QSO 330 Milestone 1 copy

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Zach Bowman 03/20/2023 QSO-330 Supply Chain Management 3-2 Milestone 1: Demand Forecasting and Sourcing

Executive Summary : Based out of Bentonville, Arkansas, Wal-Mart Inc. is the sector’s biggest retail outlet store. The company employed 2.2 million associates worldwide and operated approximately 11,000 stores, under 72 banners in 27 countries (Fraser, 2015). Walmart entered China in 1996, opening its first Super-center and Sam’s Club in Shenzhen, Guangdong Province. By August 2015, the company’s Chinese presence had grown to 416 retail stores, consisting of 404 Super- centers and 12 Sam’s Club stores, covering 166 cities among 19 provinces, two autonomous regions and four municipalities nationwide, and employing more than 100,000 associates (Fraser, 2015). It is easy to see that Wal-Mart’s supply chain, distribution, and transportation has made the company a lot of money throughout the years. This is mainly due to the senior management team viewing this part of the company as a competitive advantage. In this executive summary, I will focus on the demand forecasting of Wal-Mart in China via analyzing the supply and demand and how the make improvements to their business to increase their profits and performance. Demand Forecasting : While examining Wal-Mart’s supply chain, it is necessary to first examine the demand forecast. This is the process of using predictive analysis of historical data to estimate and predict customers’ future demand for a product or service. It is essential that Wal-Mart keeps high- demand products in stock at all times. It can be detrimental to run out of products that are needed by the consumers at peak demand. At any given time, large retailers in China, such as Walmart, carried 15,000 to 20,000 stock keeping units (SKUs) in a typical store, and the assortment varied across stores (Fraser, 2015) Wal-Mart used distribution centers to ship products for suppliers using full truckloads or economic order quantities. Shipments to stores were consolidated at the

DC and shipped on the basis of individual store need. Walmart China operated two types of DCs in 2015: 11 perishable DCs and nine dry DCs. The latter, also referred to as “ambient DCs,” handled dry grocery items, consumables and general merchandise products, such as electronics, apparel and toys. The volumes shipped through the dry DCs were primarily cross dock, which accounted for approximately 85 per cent of the total, with the balance as staple stock, which were pulled from inventory held in the DCs. Perishable DCs handled products that required temperature- controlled environments across three temperature zones: frozen (–8 degrees Celsius or below; e.g., frozen food and ice cream), chill (0 to 10 degrees Celsius; e.g., meat, dairy, deli and produce) and normal (12 to 18 degrees Celsius; e.g., tropical fruits, chocolate and eggs). These perishable DCs operated with a flow- through design that used cross docking to bypass storage, transferring products directly from the receiving area to the outbound area for shipping to Walmart stores (Fraser, 2015). Evaluation : When Lesley Smith arrived to Wal-Mart in China in 2011, she walked into a very fragmented business. The company had 29 autonomous buying offices across the country, with a serviceable dry network made up of five DCs servicing all stores. Logistics charged a warehouse fee to suppliers for using our network, so suppliers and buyers were not interested in going through our DCs because of the high costs and horrible service (Fraser, 2015). The company often did not meet minimum order quantity and the distributors would not deliver, affecting their order fill rates that cascaded into low in-stock and on-shelf availability. Or, they would overcompensate by ordering more inventory than needed, which affected their carrying costs. Recommendations :

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There is a need to decrease direct-to-store volume from suppliers, increase centralized shipment through DCs, increase service levels to stores and establish a fresh DC network, while keeping costs in line. Many of the products were being stored and distributed through the third party logistic service providers and they are quickly running out of space for inventory. Construction of a new centralized DC is a cost worth taking on. With this new DC operating seven days a week on two shifts, the Dongguan DC would have capacity to ship approximately 150,000 cases per day, with an average value of $24.50 per case; peak demand was estimated at approximately 90,000 cases per day. Daily average throughput at the DC was expected to be approximately 70 per cent of peak demand and the product mix would consist of about 3,500 SKUs across a broad range of product categories, such as deli, seafood, dairy, frozen meat, produce, bakery, flowers, grocery, chocolate, ice cream and tropical fruits (Fraser, 2015). Sourcing : The main way that Wal-Mart planned to leverage relationships among stakeholders in order to access goods and services at the lowest cost with maximum value was to implement more of a cross dock flow in its distribution centers. Cross dock flow DCs did not require space for inventory storage, which resulted in a smaller footprint and a lower ceiling height. Adding SKU capacity was much easier in this method. Efficiency in cross dock flow DCs was dependent on suppliers’ adherence to delivery schedules, making this option best suited for facilities with large volumes that were located close to the stores to which they delivered. Scheduling and capacity management could be more challenging in cross dock flow DCs because of the simultaneous arrival, unloading, loading and dispatch of goods for all stores serviced. Cross dock processing was unable to be completed to match the travel distance to stores. That is, the deliveries for all stores were prepared at the same time (Fraser, 2015).

Evaluations : At the rate the Wal-Mart in China was heading they would have run out of space in a matter of a few years. We can see that using the staple stock flow offered DCs capacity for short- term storage of inventory, whereas the cross dock flow DCs used a flow-through model that did not maintain inventory. The staple stock model required a warehouse with a larger physical footprint and thus a greater capital investment, including building construction costs and investments in equipment, such as racks and forklift trucks. Notwithstanding the additional costs of setting up a staple stock flow DC, the design provided better utilization of the total cubic footprint since racking exploited space up to the full ceiling height. Cross dock flow DCs did not require space for inventory storage, which resulted in a smaller footprint and a lower ceiling height. Recommendations : Walmart should shift their focus on streamlining its supply chain in China. One strategy to solve their current issues would be to enter in a partnership with other warehouses to begin to expand the network of their distribution centers and increase readily available staple stock to around 25-30% to avoid any shortages in supply. One other strategy would be to seek out reliable retailers to eliminate their non performing suppliers, and erase the poor quality issues. Walmart could use special technology to track inventory, avoid shortages, and increase quality assurance. The company needs to shift its focus to building more of its own warehouses that can adequately accommodate the supply that they receive on a regular basis.

Resources Johnson, F. (2015). Walmart China- Supply Chain Transformation. London, ON: Ivey Publishing.

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