Walmart Supply Chain Case Study

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Introduction

The retail industry is one of the largest industries in the world served by some of the largest global corporations such as Walmart. Retail is also a sector where stark differences emerge between traditional and modern retailers. The advances in technology have brought about digital companies such as Amazon competing for the same market share with ‘brick and mortar entities like Walmart. It is important to acknowledge, however, that even such traditional businesses are trying to adapt to the new technologies and, most importantly, the new digital generation that is best served through digital media. Companies such as Walmart are struggling to transform with various attempts failing to materialize. This case study highlights the challenges faced by Walmart from a digital competitiveness point of view where efforts to compete with Amazon are failing. Strategic and operational analysis and ethics and sustainability considerations will be examined alongside proposed action plans.

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Background of the Company

Walmart Stores, Inc. (henceforth Walmart) is one of the world’s largest retail stores based in Bentonville, Arkansas. The company was founded in the 1960s by Sam Walton who previously owned a successful chain of stores under the banner of Ben Franklin Stores. It began as a ‘big box’ discount store format which later grew to include supercenters, larger versions of the discount stores that included groceries, apparel, and merchandise (Mark, 2019). Operating under the Ben Franklin banner meant that Sam was obligated to buy most of the merchandise from the Franklin Stores. However, he was able to selectively purchase bulk products from other suppliers and transport them to his stores. A new national trend in discount retailing that entailed driving high volumes through low costs prompted Sam to open big stores that were initially named Walmart Discount City. Sam was willing to revolutionize the industry and move beyond what other retailers were offering. In that regard, he decided to open distribution operations in rural Arkansas and send trucks to the suppliers.

The initial public offering for Walmart came in 1969 to raise finances to build the company’s first distribution center in Bentonville, Arkansas. Between 1960 and 1990, the firm’s growth benefited from the improved national transport infrastructure (Mark, 2019). Additionally, Walmart took advantage of the fact that competitors were slow to respond to legislation that included resale price maintenance (Mark, 2019). Walmart’s growth as a retailer is best viewed from the supply chain developments that took place throughout its history.

One aspect of the company’s development that cannot be left out is the digital advances. As mentioned above, traditional enterprises such as Walmart try to keep up with modern e-commerce businesses such as Amazon as they unlock new markets and niches. Walmart operated three main online programs in the United States namely Walmart.com, Marketplace, and Jet.com. Walmart.com was launched in 2000 as an online site for selling various goods available at Walmart stores (Mark, 2019). The marketplace was built as a platform for selling third-party merchandise on Walmart.com. Lastly, Jet.com was built as a high-end seller of consumer goods. It is in the e-commerce capabilities where Walmart has not been successful as compared to digital retailers despite the substantial capital base and popular brand name. The company seems to struggle with the operational and technical elements of an e-commerce platform as will be discussed in the following section.

Problems faced by the Company

As stated above, the problems faced by Walmart are largely concerned with the e-commerce platform. It is important to emphasize, however, that the e-commerce setup for Walmart is not a failure because it has seen revenue growth of 40% to reach $15.7 billion (Mark, 2019). However, Walmart is finding it expensive to operate the platform which has forced it to increase the prices on Walmart.com for items such as foods and basic household goods. In comparison with Amazon, the 40% revenue growth still fails to match the expectations illustrating that Walmart is yet to capture the online shoppers. In other words, the $15.7 billion revenues as of January 31, 2019, do not compare well with Amazon’s e-commerce sales of $206.82 billion in 2018 (Mark, 2019). Most importantly, these Amazon sales represented a 16.3% growth from those recorded in 2017 indicating that Amazon is set to dominate the e-commerce business while Walmart struggles (Mark, 2019). Walmart, therefore, needs to formulate a strategy that works better.

An argument can be presented that because Walmart was built as a traditional business it lacks the innovative capacity of a company such as Amazon that was built solely as an online shopping platform. Additionally, it can also be deduced that a company the size of Walmart will find it difficult to adopt new technologies due to the high levels of bureaucracy. This is even though Sam Walton has evolved Walmart through a series of innovations and developments that defy the norm in the American retail industry. The operational and cost efficiencies that allow the analog business model for Walmart to thrive are not realized in the company’s e-commerce and hence the challenges with rising prices on Walmart.com.

Many of the e-commerce failures are seen in the company’s omnichannel initiatives. Walmart sought to offer a seamless omnichannel experience to its clientele through the integration of retail stores and the e-commerce framework. The services offered through the omnichannel included Grocery Pickup, Walmart Pickup, Grocery Delivery, Pickup Today, and Endless Aisle among others. With these initiatives, Walmart customers were allowed to order items online, choose their convenient pickup time, and collect their orders at any of the thousands of stores without having to leave their cars. Therefore, the omnichannel initiatives were intended to integrate e-commerce with Walmart’s stores. While some of the experiments succeeded, there are several that backfired. For example, Walmart partnered with Google Express in 2017 to avail Walmart’s products on Google’s online marketplace. However, this arrangement fell apart when Google announced in 2019 that it had removed Walmart’s products from its online shelves (Mark, 2019). This is an example of Walmart struggling with its e-commerce plans.

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Other failures in the omnichannel and e-commerce initiatives include the company’s decision to abandon the initiatives to create a competitor to Amazon Prime in 2017. The program, which was labeled ShippingPass, was introduced in 2015 to provide free two-day shipping for those clients who paid a membership fee of $49 (Mark, 2019). It was replaced by one that offered free shipping for orders whose value was over $35. Additionally, an after-hours delivery workforce program was also scrapped in 2018 majorly because it forced employees to use their vehicles and insurance policies to make the deliveries. A closer examination of these problems, therefore, reveals that Walmart intended to compete with Amazon without ‘looking like’ Amazon. In other words, Walmart did not intend to adopt frameworks and systems that operated similarly to those of Amazon something which resulted in a series of failed experiments. Walmart has lost the battle to Amazon whose online presence and success continue to outshine even Walmart’s traditional business.

Strategic and Operational Analysis

The strategic and operational analysis Walmart will reflect on is how the company’s strategies and operations progress and the success and/or failures involved. In literature, the operational and strategic analysis is often undertaken jointly under the concept of strategic operational analysis. The strategic analysis examines a company’s operating environment to help formulate relevant strategies. On the other hand, the operational analysis seeks to understand and develop a company’s operational processes. Various researchers such as Krylov (2017) use a balanced scorecard (BSC) in conducting a strategic operational analysis. The BSC is concerned with examining the strategic and operational performance of a company. Performance measures are developed against which the company’s activities are assessed. In this case, a strategic and operational analysis of Walmart will be concerned with strategic and operational performance in the e-commerce initiatives to further shed some light on the challenges facing the company.

Walmart’s strategies have helped it evolve into the world’s highest-grossing retailers as manifested by the $514 billion in revenues recorded in 2018. The background of the company presented above highlights how the company was keen on implementing new ideas to help it grow both revenues and market share. The two broad strategies adopted by global retailers are variable pricing (or the ‘hi-lo’ pricing) and everyday low pricing (EDLP) (Mark, 2019). Walmart adopted the latter which allowed it to keep the prices of its products low. The efficacy of this strategy is explained by the steady growth of the company’s products which in turn helped the company ease internal processes such as inventory management and control. The lower prices and the growing demand meant that Walmart did not have to spend a lot of money on advertising and similar promotion practices.

The company may have been an early adoption of information systems. As a strategic move, it has reaped great benefits from initiatives such as Retail Link and other inventory management information systems. From an operational perspective, later initiatives in technology adoption, specifically the establishment of an e-commerce platform to compete with Amazon, can be seen as failures. As explained above, many omnichannel experiments involving the creation of online stores failed and were scrapped representing what can be described as an operational disaster. Walmart’s operations in the physical stores remain unmatched but online ones have become too challenging for the retailer. The operational analysis of the physical stores and the supply chain would reveal great successes from the supply chain processes, including the distribution centers and transportation infrastructure implemented by Walmart (Mark, 2019). The wrong choices regarding the e-commerce operations produce partial success in that the revenue growth in the online stores is growing but the company is yet to register as much success as Amazon has.

Ethics and Sustainability Considerations

Ethical and sustainability concerns for Walmart are not as apparent in the case study as are other aspects of the company. The most apparent ethical issue includes the after-hours delivery initiative that forced the employees to use their cars and insurance policies to deliver products to customers (Mark, 2019). For a company the size of Walmart, such a move can be considered to be exploitative. Walmart already has a transportation infrastructure in place besides contractual arrangements with third-party logistics providers. Forcing employees to incur any form of expense for the benefit of the company without proper reimbursements is a grossly unethical action.

Sustainability is another major concern for modern businesses which requires them to demonstrate their commitment towards environmental and other sustainability goals. The case study does not fully reveal the extent to which Walmart implements or disregards sustainability. However, evidence of the company’s efforts to pursue sustainability is revealed through the purchase of India’s e-commerce retailer, Flipkart, where Walmart required the company to bring sustainable benefits such as the creation of jobs. Additionally, Walmart required Flipkart to undertake further sustainability initiatives such as support for small businesses, reduction of food wastage, and supporting the country’s farmers and the development of the supply chain (Mark, 2019). In terms of business continuity, e-commerce initiatives can be regarded as unsustainable because the company has failed to implement a platform that offers the same pricing benefits as the physical stores. The failing experiments are also costly indicating that the company needs to pursue sustainable digital transformations.

Proposed Action Plans

The problems identified above are related to the company’s e-commerce. The proposed action plan involves adopting new approaches to the development of an e-commerce platform that achieves as much success as that of Amazon. Walmart has already given up its efforts to compete directly with Amazon (Mark, 2019). However, it is recommended here that the future of retail is in e-commerce and Walmart has to do everything possible to be part of that future. The proposed action plan includes three initiatives: 1) invest more research and development efforts related to e-commerce, 2) develop an autonomous e-commerce platform, and 3) implement agile practices in the new e-commerce platform.

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Research and Development

Research and development on the best technologies and applications in e-commerce will help Walmart avoid many of the mistakes that make the omnichannel experiments fail. The company does not want to directly copy what digital retailers such as Amazon are doing. It can be argued that Walmart is either seeking greater benefits from the commerce platform than Amazon or Walmart simply lacks the knowledge necessary to create successful platforms. Today, emerging technologies such as artificial intelligence are revolutionizing industries and are finding great applications in e-commerce (Soni, 2020). Even though it is not indicated herein how much of the artificial intelligence by Amazon and other e-commerce giants are used, it can be argued that tech giants are among the first to embrace such developments. Research and development present Walmart with a capacity to pursue similar goals and to develop better and successful applications.

Autonomous Ecommerce Platform

The term autonomous is used here to imply a platform that is governed and operated differently from the traditional and physical Walmart stores. The failure of the company to successfully integrate e-commerce with the physical stores should serve as evidence that mixing the two could lead to a catastrophe considering that they are from two different paradigms. The traditional business model and the digital one have failed to operate in harmony due to the operational requirements for each. With the capital base that Walmart has and the fact that the company has not shied away from undertaking major innovations, a stand-alone e-commerce platform sounds like the way to go. This way, the Walmart online stores can be operated like typical online stores such as Amazon with a different set of major infrastructure. Any integration between the stores and the e-commerce should not force the digital platform to adjust its processes to cater to the needs of the physical stores. As such, only where convenience arises should the physical stores support e-commerce.

Lean and Agile Processes

Agile processes in e-commerce often target supply chains and other processes. Current literature has examined aspects of logistics customer service, virtual sales channels, and growth of online sales among others. The term lean is used here to mean minimal costs of operation or cost savings through practices such as waste reduction. Agile, on the other hand, is a term used to mean the ability of a business to reconfigure quickly to the market dynamics (Kawa & Maryniak, 2019). With these two processes, Walmart can develop an e-commerce platform that adapts to market changes and one that does not have to raise prices to address the rising costs of operations. Without an autonomous platform, these concepts would be hard to implement as they may require major changes reflected across the entire organization.

Conclusion

Walmart’s efforts to compete online with digital retailers such as Amazon have failed. The company needs a new approach to e-commerce to become a worthy competitor and to guarantee its future. The proposed course of action includes undertaking greater research and development to allow the company to develop and apply the right technology. Second, Walmart should run an independent e-commerce platform from the physical stores. Lastly, lean and agile processes are implemented on the e-commerce platform to allow the company to carry on with the strategy of keeping prices low.

References

Kawa, A., & Maryniak, A. (2019). Lean and agile supply chains of e-commerce: Empirical research. Journal of Information and Telecommunication, 3(2), 235-247. Web.

Krylov, S. (2017). Applied Strategic Operational analysis as a new tool to research strategic aspects of organization operational activity [PDF Document]. Web.

Mark, K. (2019). Walmart: Supply chain management. Ivey Publishing.

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Soni, V. (2020). Emerging roles of artificial intelligence in ecommerce. International Journal of Trend in Scientific Research and Development, 4(5). Web.

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