Sample Essay on Transformation Model of Wal-Mart China’s Perishable Supply Chain

The success at Wal-Mart in its global markets is arguably attributed to the willful choice by the senior management to spend on distribution and transportation of its supplies. This is a perspective that has been deliberately made by the senior management and is dimmed as part of the company and hence, as a competitive advantage part of the company(“Hardin”). The resolve being made on the basis that this aspect of distribution and transportation actually lowers the cost of operations, contrary to the thought that it is a liability. Consequently, it is supported actively by capital investment.

The efficiency and effectiveness of distribution and transportation are dependent on which model is used in supply and chain management. A number of models have been put in practice by Wal-Mart, not just in China but in other geographical positions and areas such as the traditional model in Wal-Mart DC: the staple stock flow, and the cross-dock model in the European market. In developing the model to be used in Walmart China’s supply chain, the two models need to be evaluated and assessed(“Smith”). Thus, for each individual model, there are its merits and demerits as described below in consideration to Walmart China’s operational needs.

The staple stock-flow model was one model used in Wal-Mart’s global supply chains of perishable products. Being the dominant model in the US, it offered short-term storage for the inventory. It thus required a large physical footprint warehouse. This was advantageous in the sense that products could be stored for up to seven days which meant a longer shelf life prior to their shipping. It also meant that products with a significantly short period of shelf life could be forced out in a single day, otherwise termed as “pick to zero.” This meant that this model ensured a great deal of flexibility. However, there were also a few demerits relating to the model, the primary one being the higher capital investment needed to construct the warehouse. It also entailed the cost of purchase of investment equipment including racks as well as forklift trucks. (“Smith”)

The cross-dock flow DC model, on the other hand, used outbound trucks to ship products the same day of dispatch to stores. It thus evaded the cost that was needed to build and store products in an inventory. In addition, the cross-dock flow model, since it required no space for storage then only a lower ceiling and smaller footprint warehouse was the resultant choice. The main demerit that was faced by this particular model was that its efficiency was firmly dependent on the adherence of the supplier to the delivery schedules (“Smith”). It implies that the model only favored facilities that had considerably large volumes located close to the warehouses which served as distribution centers.

Relating the two models discussed based on merits and demerits to the needs of the Chinese market, there were a number of challenges that were faced in the supply chain of Walmart China. In China, the fragmentation of the business was evident and hence the need for defragmentation. A total of twenty-nine offices spanned across the country and five servicing stores as well. The warehouse fee was a major bane to suppliers using the network and that caused a disinterest both to buyers and suppliers. In terms of logistics, twenty thousand suppliers or more, a majority being distributors were registered on the network (“Smith”). There however existed a limitation in delivery of items since there were only one hundred and forty-four distributors of eighteen items. The discrepancy that existed between distributors and suppliers and items showed that the threshold for low order volumes could not be met and the distributors would therefore not deliver the items as it wasn’t feasible. More inventory would be ordered in compensating the orders and thus it would affect the carrying costs. This would prove the model of cross-dock flow as more feasible than the staple stock-flow model, since the delivery via outflow loading-trucks would be handy. To leverage the situation, it would indeed be proper to employ more delivery trucks that could reach the suppliers across the large geographical span and landscape as it is dimmed in the vast Chinese land.

Going by the financial results of the 2011-2015 financial years in the table below, centralization of the perishable supply chain transformed the delivery process of Walmart china, seeing to it that centralized stores as per the year 2015 wrought more efficient and structured operation, with standardized control systems and replenishment visibility. Thus staple flow model would be the preferred model.

In conclusion, the most ideal model that would be best used is one that is transformative. One that combined both the cross-dock flow and the staple stock-flow model. For the large market, both storage inventory and timely delivery would be necessary.

 

Table  1: Table showing the transformation of Wal-Mart perishable supply chain for China

     
Buying strategy Localized Centralized
Number of regional buying offices 28 0
Number of suppliers 2,658 820
Distribution center volume as percentage of total 3% 60%
Number of distribution centers 0 11
Store coverage 72 416
Daily average volume (cases) 5,833 120,000
Category coverage 5 12
Systems Fully manual Partially automatic
Quality control systems None – handled by stores Standardized
Replenishment visibility None Standardized
Number of temperature zones 1 3

 

References
  1. Lesley Smith, “Annual Report”Walmart Stores, Inc. 2016.
  2. Peter Walsh, “Global comparative management”,January 2016
  3. wal -martchina.com/english/walmart/index.htm,“Walmart China Factsheet,” accessed March 27, 2016.