Jimmy Alyea, MBA: Warehousing

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Saturday, February 11, 2012

Analyzing Wal-Mart's Distribution and Logistics System

Wal-Mart has been able to achieve respectable leadership in the retail industry because of its focus on supply chain management. Discuss in detail the distribution and logistics system adopted by Wal-Mart.

Supply Chain Case Study by Jimmy Alyea

As the world’s largest retailer with net sales of almost $419 billion for the fiscal year 2011, Wal-Mart is considered a “best-in-class” company for its supply chain management practices. These practices are a key competitive advantage that have enabled Wal-Mart to achieve leadership in the retail industry through a focus on increasing operational efficiency and on customer needs Wal-Mart’s corporate website calls “logistics” and “distribution” the heart of its operation, one that keeps millions of products moving to customers every day of the year.

Wal-Mart’s highly-automated distribution centers, which operate 24 hours a day and are served by Wal-Mart’s truck fleet, are the foundation of its growth strategy and supply network. In the United States alone, the company has more than 40 regional distribution centers for import flow and more than 140 distribution centers for domestic flow (Logistics, 2011). When entering a new geographic arena, the company first determines if the area will be able to contain enough stores to support a distribution center. Each distribution center supports between 75 to 100 retail stores within a 250-mile area. Once a center is built, stores are gradually built around it to saturate the area and the distribution network is realigned to maximize efficiencies through a process termed “reoptimization” (Troy, 2003). The result is a “trickle-down” effect: trucks do not have to travel as far to retail stores to make deliveries, shorter distances reduce transportation costs and lead time, and shorter lead time means holding less safety inventory. If shortages do occur, replenishment can be made more quickly because stores receive daily deliveries from distribution centers.

The company’s hub-and-spoke distribution network utilizes a system of manufacturer storage with customer pickup. No inventory is stored at Wal-Mart’s distribution centers. Wal-Mart’s fleet of 6,500 dedicated trucks and over 50,000 trailers (SC Digest’s editorial staff, 2011) are used to pick up goods directly from manufacturers’ warehouses, thus eliminating intermediaries and increasing responsiveness. The use of trucks raises transportation costs but is justified in terms of reduced inventory. Merchandise brought in by truck to distribution centers is sorted for delivery to stores within 24 to 48 hours. However, certain goods, such as automotive and drug products, are delivered directly to stores by suppliers. Wal-Mart, a pioneer in the logistics technique of cross-docking, also has store-specific orders packed and shipped directly to the store by the manufacturer.

Because Wal-Mart’s fast, responsive transportation operations are such a major part of the company’s successful logistics system, great care is taken in the hiring, training, supervising, and assigning of drivers’ schedules and job responsibilities. From the onset of his retailing career, Wal-Mart founder Sam Walton recognized the importance of hiring experienced people and of building loyalty not only in his customers but also in his employees. The company hires only experienced drivers who have driven more than 300,000 accident-free miles and whom it believes will be committed to customer service. Its retail stores are considered important “customers” of the distribution centers. As stated in the “Private Fleet Driver Handbook” that each driver is given a copy of, drivers are expected to be “polite” and “kind” when dealing with store personnel and others.

In addition to containing a driver’s code of conduct, the Private Fleet Driver Handbook gives instructions and rules for following pre-planned travel routes and schedules, the responsible unloading of a truck trailer at a retail store, and the safe-guarding of Wal-Mart’s property. For example, although drivers deliver loaded trailers in the afternoon and evening hours, a trailer can be brought to the store’s docks only at its scheduled unloading time. Because unloading is done at two-hour intervals during the night, a driver is expected to spend the night, returning to the distribution center at a pre-scheduled time with an empty trailer. Coordinators closely monitor the detailed records of each driver’s activities for adherence to rules. Violations are dealt with according to handbook procedures, which include employee education to prevent future occurrences of incorrect actions. By effectively managing every aspect of its transportation operations and treating its drivers fairly, Wal-Mart gets results that are unrivaled in the logistics arena. This philosophy parallels the successful coaching style of New York Giant’s football coach Tom Coughlin who believes that rules are more than just discipline. Rules are a key to consistency, which leads to preparedness, which then leads to proper execution (Pennington, 2012).

About Jimmy Alyea:

Jimmy Alyea lives in Houston, Texas, and holds two Bachelor of Business Administration degrees (Supply Chain Management and Marketing) and a Master of Business Administration degree. Follow Jimmy Alyea (James L. Alyea) on LinkedIn, Twitter, or Blog.

References

Chandran, P. M. (2003). Wal-Mart’s supply chain management practices. ICFAI Center for Management Research. Retrieved from www.icmrndia.org

Chopra, S., & Meindl, P. (2010). Supply chain management: strategy, planning, and operation. 4^th ed. Prentice Hall: New York.

Logistics. (2011). Walmartstores.com. Retrieved from http://walmartstores.com/AboutUs/7794.aspx.

Pennington, B. (2012, January 22). Tom Coughlin goes by the book and wins. New York Times. Retrieved from http://www.nytimes.com/2012/01/22/sports/football/tom-coughlin-goes-by-the-book-and-wins.html?pagewanted=all

SC Digest’s editorial staff. (2011, October 12). Wal-Mart tells CSCMP audience it is more flexible on inbound transportation program. Supply Chain Digest. Retrieved from http:www.scdigest.com/ONTARGET/11-10-12-1_Walmart_Inbou…

Troy, M. (2003). Logistics still cornerstone of competitive advantage. Retailing Today. Retrieved from http://search.proquest.com.ezproxy.udh.edu/docprintview/22851744…

Friday, February 10, 2012

What Does a Perfect Order Mean in Logistics?

What does a “perfect order” mean in logistics?

by Jimmy Alyea

A perfect order is what is “perfect” for end customers since they ultimately provide profit to the company. A more technical definition is perfect orders mean delivering the desired assortment and quantity of products to the right location on time, damage-free, and correctly invoiced. Thus, the goal of the supply chain is to find a perfect balance between efficiency and responsiveness in order to make the most profit.

Information is now traveling at a very fast speed thanks to advancements in technology such as computers, the Internet, and smart phones. Because of these advancements, global competition among firms is increasing so firms must rely on their supply chains to provide competitive advantages.

While the goal in logistics is to have everything in the supply chain go according to plan, it rarely happens. Humans are imperfect by nature and, according to Murphy’s Law, “If anything can go wrong, it will” (www.murphys-laws.com). For example, an order might have the wrong quantity or the wrong items, arrive late or too early, go to the wrong destination, or contain damaged items. Unfortunately, the speed of information makes these mistakes visible quickly, and customers can easily develop a negative perception of a firm’s service.

It is possible to change customers’ negative perceptions, though. While a picture is worth a thousand words, actions speak volumes. A firm must overcome a negative perception by working to improve it, and the first step is admitting its shortcomings. In the 1960’s, Hertz was the number one rental car service in America, and Avis was a distant second. However, that did not intimidate ad agency executive Bill Bernbach who said, “We knew our ad campaign, which stated ‘Avis is only number 2. We try harder.’ would work because if there is one thing America loves, it's the story of an underdog finding a way to win.” Sure enough, customers responded by using Avis’ services, and the company gained a larger market share because of this approach!

The next step in improving a company’s image is to set goals and then work towards reaching them. As Hall of Fame Football Coach Vince Lombardi once stated, “Perfection is not attainable but, if we chase perfection, we can catch excellence” (www.vincelombardi.com). We are what we repeatedly do. A firm has to take action and make corrections to their mistakes. Then, they must strive to do better each and every day. The last steps include making sure customers are aware of the firm’s responsiveness and ability to solve problems through the use of advertising and public relations. Once this tactic has been implemented, it is up to the company’s Sales and Marketing Department to ask for the customers’ business!

About Jimmy Alyea:

Wednesday, February 1, 2012

Example of how a manufacturer would sell and distribute widgets to Wal-Mart

An example of how a manufacturer would sell and distribute widgets to Wal-Mart stores nationwide

by Jimmy Alyea

As a manufacturer of widgets, a fast-moving, low-value consumer goods product, sold mainly to Wal-Mart stores nationwide, I would utilize a distribution network incorporating manufacturer storage with customer pickup. To facilitate compatibility with Wal-Mart’s focus on customer needs and strategy of reducing costs through efficient supply chain management practices, widgets from our three geographically- disbursed factories would be stored at our warehouse/distribution centers located within acceptable driving distance of selected Wal-Mart distribution centers (DCs). With Wal-Mart’s approximately 150 distribution centers centrally located within its network of stores, our storage facilities could be located to serve more than one Wal-Mart distribution center. Additionally, sufficient storage could be provided at our three manufacturing plants to accommodate direct pickup by trucks from Wal-Mart distribution centers located nearby.

The significant increase in processing and new facilities costs incurred because of the number of distribution centers we would require in order to be located close to selected Wal-Mart DCs would have to be weighed against the increase in revenues received because of better responsiveness. The capacity of each of our facilities would be determined by the number of Wal-Mart DCs served: the more facilities, the lower the inventory required at each facility. Accordingly, the more facilities, the more coordination and investment required in information systems. With global giant Wal-Mart as our number-one customer, the most effective distribution network for our widget company would be one of manufacturer storage with customer pickup, even though facilities most likely would have to be added beyond the total logistics cost-minimizing point.

About Jimmy Alyea:

What is Cross Docking and Why You Would Use It

What is cross-docking, and why you would use it

by JimmyAlyea

Cross-docking is a flexible operations arrangement between firms that involves multiple suppliers arriving at a designated time at the handling facility where inventory receipts are sorted and consolidated into outbound trailers for direct delivery to the customer. Cross-docking is typically used to avoid storage and materials handling. Mass merchants in the retail industry using cross-docking receive store-specific assortments and are able to maintain continuous inventory replenishment without having to hold large stocks of inventory.

Cross-docking is defined as a system in which inventory is not stocked in a warehouse but rather is shipped for stores from the manufacturer. Shipments from manufacturers to Wal-Mart, a pioneer in cross-docking, arrive at Wal-Mart distribution centers where they are quickly sorted and transferred to trucks for direct delivery to stores. Because products are stocked only at stores, Wal-Mart significantly reduces inventory and thus handling, storage, and operating costs. Cross-docking streamlines the supply chain from the point of origin to the point of sale, which increases supply chain efficiency.

About Jimmy Alyea:

Jimmy Alyea lives in Houston, Texas, and holds two Bachelor of Business Administration degrees (Supply Chain Management and Marketing ) and a Master of Business Administration degree. Follow Jimmy Alyea (James L. Alyea) on LinkedIn, Twitter, or Blog.

How a manufacturer can increase its responsiveness to customers through inventory management

How a manufacturer can increase its responsiveness to customers through inventory management

by Jimmy Alyea

The location and quantity of inventory can be used by manufacturers to increase supply chain responsiveness to customers. Generally, increasing inventory increases responsiveness. “Responsiveness” includes handling a large variety of products, meeting short lead times, meeting a high service level, handling supply uncertainty, responding to wide ranges of quantities demanded, and building highly innovative products. The more of these capabilities a supply chain has, the more responsive it is. However, a trade-off is involved between responsiveness and efficiency. A manufacturer focusing on improving responsiveness may choose to increase inventory in the form of raw materials, work in process, and finished goods, but at the same time it decreases its efficiency by incurring higher inventory holding costs.

For example, a furniture manufacturer using a flexible manufacturing process could increase its raw materials inventory to become more responsive to customers’ special orders, demand for variety, and/or for innovative products. A manufacturer could also increase its responsiveness by locating large amounts of finished-goods inventory close to its customers, or a manufacturer with centralized inventories could ship direct to end customers or accommodate customer pickup at the factory.

About Jimmy Alyea:

Jimmy Alyea lives in Houston, Texas, and holds two Bachelor of Business Administration degrees (Supply Chain Management and Marketing ) and a Master ofBusiness Administration degree. Follow Jimmy Alyea (James L. Alyea) on LinkedIn, Twitter, or Blog.