Walmart China Case (1) 3d1f4n

Walmart China – Supply Chain Transformation Walmart: Walmart was founded in 1962 by Sam Walton when the first store was opened in Rogers, Arkansas. For the fiscal year ended January 31, 2017, Walmart's total revenues were $485.9 billion. Walmart employs 2.3 million associates around the world. About 75% of company’s store management teams started as hourly associates, and now they earn between $50,000 and $170,000 a year. Currently, the CEO of Walmart is Doug McMillon while The Chairperson of company’s board of directors is Greg Penner. It has three operating segments and these are: 1. Walmart U.S 2. Walmart International 3. Sam’s Club

Case Elements:  Based in Bentonville, Arkansas, Walmart is the world’s largest retailer with sales over $482 billion in fiscal year 2015 and operated around 11,000 stores under 72 banners in 27 countries.  Walmart provides online shopping in 11 countries  Online shopping has become an important part of Walmart’s strategy and the company is expected to invest more than $1 billion in the 2016.  In May 2015 company introduced the hypermarket online to offline platform  Walmart views distribution and transportation as part of the company’s competitive advantage and it is ed with capital investment as it lowers company’s costs.  Walmart has centralized shipping (distribution center) and warehouse management which is the source of improved quality and service to customers at lower costs. DCs allow suppliers to ship products using full truckloads, full container loads or in economic order quantities. Functions of DCs include: o Consolidation o Break Bulk o Cross Docking

o Seasonal storage o Reverse Logistics Processing Advantages of DCs are: o Reduces supply chain costs o Improve Customer Service level o Reduce transportation costs o Optimize inventory level o Enables consistent service and product fill rates to every stores regardless of its distance from supplier and sales performance o Improves in stock positions (Consistent fill rate at stores) o Higher sales

Walmart China:  Walmart entered China in 1996 with its first supercenter and Sam’s Club in Shenzhen  As of August 2015, the Chinese presence grew to 416 retail stores consisting of 404 Supercenters and 12 Sam’s Club stores, covering 166 cities among 19 provinces, two autonomous regions and four municipalities nationwide, and employing more than 100,000 associates.  They have 11 perishable DCs which require temperature controlled environment and 9 dry DCs (Ambient DCs) in China. The eleven perishable distribution centers are currently being run by third party logistics companies, and share space with other clients the logistics provider services.  A typical store carries 15,000 to 20,000 SKUs  Dry DCs use 85% cross dock flow and 15% staple stock flow while Perishable DCs use cross docking to by storage  Walmart used distribution centers to stock its stores they were able to receive full truckload shipments and then consolidate the shipment and send the inventory to specific stores as needed. This allowed Walmart to maintain a consistent fill rate while also cutting transportation costs and increasing customer service.

In 2015 Lesley Smith, the senior vice president of supply chain for Walmart China made the decision to build a new distribution center that would be run in-house and provide a sustainable operation for the future. The new perishables goods distribution center, expected to be operational in 2018, would take the place of two current third party logistics operations that are expected to run out of capacity in 2017/2018. The new distribution center would be required to service an expected 128 stores in the region starting in 2018 and up to 200 stores by 2025.

Distribution Center Models: Walmart uses two different perishable distribution center models in its global operations and these are: 1. Cross Dock Flow (Used in European Operations): Cross dock flow meant that full truckload shipments are received then immediately sorted and loaded directly onto outbound trucks for same day fulfillment to stores, meaning no carrying of inventory. Cross docking also allowed for greater flexibility when adding SKU’s. Cross dock flow is best suited for facilities that receive large quantity shipments and are located close to the stores they supply because of the same day receiving and shipping. This option is cheaper due to the fact that there is less space needed to hold inventory. 2. Staple Stock Flow (Used in USA): Staple stock flow allowed for the storage of inventory and thus is a more costly initial investment for building a warehouse, and purchasing equipment. In staple stock flow inventory could be held 3-7 days before being shipped or for one day before being picked to zero for items with very short shelf life. Staple stock flow offered greater flexibility for the addition of stores in the future.

Issue to address related to Walmart China’s Supply Chain Management System: In August 2015, Lasley Smith, senior vice president of supply chain management in Walmart China is preparing for a meeting in Bentonville in late September where she is expected to present a detailed plan for Walmart China’s network of distribution centers for perishable

products (perishable DCs) so she has to determine that which flow model is the most cost efficient while still offering flexibility and availability for growth. The decision is extremely critical as it will significantly impact both company’s supply chain capabilities and performance for the next 20 years.

Recommendations: In my opinion the correct option would be to use a staple stock flow for Walmart China’s new distribution center. Scheduling is much simpler with this option and will allow Walmart to safeguard against any local supplier problems that may arise. Compared to a cross dock flow where scheduling is directly dependent on the supplier delivering on time and with the correct quantities. According to eureka, the online magazine for the materials handling professional, “Another disadvantage (of cross docking) is that supply chain partners may not be ready for the delivery process this requires of them.” (eurekapub.eu). This is a critical factor due to the fact that Chinese suppliers still struggle with filling orders on time. The initial investment of a staple stock distribution center would be more costly, $11.8 million compared to $7.2 million for cross dock flow, due to the need for more space to house inventory. However, with the expected growth to over 200 retail stores in China by 2025, a cross dock flow would not have enough capacity to service that many additional stores. Using a staple stock flow model will allow Walmart to react quickly to sales increases, keeping their stores fully stocked even when demand spikes. Staple stock flow also allows increased flexibility for increases in demand during certain times of the year; “Rather than placing inventories in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced

inventory

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markets.”(

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management.blogspot.com). The staple stock flow model puts the inventory closer to the stores allowing stores to draw inventory when needed with lead times of only one day. There will also be a need for increased capacity because of the recent launch of Walmart China’s online shipping service. The new online service will only make it harder for Walmart to forecast the already volatile customer demand in China.