Opinion on Walmart’s Supply Chain Strategy

Answer

Introduction

The National Retailers Association (NRF) ranked Walmart as the largest retailer in the financial year 2018, with sales amounting to $387.66 billion. It was followed by Amazon.com and the Kroger Co. with sales of $120.93 billion and $119.70 billion, respectively (NRF, 2019). These figures justify the market dominance and leadership position assumed by Walmart against its primary rivals. According to Lopez (2019), one of the strategies for sustaining and improving the exemplary performance is by optimizing the supply chain to create a competitive advantage. Walmart has consistently invested in revamping its supply chain to suit the changes in consumer behaviour and other macro-environmental dynamics such as advancements in technology and best practices. It is upon this background that this paper presents opinion-based research on the new supply chain strategy adopted by Walmart.

Opinions on Walmart’s Supply Chain Strategy

A supply chain is an important network in any organization. According to Feizabadi, Gligor and Motlagh (2019), supply chain denotes the linkage between a company, its suppliers, and its customers. The company has the role of moderating the supply chain while suppliers are essential in producing and subsequently distributing the products and service to the end buyer. A typical supply chain entails interaction between people, entities, exchange of information, and transfer of resources. Feizabadi et al. (2019) emphasize that a supply chain can contribute to the competitive advantages of an organization. It is upon this reason that Walmart consistently invests in improving its supply chain. For instance, during the Global Economic Recession in 2009, the company responded to the low demand and supply of its products by introducing the Great Value Strategy (Quinn, 2010). This strategy entailed working closely with retailers to produce an own-label that was more cost-effective to produce and provided a wider variety of consumable goods at the lowest possible price. 

After intensive research, the company established that the recession had pushed customers into becoming price-sensitive and thus, wanted the best bargains regardless of quality. Walmart introduced the Great Value Strategy intending to provide households with affordable and wide varieties of household consumables as well as a quality grocery (Walmart, 2009). The company worked with hundreds of suppliers to test more than 5,300 products against national brands. This process ensured the customers got the best quality and value. Walmart then changed the formula of more than 750 items, including paper towels, detergents, laundry, breakfast cereals, and cookies. Besides, the company introduced 80 new products with unbeatable prices. The launch of this supply chain strategy attracted diverse opinions from industry experts. Some expressed the opinion that the new supply chain was effective since it captured the attention of the customers, offered quality products at the lowest price, and differentiated the company against rivals and discounters.

As much as the Great Value Supply Chain strategy was effective in optimizing profit margins, it made the suppliers feel like they were competing with Walmart’s own-brands for customers and shelf space. My opinion about this strategy is guided by Quinn (2010) commentary referring to Walmart’s supply chain strategy as ‘greedy’. To create more shelf-space for its in-house store brands, Walmart had pushed out other suppliers, thus wiping out more than 300 familiar products. In return, shoppers begun buying from other retailers. Seemingly, the customers were less interested in the bargains but rather, in the products they were accustomed. This resulted into a 2% drop in growth of sales while all the other retailers including Target, Kmart, Kroger, Costco, Family Dollar, Dollar Tree, and Dollar General reported sales growth (Quinn, 2010). Walmart was forced to restore its previous suppliers marketing at the end of the Great Value Strategy.

           In 2016, Walmart began a roll-out of the On-Time, In-Full Policy (OTIF), which sought to ensure the great flow of the company’s and suppliers’ inventory. Using this strategy, Amazon sought to reduce the traditional four-day supplier deliveries to one- or two-day deliveries (Lopez, 2017). OTIF supply chain management concept means mandates that suppliers deliver their services and products when and in the manner the buyers need them. The main factors hindering the realization of this supply chain include possibilities of pick-and-pack mistakes, communication issues, and transportation delays. To counter these mishaps, Walmart introduced a 3% off-invoice charge to discourage suppliers of consumables from making late deliveries or improperly packing their goods. In my opinion, OTIF is a viable policy since it enables Walmart to capitalize on the concept of time-based competition (TBC). According to Ma, Zhang, Dong, and Tu (2020), TBC refers to the process through which retailers gain strategic advantage by enhancing the efficiency, leanness, and cost-effectiveness of the order-to-delivery cycle. In the case of Walmart, OTIF creates time based-competition since it reduces the time to market or the gap between ordering and servicing of a customer’s order. 

Given that Walmart uses both physical and online retail, the OTIF strategy is perfectly positioned to improve sales in the electronic retail segment. Another advantage of OTIF supply chain strategy is that it promotes transparency of the flow of goods to the customer (Lopez, 2019). This arises from the fact that OTIF makes good available within a short time, lowers inventory and also, lowers touches. Since Walmart realized increased sales growth after introducing OTIF, this justifies my opinion that the new supply chain strategy was viable and profitable in the long run. Mourdoukoutas (2019) notes that during the same period, Walmart further introduced a two-step supply chain strategy which sought to fight against the increasing dominance of Amazon’s online presence. The two-prong strategy enabled Walmart to create a fully-integrated channel-agnostic consumer offers that could entice more customers to use the retailer’s online platform rather than Amazons’. The two-prong strategy revolutionized Walmart’s supply chain since it allowed customers to order online and pick or ship from the nearest warehouse (Mourdoukoutas, 2019). Since Walmart has an extensive store network, this strategy has been effective in boosting consumer confidence in the retailer. Combining the two-prong strategy and the OTIF supply chain strategy has been a big boost to Walmart, which has regained its position as the largest retailer in the USA.

Conclusion

This opinion paper analyses three types of supply chain strategies adopted by Walmart since 2009. The first strategy was known as the Great Value Strategy, which, despite increasing profitability, led to a loss of sales. The strategy also pitted Walmart against its key suppliers leading to the flight of customers. The second strategy, abbreviated at OTIF was effective in stimulating time-based competition. It enabled Walmart to achieve a sustainable competitive advantage by reducing the time taken to service customer orders. The two-strategy complemented the strategy. In my opinion, the last two strategies were more viable compared to the Great Value Strategy.