Wal-Mart Supply Chain Advantages

For years, Wal-Mart has been the envy of the retail industry. It owes a large part of its success to its development of an efficient supply chain. Through numerous mechanisms, such as consolidating suppliers, eliminating middlemen, and creating a masterful logistics system, it has slowed its expense growth, saving hundreds of millions of dollars annually.

Over the last two decades, Wal-Mart has developed an unrivaled network of distribution centers, which provides a key competitive advantage in supply chain management. Utilizing its own trucking fleet, it “self distributes” merchandise to its retail stores. Each new distribution center necessitates realignment of the network in a constant effort to maximize efficiency. Shorter distances to suppliers and to retail stores foster shorter lead times, which translate into less safety stock and fewer out-of-stock situations. Anthony Chiapello, president of Maersk Logistics, recognizes that Wal-Mart has succeeded in maintaining a flexible, cost-effective supply chain by maintaining “relief valves without a significant increase in the total cost of freight movement” (Troy, Logistics).

As is true with all retailers, Wal-Mart is vulnerable whenever consumer demand falls short of sales assumptions. Falling US sales for the past four consecutive quarters have forced Wal-Mart to reduce expenses. In an attempt to reduce transportation costs, it has begun plans to take over suppliers’ delivery of everything “from dog food to lawn chairs,” demanding wholesale price cuts from suppliers, sometimes twice as high as the transportation costs. Wal-Mart already owns a fleet of over 60,000 trucks/trailers to shuttle goods between its regional distribution centers and over 4000 US stores. (In 2009, it saved nearly $200M through more efficient scheduling and packing of this fleet.) By taking over transportation to its distributions centers, Wal-Mart expects manufacturers will lose economies of scale with their own delivery...