Have you ever sat back and wondered how giant companies such as Apple, Walmart and Ikea became so successful both in their reach and their inventory turnover? Well, it turns out they are model companies when it comes to supply chain management, which essentially governs the whole process from purchasing stock to ensuring it is delivered, shelved and in the customers’ waiting hands. Would you like to find out how they do it?
The supply chain starts with ordering, which is where the management side of it should start. This involves selecting appropriate and reliable suppliers for the product you require. A well-functioning supply chain requires each step to happen as planned with no delays, as any delay will impact greatly on subsequent steps which could eventually result in the inability to meet the customer’s demand (the scenario we try to avoid with effective inventory management). To ensure reliability, it essential to have a good relationship with your suppliers. It is imperative to relay to them and understand their ability to fulfil your orders in full, on time and every time. Walmart has been known to foster these relationships over years and have invested in the relationship by committing to place large orders and on a long-term basis which in turn allows the supplier to offer products at exceptionally low prices.
Shipping and Logistics
The shipping component of the supply chain needs to be extremely punctual and reliable as delays or lost-in-transit products can impact greatly on the company and its relationship with its customers. In addition, a great help is securing low shipping costs, which usually come at the cost of time. If the company can place orders with a significant lead time, then they have the luxury of selecting cargo carriers who are perhaps slow but cost-effective. When a company operates on the backfoot due to a lack of forecasting, they are at in increased risk of paying large expedited shipping costs, eroding the profit margin.
Walmart uses a method known as ‘cross-docking’, which relies on incoming goods from a supplier being timed perfectly with outgoing goods to the store. The distribution centre essentially acts as a loading dock where transport trucks can offload and reload more goods simultaneously. By operating this method, the inventory storage costs associated with stock are drastically minimized, meaning they can then pass on lower prices to the customer.
Walmart’s warehouse may look quite different to what you would expect given their size and global reach. They have effectively minimized the amount of stock needed to be held with notions such as cross-docking, however when stock is required to be stored, it is managed in accordance with VMI (Vendor Managed Inventory) agreements. This means the supplier must take responsibility for their product that Walmart sells to customers. In operating with this method, Walmart was able to successfully implement a near 100% customer order fulfilment rate.
Communications, Relationships & Automation
Embracing the age of technology and utilizing any software available to you is key to being at the forefront of supply chain management. In the first instance, this can be adopting an effective inventory management system such as Unleashed, which can enable you to have access to real-time and reliable data on sales and inventory so that the task of forecasting is smooth and efficient. Following on from this, having a system than can integrate ordering with your suppliers, shipping and logistics, and sales in one, easy platform will make the entire supply chain that much more efficient. Walmart has led private retailers on the journey to automation and accepting technology as their friend. They ensure that even their suppliers can access the same network, enabling sales data to be shared freely and transparently, which is certainly a world first.
Walmart also incorporates RFID (Radio Frequency Identification) tags to take the place of barcodes on products as they enable tracking and scanning of product movement in the supply chain from a distance. They have also encouraged their suppliers to adopt the same technology, which further enhances business collaboration and efficiency. The result? They observed a 16% decrease in out-of-stock situations which is quite remarkable.
Analyses and Continuous Supply Chain Improvement
The final point to consider in supply chain management is having opportunities for staff and customer feedback. Incorporating this feedback with internal audits and making changes and adjustments accordingly will be extremely beneficial in creating an efficient supply chain.