Tuesday, February 12, 2013
CROSS DOCKING; WALMAT’S INVENTORY STRATEGY
Cross docking which is defined as the practice in logistics management of unloading materials from an incoming trailer trick and directly loading the materials into outbound trucks with little or no storage in between the transfer process. Strategically, this process helps to change the type of conveyance, thereby helping to sort out goods intended for different locations. It is also a mechanism to combine goods from two or more different origins into one transport container or vehicle with the same destination.
Historically, this idea of cross docking operations was pioneered by the United States trucking industry as earlier as the 1930s. From that time many organizations and institutions have used this strategy to enhance the efficiency level of their supply chain systems or to reduce their inventory cost. A typical example is the united states government who began using this strategy as earlier as the 1950s to enhance their supply chain and in the retail industry, the global retail giant’s example Wal-Mart uses this strategy to gain a huge competitive advantage over it’s competitors.
The American multi-national retail corporation that runs the largest chains of discounts department stores in the world is Wal-Mart. Wal-Mart is considered as the third largest public corporation by the 2012 fortune 500 lists which is currently the biggest private corporation in the world with employee population of over two million. The company which was established by Sam Walton in 1962 and was incorporated in 1969, currently has about has about 8,500 employees and operates in about 15 different countries. In this document, the main issue I would be discussing in the subsequent paragraphs is how Wal-Mart used the cross docking strategy to gain competitive advantage over it close competitors.
Strategically, Wal-Mart corporate marketing strategy is mostly of Everyday low prices (EDLP) this is where prices on items at relatively low compared to the everyday market price, which builds and maintain customer trust in pricing. Wal-Mart uses both the ‘click and bricks“ and “bricks and mortal“ strategy to market their items, this gives consumers to choose their items through either means. Wal-Mart has a huge advantage over it’s competitive because I has a “price match guarantee“ it has challenged other competitors to reduce their pricing. All these strategy of Wal-Mart has been successfully because of their effective supply chain management system. Wal-Mart Supply chain has been categorize in three broad sections; Procurement & Distribution, Logistics Management and Inventory Management.
The rapid expansion of Wal-Mart stores made it necessary for the company to have a good communication system, in view of this Wal-Mart established it own satellite communication in the earlier 1980s to help them monitor each and every transactions in their stores at any given material moment. They made sure that any unproductive inventory is very less as possible because they allowed individual stores to manage their own stocks. This helps them to reduce pack size across many different categories and timely price markdowns. In addition to all the strategies discussed they also use typical Information technology infrastructure to make more inventories available for their customers. In the quiet to make their inventory systems more efficient and effective, Wal-Mart introduced the cross-docking system in the early 1980s. This system was aided by their Massive Parallel Processor, which enables them to track their goods movement across all their distribution centers and stores. Wal-Mart employees uses Magic Wand which is linked to their in-store terminals through an Radio Frequency Network which keeps constant track on their inventories in stores, deliveries and backup merchandise in stocks at their various distribution centers. The management of their orders and replenishment of their stocks is executed with the assistance of a typical information system. All these systems and their real time centralize database system has help them in their cross docking strategy. Wal–Mart uses staging areas where inbound goods are sorted, consolidated and stores until the outbound shipment is totally completed for shipment.
The cross docking strategy has helped Wal-Mart to streamline the supply chain from origin point to the final point of sale and it has reduced the handling cost, operating cost and drastically reduce the inventory storage cost. It has also helped them to get products to the final customer faster.
In a nutshell, they have gained a huge competitive advantage from this strategy, which has helped them to elevate to this height and still maintaining their lead in the global retails industry.
To what extent do you think small companies can use cross-docking strategy to gain competitive advantage over their competitors?
The question is will Wal-Mart still lead in the global retail industry in the next couple of decades looking at the speed with which other companies like Zara is spreading to other geographical areas.