How Walmart manages its supply chain

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A supply chain is a system of processes, people, activities, information and resources that are necessary to bring a product or service from the manufacturer to the customer.

Most manufacturers understand the importance of the supply chain, which is the interconnected network of organizations, resources, technology, and people involved in the manufacture and sale of their products. Supply Chain Management (SCM) is the management of the flow of these goods and services and includes every process that converts raw materials into end products.

The SCM embodies an effort by supply chain companies to create and implement efficient and economical supply chains. The ultimate goal is to optimize a company's supply side activities in order to maximize customer value and gain a competitive advantage in the marketplace.

How does supply chain management work?

In most cases, the SCM wants to control and connect the production, shipping and distribution of a product. If they can manage their supply chain, manufacturing companies can save costs and get their products to customers faster. This is achieved through closer control of internal inventories, production, sales and also the inventories of the suppliers.

Supply chain management is based on the assumption that every product comes onto the market as a result of the work of the organizations that make up the supply chain. Even if supply chains have been around for a long time, companies have only recently started paying more attention to them in order to add value to their activities.

A supply chain management system has five main components.

All organizations that make up the supply chain are linked by physical flows and information flows.

Physical flows are transformations, movements and storage of goods and materials.

Information flows enable the various supply chain partners to coordinate their long-term plans and to control the day-to-day flow of goods and materials along the supply chain.

In the SCM, the supply chain manager is responsible for controlling the logistics of all aspects of the supply chain. This consists of five parts:

  1. The plan or the strategy: Every organization must plan and manage all the resources needed to meet customer needs for their products or services. They also need to design their supply chain and determine which metrics to use to ensure efficiency, effectiveness, customer value and the achievement of business goals.
  2. Procurement: It is crucial to choose suppliers who can provide the goods and services needed to produce the products. Once the suppliers are contracted, the supply chain manager can use various processes to monitor and manage supplier relationships. Some crucial processes here are ordering, receiving, managing inventory and approving supplier payments.
  3. Production: Again, the supply chain manager oversees the activities that include receiving raw materials, manufacturing the product, quality inspection, packaging for shipping and planning deliveries. Most manufacturing companies measure quality, production output, and worker productivity to ensure that the company produces products that meet all quality standards.
  4. Delivery and logistics: This component includes the coordination of customer orders, the planning of deliveries, the dispatch of loads, the creation and delivery of invoices and the receipt of payments. Shipping products to customers could require a fleet of vehicles or, as is the case with many companies, outsourcing the shipping process to companies that specialize in shipping and delivery. This method is preferred when the product is relatively large, requires special handling or needs to be delivered directly to the customer.
  5. The return system: Every supplier needs a network that can react quickly and flexibly to the return of defective, excess or unwanted products. If the product is defective, it must be repaired or disposed of. Should it be in excess or unwanted, it should be sent back to the warehouse to be sold elsewhere.

The supply chain manager's job is to reduce inventory deficiencies and keep costs down. His task therefore includes making recommendations for increases in productivity and quality improvements, as well as procuring inventory and performing various logistical tasks.

Outstanding supply chain management helps companies stay profitable and avoid expensive lawsuits and recalls.

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Here are two examples of successful supply chain management

Walmart and Procter & Gamble

Walmart and Procter & Gamble are a classic example of a supply chain collaboration. Before these two companies connected their supply chains together, few retailers and manufacturing companies shared information. After showing that sharing information can cut costs, other retailers have been willing to at least consider doing it. In the early 1990s, Walmart introduced its Retail Link system and convinced other retailers to join it.

Eventually, the Walmart Point of Sale (PoS) system began to aggregate sales of individual P&G products in each store. When the PoS indicated that inventory for a particular product had fallen below a pre-defined threshold, the system notified the Walmart distribution center to send additional products to the affected store. When the inventory at Walmart's distribution center reached its limit, the system in turn automatically notified the P&G distribution center to send more goods.

Walgreens

Walgreens Boots Alliance, Inc., which operates one of the largest pharmacy chains in the United States, focused on transforming its supply chain in 2016. The company became aware of the importance of the SCM to its operations and as a result decided to effectively manage and revise its supply chain so that it could stay ahead of trends and continue to generate more profit.

Walgreens has invested in the tech space of its supply chain and implemented an SCM that synthesizes relevant data and uses analytics to predict the buying behavior of its customers. It then works its way up the supply chain to meet expected demand.

The company can anticipate things like flu patterns, which allows it to accurately forecast the inventory needed for non-prescription flu medication. This forward-looking SCM helps the company to create an efficient supply chain with minimal waste. Walgreens can reduce excess inventory and all associated costs, such as warehousing and transportation.

Summary

  • Supply Chain Management (SCM) is the centralized management of the flow of goods and services and comprises all processes that convert raw materials into end products.
  • Managing the supply chain enables companies to save costs and deliver products to customers faster.
  • With appropriate supply chain management, companies remain profitable and can avoid costly lawsuits and recalls.