Tuesday, January 21, 2014

Does Walmart need to enhance its operational effectiveness for fresh foods?

Walmart is undoubtedly the world’s largest retailer. With a strategy of keeping retail prices as low as possible and offering shoppers prices lower than they get anywhere else, Walmart has been successfully able to retain millions of customers worldwide. Experts estimate that Walmart saves shoppers at least 15 percent on a typical cart of groceries. This intrigued me to go over their supply chain strategy with respect to this week’s readings.  Upon doing this, I came across a recent NY Times article that reports Walmart straining to keep its aisles stocked fresh.  According to the article, Walmart, has cut so many employees that it no longer has enough workers to stock its shelves properly. Industry analysts have mentioned that Walmart does well in dry goods, but fresh food requires more manpower to stock and rotate goods, involves more waste and is a higher-cost operation. In addition to this, Walmart has 20 percent of the market share in dry grocery, while it has one 15 percent in fresh (areas like produce, meat, deli and bakery). These issues directly relate to the firm’s operations strategy.

We see that Walmart has primarily built its reputation by focusing on reducing costs and increasing supply chain efficiency to provide customers with competitive prices, but it is evident that the issue of adding value proposition to the customer is increasingly becoming a challenge. Fresh grocery buyers are not only looking for cheap goods but also see the freshness of the goods that they want to consume. According to the NY Times article, Walmart does plan to address these issues with a new inventory management system as well as changing shift responsibilities so fresh food is not stocked overnight. Also, Walmart will add secret shoppers to check on produce quality weekly, and add “would I buy it?” guides for employees. Such methods will facilitate them understand what the consumers really want. It is imperative for Walmart to rethink their operations strategy to retain consumers buying fresh food grocery.They would also have to focus more around the following areas to enhance their operational effectiveness:
  • Understand the market by studying successful fresh food retailers and consider following their workflows
  •   Have an effective logistics strategy to overcome high cost operation but at the same address fresh grocery issues. Walmart should leverage the existing employees to stock fresh foods and ensure that their productivity is high. Also, they should understand their customer segmentation and see what food items are mostly in demand by the customers and manage their inventory accordingly.
  •   Focus on Near Term Execution: Serve customers and deliver on performance by incorporating near term execution of important strategic decisions on current operations. It is important to keep track of distribution centers and vendors selling fresh foods. For example, for items like fruits they need to track how many days the item has been in transit, how much shelf life remains and what orders the company should place to meet the demand.

Having said the above, Walmart definitely needs to revisit its operational efficiency to accelerate the produce side of their business with better quality. This will not only be a value add for customers, but will help Walmart increase its fresh food market share and be in a better position to compete with fresh food retailers.

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