are very important and
they work day and night and this is what this company is following and helping the employees
feel important (Ostrander, 2011).
While a number of companies are following new practices and different forms of social
responsibility, Walmart is making it a core of their operations. The company utilizes only just
ingredients of trade and focuses on the sustainable form of environment and doesn’t believe in
destroying the environmental resources in order to manufacture the basic need products.
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Challenges
After doing the critical analysis of Walmart the challenges faced by the Walmart in future are
explained below:-
1. ECONOMIC SLOWDOWN: - Although the sales of Walmart have grown continuously
for the past few years, but it became weak in the year of 2013 because of low consumer
confidence and slowdown in the economy. The economic slowdown is the biggest
challenge that can be faced by the Walmart in the coming 30 year.
2. CASH-STRAPPED SHOPPER- the customer of Walmart is still facing some problem
with the increase of social security payroll tax and facing reduction in Government food
stamp benefit
3. PRICE PRESSURE- There are many stores available which are offering low price and
they are creating a huge problem for the success of Walmart. Walmart has to focus more
on the reduction of its price and offering more discount rates on the basic item.
4. CHANGING SHOPPING HABITS-The interest of the customer is changing and same
in the case of shopping habits in the coming year, the customer ill have different
preference and taste and they will look for the most easiest way of hopping like at the
present time also the people shifted towards the online shopping for the grocery product
and many other products also (Wei, et al., 2013).
5. GLOBALIZATION – Globalization is also one of the biggest challenges and firstly
there will be the challenge from the supplier side because in future when companies think
about the expansion of their business they will have to target the different market and
because of this they have to target the different supplier. In future also the Culture ill
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influence Walmart’s activities in different ways, such as language problems, pricing
difficulties and culture collisions etc.
Recommendations
There are many recommendations for the Walmart to maintain its successful image and some of
the points are:-
 The company should need to adapt the new Leverage technology to track products or
services.
 It is very important to give training and encourage the people how to use the supply chain
model in an effective way and how to reduce the challenge.
 It is essential to identify the components of the business and need to analyze how to use
the resources to improve this competitive advantage.
 Walmart should offer the new rate list and some of the discount rates of the festival
season to attract more clients.
 The Walmart should also focus on the online mode of delivering service because the
shopping habits of the customer are changing (Jafry, 2012).
 The company should develop more apps which can be used on mobile phones by the
customers to place the order for the items in stock and out of stock also.
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Conclusion
Walmart has a very strong distribution channel as compared to the other retail stores like Metro,
Sainsbury and the sales of the company are impacted positively when the sales are directed
towards customers and their demands are met. This is the most important factor to be focused in
order to improve the sales. If the customers are satisfied, it will have a direct impact on the sales.
As we studied in the case study, the sales of the company are phenomenal due to best supply
chain management system adopted by the company. It is to be noted that supply and feedback
techniques are adopted by most of the companies, but religiously following it is a different thing
and working on the queries of the customers is the USP of the company. The marketing system
aids the company to efficiently identify the prospective customers. As this system helps to hold a
track of data of customers, the company can easily make improved strategies to analyze what are
the needs of the customers to provide them with the product they desire. The environment is
dynamic and so are the needs of the customers so feedback should be taken at regular intervals to
increase revenue. A company can reach great heights of success if a better customer feedback
system is adopted to reach the core areas of customer's queries and solve them keeping in mind
the other prospects. As we have seen in the case study the personnel are very serious when it
comes to solving queries of the customers and they have adopted the policy of speedy disposal of
their queries. One of the most important secrets of knowing the needs of the customers is the
feedback system, it means that not only collecting data is important but acting upon it is the most
important thing.
At last, It is recommended that the more specific and planned steps should be taken in a definite
manner to manage the working aspects in context to the Walmart. Before establishing any new
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venture, it is essential to manage the specific approach in a possible way to establish the better
identity of supply chain management and logistics of Walmart.
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