Wal-Mart is an American multinational retail corporation that uses a technology-driven supply chain management (SCM) system to link suppliers, manufacturers, and distributors with customers. Incorporating information technology into its SCM practices has contributed significantly to Wal-Mart’s push and pull strategies of development and growth besides enabling it to achieve optimum productivity, better price offerings, customer satisfaction, and to establish good customer vs. company relationships.
Sarac, Absi, and Dauzère-Pérès (2008) argue that the company uses technology to pursue its objective of ‘everyday low pricing’ by optimizing every opportunity that happens in the business environment besides enabling the company to achieve large quantity discounts and volume consolidations. That has led to an increase in the economies of scale and a reduction in inventory management and lead times. According to Curtin, Kauffman, and Riggins (2007), it is possible to share information in real-time and achieve better buyer/seller behavior, a reduction in logistic costs, and enhance trust besides enabling designers to create better product designs.
Wal-Mart is the fastest growing and largest retail outlet and discount store in the world. Besides, Wal-Mart was the largest retailer in 2013 that had replaced its barcode reader technology with the RIFD technology. Sarac et al. (2008) argue that the overall goal was to enhance the supply chain management system to address the growing demand for better product delivery and service design. In 2013, because of the use of new technology, the company was able to save over 8.5 million dollars in the cost of labor. It is imperative to note that Wal-Mart is known for its innovative practices,
A report written in 2013 by Brockhaus, Kersten, and Knemeyer (2013) shows that Wal-Mart, which was founded in 1926, due to the integration of information technology into its SCM systems, several benefits have been realized. An example includes the rapid growth that has made the company to become the second-largest global retail market outlet in the world. According to Brockhouse et al. (2013), Wal-Mart serves more than 200 million customers per week and employs more than 2.2 million associates who work in 27 countries in 10,000 stores.
The company uses a set of different information technology applications that provide unique capabilities to address the business needs of each of the company’s departments. Here, technology has enabled the company to perform different supply chain functions such as sourcing for products at the lowest prices besides improving material flow and replenishing the inventory of goods for inbound and outbound logistics for truck trailers without incurring additional storage costs.
Wal-Mart has grown due to several years of investment in industry-leading innovations in strategic distribution and data management technologies that are embedded in its supply chain management system. The core components of the supply chain system include demand planning and a strategy of motivating customers and employees based on the accurate use of data to forecast and enhance the company’s supply chain system. Using the right strategy to motivate suppliers and customers has enabled the company to achieve the common objectives of service orientation, demand visibility, quality of products and services, and reduction of warehousing costs.
Role of the supply chain management system
Theory and practice show that Wal-Mart uses technology in the supply chain management system to make positive gains in the market, understand customer needs and expectations, make timely responses to their needs, provide the right products and services, and ensure that a sustainable supply of high-quality services and products are maintained. The SCM system plays a significant role in enabling an efficient implementation of the push and pull strategy that has been used to effectively address the downstream demand forecasts based on accurate data collection on the type of products to produce and supply to each market.
Using technology has enabled the company to segment the market and directly connect with the suppliers, collect accurate information and data from vendors, directly ship products from the manufacturers to the warehouses, and efficiently fulfill its primary activities of inbound logistics, operations, outbound logistics, marketing and sales, and other services.
Besides, technology is used as a key driver of the supply chain management system that has enabled the company to respond positively to a wide range of issues such as environmental concerns, competition, sharing of information and communication, government regulations, consumer demand, and globalization. The system integrates business processes with the end-user requirements during the transformation and distribution of raw materials into intermediate and finished products to address evolving customer needs and expectations. Technology has enabled the integration of different supply chain management system architectures into the internal and external functions of the company.
Here, the approach is deemed to be consistent with different supply chain management theories, which include the transaction cost economics where the firm exists to reduce the cost incurred by a customer when carrying out a transaction. The economic theory shows that firms are compelled to buy or to manufacture products because they have a high degree of certainty of making profits from the sale of the products. On the other hand, the theory of network perspectives provides the foundation for achieving competitive advantage where effective and efficient use of the supply chain management systems enables the company to meet the wide range of customer needs and expectations.
It has been demonstrated by Brockhaus et al. (2013) that Wal-Mart responds to the list of customer demands through its supply chain management system, which underpins the critical success factors that make the company competitive. The critical success factors include the ability to respond to changing market needs and trends, reduction of the levels of inventory, optimal use of the inventory resources, quick replenishment of inventory, effective and efficient distribution of products and services, and the ability to hire the best human resources from the market.
Hsin Chang, Tsai, and Hsu (2013) note that the goal is to use less expensive systems that rely on less capital intensive infrastructure, which incorporates SCM software to achieve an effective and efficient distribution of products on its distribution network.
For instance, Wal-Mart uses EDI for procurement purposes to reduce the inventory levels to a sustainable and cost-effective level and to make procurement more efficient. Besides, the company has incorporated barcode readers into its SCM system to collect data on the daily transactions that occur in its retail outlasts that are analyzed to enable managers to make effective and reliable marketing decisions.
Research studies by Hsin Chang, et al. (2013) show that SCM systems have salient features that enable them to perform the necessary functions at different levels of the organization. The key features include integrated behavior that enables cross-functional fulfillment of different aspects of the SCM, mutual sharing of information, the sharing of rewards and risks, customer focus, integration of processes, short and long term partnerships, and the complimentary coordination of the firm’s activities. Typically, Wal-Mart uses technology in its supply chain management system to achieve its objectives.
Use of Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is an information system that enables computers to exchange electronic procurement documents in a standard electronic format on the company’s SCM. By investing heavily in the technology, Wal-Mart can solve the problem of its large inventory and that has enabled the company to reduce its capital expenses that are incurred in the distribution of products within the supply chain system. Typically, the company can make more accurate and reliable forecasts of its sales. Also, the use of EDI has enabled the company to reduce inventory wastes. Besides, the application is integrated into other applications to enable Wal-Mart to track incoming and outgoing merchandise. An example of the technologies that have been integrated into the system includes the satellite technology. The technology enables employees to talk with other employees in different stores to gather information about the nature and volume of trade at any center.
On the other hand, it has made it possible for Wal-Mart to exchange business documents with the suppliers and other businesses. Other documents that are exchanged include payments, shipping, and inventory documents. Because the documents are processed by computers, EDI makes it possible for the documents to be presented in standardized formats. Standard formats provide a detailed description of the nature and information contained in each document. The importance of using EDI formatted documents is to allow for seamless communication of data among different companies. Otherwise, if no standard format is available, there could be chaos because each company could generate their documents which could be difficult to understand.
Radio Frequency Identification (RFID)
Wal-Mart implemented the RFID technology solutions in 2003 into its supply chain management systems’ infrastructure for the identification of products that are not placed in the line of sight in a retail store. Besides, the RFID technology is characterized by the use of an anti-collision mechanism that enables the system to simultaneously read several tags on different products in the supply chain system. Wal-Mart’s supply chain system uses RFID to track the movement of goods from the manufacturer to different stores based on the unique identification of objects in the supply chain system.
RFID provides the functionalities and a platform for real-time transmission of data from the tags that are attached to the products into the company’s database. The data is transmitted to track the inventory levels of different products and cut inventory volumes to reduce stock-out occurrences on the company’s supply chain system. Data transmission enables the organization to capture and manage demand by working in a tightly coordinated manner.
RFID can drive business value by enabling inventory to be managed by both the company and its suppliers. Typically, RFID consists of three components, which include the back-end data, the transponder and the reader. The components are classified into three categories, which include passive and active tags. Active tags are used for the transmission of data up to a distance of 100 feet to a reader for the unique identification of different products within the supply chain system. Passive tags are used for the identification of products when they pass through an electromagnetic field connected to the supply chain system.
On the other hand, the technology uses chip-based tags for communication. Besides, the tags are used to combat the counterfeiting of products and to identify the theft of products from the company’s supply chain system. In most cases, either the read-only tags or the read and write tags are used in different situations depending on the level of security required. Read-only tags are used to share the data across the SCM platform and are not subject to modifications by anyone except those employees who are authorized to do so. However, the read and write tags can be used to modify the data which is stored in the tags to enable the system to track the products within the supply chain system more effectively and efficiently. However, it has been shown that passive tags are cheaper when compared with active tags.
Benefits of RFID
Various benefits are suggested to arise from the integration of RFID technology into Wal-Mart’s SCM system. However, the performance tradeoffs of the RFID tags are a function of the efficiency of the radio frequency that is used in the system. It is evident that Wal-Mart does not use low-frequency tags because they are big and require a large antenna, which makes the tags costly to deploy. Also, an increase in the frequency of the antenna increases the reader range and the risk of the adverse effects of radiation.
Several business benefits have been suggested that result from the integration and use of RFID into the supply chain system. A significant reduction in labor costs, speeding up inventory accuracy, lead time in deliveries, reduction in the inventory of obsolete products, and an increase in resource and asset utilization have been identified as the benefits of using RFID. Besides, the company has found it possible to optimize work processes, which lead to an increase in productivity and safety in stock levels. Besides, the technology has led to a reduction in theft, misrouting, and misplacement. The benefits have arisen due to the unique functionalities of the RFID technology, which include the ability to automatically capture and compare data, the ability to track the contents, location, and movement of products.
Another benefit accrues from the integration of the RFID system with the vendor-managed inventory application which allows for a continuous inventory of products by enabling the company to establish a strong relationship with the vendors. The software enables a vendor to continuously monitor the retailer’s inventory levels to replenish the stock when it reaches a re-order level. In addition to that, Wal-Mart uses the RFID to reduce the bullwhip effect (Reefke & Trocchi, 2013).
The bullwhip effect results in the increase of fluctuations of the inventory levels due to the continued placement of orders from the retailer to the manufacturer through the wholesaler. A loss of customer profits and a decrease in the inventory of products at the retail outlets are the result of the bullwhip effect. However, using the RFID system enables the company to make the right decisions on the replenishment levels to ensure that lags do not happen in the supply chain system to avoid substantial losses that might result from a decrease in the inventory levels. Besides, RFID chips are cheaper, less prone to errors, and much faster compared with other technologies when used for inventory purposes.
Enhancing warehouse and logistics management
The other areas where technology has had a profound effect include manufacturing, supply chain logistics, and transportation. Technology has enabled the company to improve the company’s logistics and supply chain management system at the strategic, tactical, and operational levels. For instance, at the strategic level, the SCM system enables strategic network optimization including distribution centers, location of warehouses, and establishment of strategic partnerships with the suppliers and distributors besides creating effective communication channels.
Also, the system provides the foundation for integrating products into the supply chain system and allows those responsible to manage the capacity of the distribution channels. An information technology chain of applications that are integrated into Wal-Mart’s system enables the organization to generate and provide information about the products that are offered via the SCM system. In addition, customers can know where to buy products of their choice and how to get them.
The logistics and supply chain system is enhanced to improve its performance by aligning the supply strategy with organizational strategy. That makes it possible to capture several benefits due to different functionalities of the applications that are used at different levels of management. For instance, at the tactical level, the SCM enables the management to make the right decisions on the raw materials to buy, make the right inventory decisions, which includes the type, quantity, and quality of products to buy, determine the optimal routes to use in the distribution chain, and benchmark the system against that of competitors.
Technology has enabled the organization to optimize its operations at the management’s operational levels by enabling effective planning and daily distribution of products. Each manufacturing facility can schedule and scale production to make the operations cost-effective and efficient. Wal-Mart can plan using demand schedules and data that are generated from the system based on day to day transactions, which depict the type of products in high demand and make the correct inventories.
The rationale is that Wal-Mart has been able to reduce loss-making inventories by providing retail outlets with the ability to manage their stock levels, reduce the pack levels and the size of packets used for packaging products, the results have been an establishment of the strong relationship between customers, employees, suppliers, and the company. The company can capitalize on any changes that happen within the market and redesign the SCM system to accommodate and respond to the changes. Also, it enables an improvement in the performance of the supply chain management system by adding value to the customers.
Besides, the system provides a platform for low transportation costs and the delivery of products to predefined destinations in the shortest time possible. The use of technology has driven innovation in Wal-Mart’s transportation system leading the company to be considered the “best-in-class” with an efficient and cost-effective supply chain network. Besides, the SCM system has enabled the company to price its products competitively and to vary the prices from one day to the other. Competitive pricing has enabled the company to offer products at low prices and economically to the customers.
Use of Large-scale satellite system
Wal-Mart uses the large-scale satellite system, which is a cutting edge technology to procure, distribute, and control its inventory in its retail stores and outlets. The underpinning reasons are to use the cutting edge technology in the provision of superior customer services and products. The system has made significant improvements in communication, which is a key component and driver of the business functions.
Typically, the satellite system enables its IT systems to share large quantities of data in a very short time. The rationale is that using other forms of communication systems makes the data transmission rates low because of the large number of stores and the large amount of data that results from the transactions on hundreds of stores across the United States and the rest of the world. In the company’s innovation practices, a joint partnership between Wal-Mart and Macom & Hughes Corporation led to the development of the Large-scale satellite system for communication.
Use of GPS
Studies show that Wal-Mart is the most searched for retail outlet in the world using GPS technology. TeleNav’s presentation of annual usage of data showed a strong positive trend of customers who rely on mobile GPS to find their favorite locations of Wal-Mart’s stores. A comparative analysis of Wal-Mart and Starbucks showed that those searches that are done to find the location of Wal-Mart stores more than doubled the searches conducted to find the location of Starbucks.
Collaborative planning tools
Studies show that Wal-Mart uses the collaborative planning, forecasting, and replenishment software to enhance supply chain management activities such as sharing information between suppliers and manufacturers. The application enables the company to continuously update its inventory, replenishment of products. Besides, the application aids in planning, demand, and supply management, order generation for transitioning forecasts to demands, the fulfillment of orders, establishment of supply chain partnerships, and product/process knowledge sharing. The rationale is to get optimal yields at the lowest inventory, ensure an effective and efficient supply of products, and reduce logistic costs through cooperative management and sharing of information.
Additional benefits accruing from the use of the software include a reduction of the inventory levels between twenty to forty percent, freeing up on-hand cash, reduction of storage costs, the establishment of the retailer/distributor interface, and an increase of customer ratings.
Problems with technology
Several problems associated with the implementation of the company’s SCM system include the inability to work with a firm that has not integrated similar applications or those applications interoperable with Wal-Mart’s technology platform. In addition, failure to adapt to the local market conditions, and the infringement of various laws especially those related to counterfeit products.
The study has established that technology has played a significant role in improving Wal-Mart’s supply chain management system using different application platforms to link the manufacturers and suppliers with customers. Most applications have that have successfully been used to support the company’s operations at the strategic, tactical and operational levels include the Electronic Data Interchange (EDI), RIFD technology, satellite systems, GPS, and other collaborative software tools for inventory management, real-time distribution of products, transportation, and to support other logistic services for efficiency and cost-effectiveness.
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Curtin, J., Kauffman, R. J., & Riggins, F. J. (2007). Making theMOST’out of RFID technology: a research agenda for the study of the adoption, usage and impact of RFID. Information Technology and Management, 8(2), 87-110. Web.
Hsin Chang, H., Tsai, Y. C., & Hsu, C. H. (2013). E-procurement and supply chain performance. Supply Chain Management: An International Journal, 18(1), 34- 51. Web.
Reefke, H., & Trocchi, M. (2013). Balanced scorecard for sustainable supply chains: design and development guidelines. International Journal of Productivity and Performance Management, 62(8), 805-826. Web.
Sarac, A., Absi, N., & Dauzère-Pérès, S. (2008). A simulation approach to evaluate the impact of introducing RFID technologies in a three-level supply chain. In Proceedings of the 40th Conference on Winter Simulation (pp. 2741- 2749). Winter Simulation Conference. Web.