BUS FPX3022 Assessment 2: SCM Case Analysis: Forecasting and Planning
Supply chain management is made up of a multitude of individual interdependent activities that support the diverse needs and operations of the business (Chopra, 2018). An efficient supply chain must balance the supply of goods with the demand from the consumers. Every single supply chain activity – production, stocking and inventory management, distribution, and retail – is made more efficient with the knowledge of demand level from the consumers and customers. This method is known as demand forecasting which is deeply embedded in all areas of the supply chain (Chopra, 2018). Demand forecasting generates the necessary business information that the organization needs in planning its supplies. As such, a reliable and effective demand forecasting strategy supports inventory management, preventing overstocking or shortage in supply.
Company background: Walmart’s Business Model
Walmart Inc. started as a small discount store in Rogers, Arkansas. Founded in 1962, the company has since grown in the number of stores, operating size, and market reach (Walmart Inc., 2022a). Walmart is dubbed as America’s largest retail chain operator with a 5.6% market share of the domestic retail industry. Walmart operates globally and is said to employ more than 2 million associates across its operating segments (Walmart Inc., 2022b). Walmart’s success in the retail industry is founded on the firm’s corporate philosophies of everyday low prices (EDLP) and Everyday low cost (EDLC). The fulfillment of EDLP and ECLC philosophies is dependent on the company’s supply chain strategies which allow the company to maintain affordable prices. Therefore, it is denoted that Walmart’s position as a cost leader in the retail market is attributed to the company’s world-class supply chain strategies (Lin, 2019).
Walmart’s Business Model
Note. Walmart’s business structure is divided into four operating segments.
Walmart’s business model is segmented. The operating structure of the company is divided into four key operating segments (Figure 1). In the Walmart U.S. segment, the company has three different retail designs. Walmart International is made up of operating stores in various international locations and equity investments in different stores in three foreign countries (Walmart Inc., 2022b). Walmart’s eCommerce segment is primarily through the company’s retail website including Walmart retail app, and also through the acquired retail channels. Finally, Sam’s Club is the company’s membership-only retail segment. Walmart’s business segments are linked with one another, particularly via the firm’s eCommerce website. This then creates an omnichannel retail experience where the physical stores dually function as hubs for online orders “through services such as pickup and delivery, ship-from-store, and digital pharmacy fulfillment options” (Walmart Inc., 2022, p. 7).
Walmart’s Supply Chain Strategy
Although the company’s operating structure is divided into segments, Walmart’s supply chain strategies remain centrally coordinated. The core of the company’s supply chain network is its centralized warehouse and distribution strategy through the firm’s strategically located facilities (Yuan et al., 2021). Across the United States, Walmart has 210 distribution facilities. The company’s warehouse and distribution hubs are manned by Walmart’s team of drivers and thousands of distribution vehicles (Walmart Inc., 2022a). Each of the company’s warehouse facilities consolidates goods from the suppliers, stores, sorts, packs, and allocates dry goods and merchandise among Walmart retail stores. According to the company, each of Walmart’s distribution facilities supplies between 90 to 150 retail locations across the country (Walmart Inc., 2022a).
Apart from the company’s use of centralized warehouse and distribution facilities in its supply chain, Walmart also works closely with its suppliers and vendors of other products, mainly frozen and perishables through a method known as vendor-managed inventory (VMI) (Lin, 2019). As the majority of Walmart’s products are dry goods and general merchandise, the company’s adoption of VMI is vital in ensuring that all products sold among Walmart retail stores are of the best quality (Walmart Inc., 2022b, p. 8). The combined strategy of centralized warehousing and distribution and VMI is also crucial in maintaining Walmart’s commitment to the low-cost pricing strategy stated in EDLP and EDLC philosophies (Hugos, 2018).
Walmart’s supply chain strategies are comparable with Amazon.com’s strategies. Amazon.com also adopts a centralized warehousing and distribution method, and while Walmart excels at integrating its vendors in its distribution, Amazon.com excels at distribution and logistics which is the second critical driver of Amazon’s business (Jindal et al., 2021). Amazon.com also leverages its technological capabilities in modernizing its warehouse facilities, empowered by advanced technologies such as robotics and artificial intelligence which allows the eCommerce giant to achieve an efficient, more transparent, and streamlined inventory management system that supports the scale of Amazon’s global operations. Amazon’s decision to leverage its competitive capabilities allows the firm to establish a strong market presence and reputation alongside Walmart on a global scale (Hugos, 2018).
Walmart’s Transportation Strategy
Walmart’s transportation strategies and methods are closely intertwined with the company’s warehouse and distribution strategies (Yuan et al., 2021). First, Walmart takes great pride in its distribution fleet of delivery vehicles and drivers. The company reportedly owns nearly 90,000 trucks and tractors. The company also employs 12,000 drivers who are responsible for manning Walmart’s delivery trucks and tractors (Cortes, 2022). Second, as Walmart adopts a vendor-managed inventory system in its supply chain, cross-docking is used in the fulfillment of some of the company’s supplies (Lin, 2019). Cross-docking is a method where the goods from suppliers are transferred to Walmart’s trucks via the company’s warehouse docks, and Walmart trucks deliver the supplies to their target stores. Third, for the company’s eCommerce and omnichannel distribution, Walmart partnered with crowdsourced-fulfillment platforms such as DoorDash and InstaCart (Jindal et al., 2021). Recently, Walmart announced that it will invest in electric-powered vans that the company will use for its Last Mile Delivery that supports the firm’s eCommerce needs and demands (“Walmart To Purchase”, 2022). The company plans to roll out these electric-powered vans in 2023 which will enable the firm to boost its eCommerce delivery performance and fulfill the company’s sustainability goals.
Global, Economic, and Political Challenges in Supply Chain
Global uncertainties can negatively hinder the efficiency of Walmart’s global supply chain. The extent of the consequences will be felt on a global level, particularly as Walmart’s international segment operates in 23 different countries apart from the United States (Walmart Inc., 2022b). An example of a global challenge is the occurrence of a pandemic the scale of the Covid-19 epidemic which can cause serious lags and delays, bottlenecks, and congestion in the upstream supply chain of the business (Metzger, 2021). Global supply chain challenges can also include climate and weather conditions, as well as gaps in the technologies and industrial capabilities of the suppliers (Chopra, 2018).
Economic and political challenges, according to the retail company, are intertwined. Economic issues can be influenced by political policies, and political unrest can disrupt the economic stability of a nation (Chopra, 2018). For Walmart, some of the most crucial economic facets that can cause hurdles in the supply chain efficiency include inflation, sudden change in the prices of petroleum products, cost of energy, cost of labor, as well as a recession (Walmart Inc., 2022b, p. 16). Macroeconomic factors namely tariffs and cost of importation can also affect the performance of Walmart’s supply chain because it can affect the availability of supply and the final retail prices of goods (Chopra, 2018). At present, Walmart’s market position is challenged by the rising inflation rate which, according to the company leaders, can significantly affect the prices of “staple grocery items such as rice, beans, pasta, tuna and milk” which may pose a burden for the consumers (Moran, 2022).
Finally, political facets such as trade agreements, government stability, and government regulations have serious effects on the supply chain efficiency of businesses the size of Walmart (Chopra, 2018). As the company explained, political instability may pose hurdles to the capability of foreign suppliers to fulfill orders. Meanwhile, trade agreements can impact the supply agreements of the retail giant with its foreign suppliers. Finally, government regulations may pose an additional burden for Walmart in terms of product importation and exportation (Walmart Inc., 2022).
While the company has no secure way to prevent hurdles caused by global, economic, and political uncertainties in the business, Walmart can reduce the negative implications of the mentioned challenges by efficient inventory management and demand forecasting (Blanchard, 2010). Through these functions, the company can maintain a sufficient volume of goods among its warehouses and distribution facilities without the pressure of experiencing a shortage if a global, economic, or political dilemma occurs.
Role of Demand Forecasting
Demand forecasting is a supply chain function that involves the application of forecasting tools and processes for demand planning (Chopra, 2018). Demand forecasting is crucial in maintaining supply chain efficiency which also enables the company to secure a sufficient supply of products to secure sales. Forecasting the level of demand is vital in boosting the resilience of businesses, particularly for Walmart as a retail firm. It is important to understand that among retail firms, the turnover rate of goods can be materially high; therefore, it is crucial to furnish enough supply of goods to meet the needs of the consumers. Demand forecasting is not a fool-proof process because businesses depend only on available historical information, making errors and inaccuracies highly possible; but it is a necessary component of supply chain planning, mainly in inventory management (Chopra, 2018). Demand forecasting also provides businesses the opportunity to make the appropriate adjustments in their procurement and distribution schedule given the impact of seasonality such as holidays. Events like this can alter typical purchasing behaviors of consumers which prompts businesses to either increase or decrease supply in the inventory.
Effect of Pricing Promotions on Demand
Pricing promotions, from the marketing viewpoint, can stimulate consumer spending. In the supply chain, various pricing promotion strategies have the same function which can then increase demand for a particular product (Chopra, 2018). As was mentioned earlier, the driving forces of Walmart’s retail activities are encompassed in everyday low prices (EDLP) and Everyday low cost (EDLC) philosophies of the company; therefore, for the company, pricing strategies must be strategically decided to attract new customers and maintain the loyalty of their clients. Pricing strategies for the company can influence consumers’ loyalty to the firm, more so to the brands carried by the retailer (Nijs et al., 2018). More importantly, pricing promotions are a driver to balance supply and demand. Retailers are price takers, as such, it is through promotions that they can be a step ahead of their competitors (Chopra, 2018). On this note, the demand for a particular product must be sustained. Shortage in demand for products included in the promotion can affect the satisfaction of consumers and can generate negative effects on the business which will reflect in the sales and profits (Faith, 2018).
Planning is a critical part of supply chain management because it ensures that the individual supply chain activities are aligned towards the same goal and compatible with one another. Coordination, therefore, is a critical facet of supply chain management, effectively linking suppliers with businesses and retailers with their customers. The case of Walmart’s supply chain processes and strategies illustrate how supply chains are influenced by the business environment and model of the operations. The case also illustrates the significance of knowledge of external challenges on supply chain planning and demand forecasting. Lastly, pricing strategies and considerations are also essential in supply chain management as a driver for the demand that directly translates to improved sales and profitability.
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