Inventory and Supply Chain Management
Introduction Supply chain management and inventory management are essential parts to any business. Without proper management of these two key items, a business will ultimately fail. Supply chain and inventory management essentially is “intended to accelerate the flow of goods, information, and capital in both directions, along the chain’s entire length, and to help companies monitor that flow. “(Agrawal & Pak, 2001, p. 22) Basically, products reach customers through a series of retailers, distributors, wholesalers, manufacturers, and suppliers.
It is the job of supply chain and inventory management to deal with the complexity and help create a smooth transition. Wal-Mart It is no secret that Wal-Mart is one of the most successful companies in the world. They own stores in every state and many countries around the world. Before delving into Wal-Mart’s inventory techniques, it will be informative to discover why Wal-Mart has become one of the leaders in inventory management and supply chain management.
Wal-Mart started managing their inventory with different technologies usually before any other retailer discovered the usefulness of such technology. For one, “IT was a necessary if not a sufficient part of Wal-Mart’s success. ” (Johnson, 2002) It is in this utilization of IT that Wal-Mart has successfully managed inventory in a complicated system of stores, states, and countries. The history of the Wal-Mart phenomenon has helped spur the company into new heights.
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These investments, which allowed Wal-Mart to reduce its inventory significantly and to reap savings, boosted its capital productivity and labor productivity. (Johnson, 2002) The historical basis for Wal-Mart’s expansion into other regions and into other segments of retail owes credence to their decision to try new technologies and become a leader in innovation for inventory management. It is from these historic adoptions of IT that Wal-Mart has begun exploring new types of technology to better field inventory pressures.
Wal-Mart’s main idea about their products is not actually in the products themselves, but the low prices they can charge as compared to other retailers. That is Wal-Mart’s strength, and without inventory management, this could not occur. According to Johnson, “Wal-Mart’s secret was to focus its IT investments on applications that directly enhanced its core value proposition of low prices. “(2002) The question becomes, what types of IT investments has Wal-Mart procured in order to enhance the low price statement.
Johnson lists a newfound technology in Wal-Mart’s list of devices to help with inventory management. One such technology has yet to be totally proven effective, but Wal-Mart is still maintaining a trial phase for the product. As Johnson states, The company’s later IT investments–such as the Retail Link program, which captures sales data and gives vendors real-time stock and flow information–are aimed more at increasing sales through micromerchandising and cutting the incidence of stock-outs, though Wal-Mart also hopes to gain further reductions in inventory.
(2002) This type of micromerchandising is fairly new to the Wal-Mart planners, and “whether this new wave of IT investments will be as fruitful as its predecessors remains to be seen. ” (Johnson, 2002) If history is any indication, Wal-Mart will succeed in the Retail Link program and continue to maintain dominance over other retailers in the inventory management field. Another of Wal-Mart’s strengths is their adherence to a strict policy in supply chain management. Wal-Mart first takes a tough approach with suppliers to their stores.
It is no secret that Wal-Mart is the leader in retail, and if a supplier were to interrupt a supply, Wal-Mart could easily punish the supplier without much recourse on the supply side. For instance, “Wal-Mart `fines’ suppliers for late deliveries and incomplete orders. ” (Epps, 1995) The rationale for this type of procedure being, “if the suppliers know that they are the sole supplier for a particular product to the customer, this will motivate them to go to great lengths to ensure that quality requirements are met if they want to keep the customer.
” (Epps, 1995) Wal-Mart realizes they have the power over their suppliers, so they can ensure top delivery and maintenance of the products in their supply chain. Another benefit of Wal-Mart’s approach is they do not have to participate in an open marketplace in order to receive inventory from suppliers. Generally the suppliers come to Wal-Mart to supply the chain stores with their product. This is unusual in a retail marketplace, and is one of the competitive advantages that Wal-Mart possesses.
For instance, “Wal-Mart… derives a competitive advantage from their exclusive collaborations and from the proprietary sharing of information with their suppliers, they have avoided public B2B marketplaces and exchanges. ” (Agrawal & Pak, 2001, p. 22) Wal-Mart does not need to bother in deciding who will supply their stores. Wal-Mart does not have to participate in any type of bidding war with other retailers in a B2B marketplace. Wal-Mart, on the contrary, only has to sit back and allow the suppliers to bid their products for a right to supply Wal-Mart stores.