Wal-Mart: Location Decisions & Supply Chain

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Today, more than ever before, stiff competition and shifting business demands are compelling organizations to develop strategies that are holistically aimed at leveraging their core competencies in order to achieve set goals or objectives. The formulation of these strategies, according to Cassidy (2010), must take into account the diagnostic and decision-making processes relating to what products or services the organization intends to offer, when to offer the deliverables in terms of timing and business cycles, and where to offer them in terms of geographical markets and segments.

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As such, critical determinants of supply chain efficiency and location decisions must be incorporated in efforts geared towards developing a business strategy that will ensure success for profit-oriented entities. It is the broad objective of this paper to critically evaluate if Wal-Mart has maximized its supply chain efficiency by making optimal location decisions.

Business analysts are in agreement that location decisions are inarguably the most critical and most challenging of the decisions considered necessary for realizing efficient and competent supply chain (Basker, 2007). Unlike other logistics decisions such as transportation and inventory decisions, which can often be altered on comparatively short notice in response to shifts in the external environment, location decisions are often rigid and difficult to alter even in the intermediate term due to the immense investments involved and importance for business growth and success.

With over 3,600 stores in 50 states across the U.S. and operating in 15 international markets, Wal-Mart is a global market leader in the retail sector. In 2009, the supermarket-chain total net sales shot up 7.2% from $374,307 recorded in 2008 to stand at $401,244 (Wal-Mart, 2009). Such monumental growth has been achieved due to Wal-Mart’s ability to adjust to an ever-shifting global market place and the development of efficient business systems with the capacity to offer value to customers through the delivery of quality products at all-time low prices (Russell, 2010).

One of the critical areas that have remained a focal point for Wal-Mart’s management in their quest to remain a global leader is their logistical system, specifically their supply chain network. Indeed, many analysts are baffled by the supermarket giant’s ability to manufacture “…products all over the world and get them to retail outlets, which are also all over the world” (Russell, 2010, para. 1). Such an ability, according to the author, necessitate a faultless logistical system that permits products to be shipped everywhere around the world at a moment’s notice.

Location basically refers to the geographical assemblage of supply chain facilities (Weir, 2003). Wal-Mart’s location decisions have given it some form of leverage and flexibility in choosing suppliers. Due to Wal-Mart’s presence in major destinations around the world, it becomes easy to find suppliers willing to supply the needed raw materials at a competitive price and with very few logistical problems (Russell, 2010).

Indeed, Wal-Mart’s current suppliers are forced to lower prices accordingly in the event that the supermarket giant finds a different supplier offering low prices due to the fact that it is not in any way difficult for Wal-Mart to make adjustments aimed at ensuring an even transition to a different supplier at no extra cost owing to an efficient supply chain. This strategy, which has enabled Wal-Mart to remain profitable in the face of global financial meltdown and challenging operating environments, is known as sustainable sourcing from suppliers (Wal-Mart, 2009).

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Second, and in line with the above, Wal-Mart’s decentralized location networks have enabled it to be closer to its customers and suppliers. In the U.S. alone, Wal-Mart operates 3,600 retail stores and distribution centers in over 50 states (Wal-Mart, 2009).

Unlike other stores which prefer a more centralized approach in making location decisions in order to achieve economies of scale and efficiency, Wal-Mart employs a decentralized approach in making location decisions in order for its critical operations to be more responsive to customer needs. This has only served to maximize Wal-Mart’s supply chain efficiency. In 2009, for example, the supermarket giant was able to reach many more customers than it has ever reached in previous years (Wal-Mart, 2009).

Third, Wal-Mart’s location decisions have enabled it to buy the needed materials and stocks “…in such large quantities that transportation from one of the supply chain to another is not as costly for additional units” (Russell, 2010). Wal-Mart’s sheer size has necessitated the entity to be linked to 2.1 million suppliers around the world (Wal-Mart, 2009). Although such a high number of suppliers may seem unhealthy for business success, the opposite is indeed true for Wal-Mart since it is allowed the luxury of utilizing bigger trucks for transportation of good from one location to another, thus saving time and financial resources (Russell, 2010).

Smith (2009) postulates that “…one of the key areas that innovative organizations have been doing is examining the opportunity to use information about locations and routes to optimize travel and transportation time of resources and goods” (para. 2).

According to Weir (2003), organizations that learn how to develop and take part in strong supply chain networks will always have a significant competitive advantage in their operational markets. This is principally the case for Wal-Mart retail outlets, which are strategically located in such a way that not only do they have the capacity to fulfill market demands and customer preferences, but are also located in major distribution paths to maximize supply chain efficiency (Basker, 2007). On the customers’ side, the U.S. retail stores are now delivering quicker checkouts, a warm and friendlier shopping experience, and sparkling presentations (Wal-Mart, 2009).

This coupled with the use of sophisticated technology and fast and flawless distribution networks have boosted Wal-Mart’s capacity to maximize its supply chain efficiency. The underlying principle that informed Wal-Mart’s management to develop such a system is that a more elaborate distribution and location system would necessitate faster and efficient movement of products, thus allowing Wal-Mart to maximally exploit their in-house distribution centers as well as their network of suppliers. Decisions were also made to build stores that need less capital in addition to adapting to customer needs.

Fifth, Wal-Mart’s optimal location decisions has enabled them maximize their supply chain management to a point where they are able to realize an attractive rate of return (ROI) on critical investments in the organization’s assets and inventory (Wal-Mart, 2009). This has not only served to increase Wal-Mart’s value as a strategic retail-based, profit-oriented organization, but the low operating expenses occasioned by an efficient supply chain has also enabled them to extend the value to customers through offering high quality, low priced products. In 2009, for example, Wal-Mart was able to reduce inventory levels from previous years, “…a tremendous achievement, and one that exceeded [its] goal of growing inventory at half the rate of sales growth” (Wal-Mart, 2009, p. 5).

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Sixth, business and organizational analysts have alluded to the fact that Wal-Mart continues to use the most cost-effective locations in terms of overall cost of facilities, manpower costs, available levels of expertise, infrastructure conditions, and applicable taxes and tariffs, among others, for production, packaging, and storage of inventory (Parnell & John, 2008). The organization has resisted putting facilities in high-cost areas despite its changing fortunes, with one analyst commenting that its headquarters resembles an old railway station. Wal-Mart’s location decisions, according to Basker (2007), are purely based on the underlying need to ensure that products flow speedily and efficiently for delivery to the final consumer at low prices.

As such, it can safely be argued that the sum of the above location decisions continue to define Wal-Mart’s supply chain capabilities and effectiveness to serve the needs of millions of customers globally. Parnell & John (2008) postulates that the things organizations can do, including the various mediums through which they compete in they respective market segments, are very much a function of their supply chain efficiency. For Wal-Mart, optimal location decisions have enhanced its business strategy of developing a supply chain that is optimized for responsiveness, low cost, customer service, and convenience. In all this, it is imperative to note that location decisions are very strategic to the survival and success of any organization for the reason that they commit large amounts of financial resources to its long-term plans.

References

Basker, E. (2007). The causes and consequences of Wal-Mart’s Growth. Journal of Economic Perspectives, 21(3), 177-198.

Cassidy, W.B. (2010). Wal-Mart tightens delivery of goods. Journal of Commerce, 11(6), 12-16.

Parnell, J. A, & John, A.L. (2008). Competitive strategy and the Wal-Mart threat: Positioning for survival and success. SAM Advanced Management Journal, 73(2), 14-24.

Russell, M. (2010). Logistics at Wal-Mart. EzineArticles. Web.

Smith, M. (2009). Does your supply chain have location intelligence? Web.

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Wal-Mart 2009 Annual Report. (2009). Web.

Weir, T. (2003). Wal-Mart’s the 1. Progressive Grocer, 82(7), 35-36.

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