Handelshögskolan vid Karlstads Universitet
Course code: FEAD51
Course name: Industrial Marketing
Date of Submission: 2013-02-25
Name of the teacher: Patrik Gottfridsson
Name of the administrator: Frania Johansson
TABLE OF CONTENTS
In the 1960s through the 1970s, companies realized strong engineering, design, and manufacturing functions were strong market strategy keys to create and capture customer loyalty. As the demand for new products rose in the 1980s, these market requirements were to increase their flexibility and responsiveness to adapt existing products and processes or to develop new ones in order to meet customer needs. As manufacturing improved in the 1990s, managers began noticing material and service inputs involving suppliers and their major impact on an organization’s ability to meet customer needs. As a result of these changes, organizations now find that it difficult to manage their own organizations. First, they must be involved in the management of their network of all upstream firms that provide directly or indirectly, as well as the network of downstream firms, which are responsible for delivery and market service of the product to the end customer. In order to succeed, managers have to realize that they cannot do it alone and they must work together on a daily basis with the whole organizations in their supply chains. Because supply chain management involves all functions within an organization, managers need to know what a supply chain is, why it is important, and the impact of supply chain management on the success and profitability of their organization. Today, Wal-Mart topped the list of the America’s biggest companies on the Fortune 500 list, "with sales of almost $345 billion — more than a quarter of a trillion dollars" (Forbs). Wal-Mart’s supply chain management is becoming recognized as a core competitive strategy.
A supply chain is a system through which organizations deliver their products and services to their customers. The network begins with the basic ingredients to start the chain of supply, which are the suppliers that supply raw materials, ingredients, and so on. From there, it will transfer the supplies to the manufacturer who builds, assembles, converts, or furnishes a product. The chain now needs to get the product to the consumer by transporting the finished product from the manufacturer through a warehouse or distribution center. An example is that Wal-Mart has a nearby distribution center where products are delivered there and then split up to be delivered to a retail Wal-Mart. "Wal-Mart will take responsibility for breaking down larger loads and delivering the product to other Wal-Mart stores" (Ehring 1). Since Wal-Mart started using their own distribution center, Wal-Mart cut inventories, warehouse spaces, and reduced costs and cycle times which led to "space and inventory reductions effectiveness" (Chan and Lee 6). Once the products are delivered to the retail outlets; grocery stores, department stores, discount outlets and superstores, the products are stocked on the shelves or floors. The customers have the final decision to purchases the product and making purchases that conclude the chain.
Wal-Mart’s supply chain includes an internal functions, upstream suppliers, and downstream customers. Wal-Mart’s internal functions include the different processes used in transforming the inputs provided by the supplier network. For example, in a cereal manufacturer’s supply chain, all of its manufacturing parts are farmers, grains, wood, paperboard, packaging, etc., which are all brought together in their final assembly operations into a packaged cereal. Bringing together and scheduling of these internal flows is very challenging for Wal-Mart’s cereal supplier because "order processes managers are responsible for translating customer requirements into actual orders" (Wincel 212), which are number of orders from customers into the system input. They also have to make sure that the right mixes of the cereal, packaging, and labels are available so that the wholesalers can meet the needs of their customers. This also includes the prices, delivery dates, delivery arrangements, and after market service. Once the order processes are done, production scheduling begins. Production scheduling translates orders into actual production tasks which involve working with material requirement planning systems, scheduling work centers, employees, and maintenance on machines, and delivery to Wal-Mart’s distribution center. The second part of the supply chain management is that upstream suppliers are involved with purchasing managers, who responsible for making sure that right suppliers are selected, meeting performance expectations, and having a good relationship with their suppliers. They are responsible for driving improvement in the supply centers and with others. Also, material managers are responsible for planning, forecasting, and scheduling material flows between suppliers in the chain. Finally, the third part of the supply chain is the external downstream of the distribution channels. This is where the function of that product passes through on its way to the end customer. Products that pass through Wal-Mart’s supply chain, directly or indirectly, make up the external downstream that finally gets the product to the hands of the customers. Wal-Mart is more of a push system than a pull system because the work release is based on downstream demand forecasts where the pull system is more of an actual demand on customer’s order. Since Wal-Mart doesn’t respond to customer requests, it is not a pull system. In another sense, it is a pull system because Wal-Mart, the retailer, tells its manufacturers what to produce and how much to produce.
Looking at the supply chain for a cereal manufacturer again, we see that managers using a push strategy because they are responsible for the actual materials between locations. Transportation management involves selection of carriers; trucking companies, airlines, railroads, shipping companies. Distribution management involves packaging, storing, and handling of materials at receiving docks, warehouses, and retail outlets. An internal functions, upstream suppliers, and downstream customers are important to Wal-Mart’s supply chain.
Wal-Mart’s delivers high quality products at low prices to its customers through being efficient and having high responsiveness. Wal-Mart’s logistical system is highly effective because it is extremely flexible, which allows products to be shipped anywhere at any notice. When choosing suppliers, Wal-Mart has the upper hand because "Wal-Mart will only pay the most competitive prices" (Ehring 4), meaning that if Wal-Mart finds a supplier that will give them a lower price, the current suppliers will lower their prices to match it (price matching). This gives Wal-Mart an advantage over the suppliers. It is easy for Wal-Mart to find other supplier of a particular material with a lower price because it will not be difficult or costly for Wal-Mart to choose another supplier, but it is costly for a supplier to lose a customer as large as Wal-Mart.
Another reason for Wal-Mart’s ability to be efficient is that they buy in large quantities (bulk). This increases the supplier’s revenues, and in return lead to Wal-Mart receiving huge discounts on large purchases. Since Wal-Mart delivers to retail stores through large semi-trucks, they can transport large quantities from one end of the supply chain to the other, which makes it not as costly for additional units. Today, Wal-Mart’s efficient supply chain includes a Site-to-Stores service, where consumers can log on to Wal-Mart’s web site, and can view everything that Wal-Mart carries on hand. If the customer sees what they want and finalizes an order, they have an option to either ship to their home or to a near by Wal-Mart store where they can pick up any time they want. This shipping method reduces Wal-Mart’s warehouse costs because they do not have to carry everything on hand.
Wal-Mart has invested tens of millions of dollars in "companywide computer system linking cash registers to headquarter enabling to quickly restock goods selling off the shelves, and also in truck and distribution centers" (Ehring 3), where if things move quickly, it reduces costs and will achieve information, sourcing and pricing in Wal-Mart’s cross-functional drivers. The most important requirement for Wal-Mart is the concerns of their responsiveness to customer needs.
A supply chain begins when an organization decides to pursue improvement across its full supply network using whatever resources are appropriate for gaining a competitive advantage. As companies find that they can reach out and partner with willing suppliers and customers, they discover a wealth of resources that can be focused on serious improvement actions. Logistics is an area that offers a sure route to improvement opportunities. For example, at one time, the improvement opportunity area was the responsibility to keep transportation costs as low as possible. The role of logistics was operation of packaging, unitizing, loading, unloading, transporting, moving, storing, sorting, and reloading products. It also includes keeping track of these actions, providing valuable data on location and storage, and warehousing and transit costs. The basic business requirement has recently been the subject of serious study by supply chain organizations.
The best supplier and retailer relationship is Wal-Mart’s relationship with Procter & Gamble Co (P&G). Their relationship didn’t start out too well in the beginning because Wal-Mart and P&G operated on a day-to-day transaction basis. P&G’s organizational structure was too complicated and they relied on day by day selling based on whether they got the order out or not and it pushed for sales that were not necessarily what the customers needed. P&G and Wal-Mart’s relationship grew positively and beneficially through channel partnership and information sharing. This information sharing allowed each corporation to better under each other’s markets and eliminated the bullwhip effect using strategic fit. Overall, the communication through information sharing allowed for better execution of every step in the supply chain.
Today’s consumers want a pleasant shopping experience; they will avoid returning to retail outlets or companies that disappoint them. Consumers want creative sales approaches, friendly service, and the lowest price for every product. Customers demand more for less and want to shop at one-stop shopping centers. An example would be how the Wal-Mart stores have formed an alliance with Fresh America to operate the fresh produce department in the Sam’s Wholesale Club and Wal-Mart Supercenter. This has lead to Wal-Mart’s growth of over eighty percent, annually. These days Wal-Mart is using some of the supply chain techniques to cut costs like vendor-mangers inventory, using real time tracking of inventory and sales in individual stores and cross-docking of fast-moving items. Now, Wal-Mart has more selections, convenience, and low prices.
Like Wal-Mart, most companies, big or small, have a supply chain. Management of the supply chain ranges from the simplest to the most challenging depending on the size of the company to the market it’s involved in. Management of a company’s supply chain, like Wal-Mart, is very critical, especially when it can make or break a company. If Wal-mart does not manage its supply chain correctly, it would lose profits because they are providing products at lower costs than its competitors, so they must also receive lower prices from its suppliers. Overall, the supply chain of every company should not be overlooked as it may lead to a loss in profits, revenues, and even the company itself.