A collection of resources and commentary providing an introduction to supply chain management and related systems for students, practitioners, and anyone else interested in learning more about how to design, manufacture, transport, store, deliver, and manage products.
Monday, September 15, 2014
Wal-Mart’s Declining Margins
Wal-Mart, as we all know is the market leader in supply
chain management with over 4000 stores in the U.S. and 6000 stores
internationally. However, its margins have been coming down slightly in the
recent past. This is primarily attributed to the rising wages in China. The
other reason being its move from the discount stores to super centers, which
offer complete range of the groceries.
Wal-Mart has been strategic in moving into the groceries
business as this market is unaffected by the macroeconomic factors. The shift
in the business is evident as the share of the groceries in the total revenue
is 56% currently compared to 24% in 2002.This shift has further affected the margins as the groceries market has
low margins compared to other types of goods it sells.
Though both these factors have been pulling the margins
downward, Wal-Mart’s efficient supply chain has been helping to control the
damage by great extent. It has been able to implement the technique called cross
docking, which allows it to reduce or eliminate the intermediate storage
Cross docking is a method where the shipped goods are
transported directly to warehouses from the docks to avoid storage costs in
between. Further more, vendor-managed inventory method has allowed them to be
more vendors specific and attain 100% order fulfillment. Through this whole
process they are able to reduce the costs and at the same time are able to
avoid any shortages or surpluses in supply.
Gross Margin is important for Wal-Mart as it directly affects
its stock price. The constraints to implementing such system are negotiable
power and high initial cost in technology to track the inventory. As the vendors
manage the inventory dynamically, they need to have the most updated
information. This was addressed by Wal-Mart using RFID system that tracks the
Though the whole system looks very efficient and able to cut
unnecessary costs, isn’t the variability undesirable in inventory management as
there is no fixed amount of production and shipping. There is no doubt that
Wal-Mart has been managing inventory in the most efficient manner, but the only
question is about its over dependence on its vendors. If any of its vendors fail
to meet the demand, can Wal-Mart find quick alternatives? This is important to
think about as some of the products are its own produced in china and shipped
only to Wal-Mart. What if one of its producers fail as their plant cannot catch-up
with rising demand.Also, Wal-Mart is
infamous for driving out competitors, which will leave it with no alternatives.