CHAPTER IV

ANALYSIS

4.1 Operational management analysis

Walmart is one of the biggest retail company in the whole world. Just like their slogan

said “saving money, live better”, they are famous for selling goods in low price but they still able

to get high profit each year. According to Wikinvest.com on July 2015, Walmart has gross profit

of $130.02 billion. But what makes them to be able to get high profit by selling the goods with

low price? The answer is that they are focus on developing cost structure that makes them

possible to sell products with a minimum price. Walmart is famous because of their creative and

brilliant idea to make the effective and efficient supply chain management so that they can cut

some costs.1

1 Tradegecko, “Incredibly Successful Supply Chain Management: How Does Walmart Do It?” http://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart. (accessed September 11, 2015)

There are some strategy that they used to cut some costs. The strategy includes

cut/decrease the links in the supply chain, vendor partnership, cross docking and innovative

technology. 2These strategies have given Walmart advantage. The following are the explanations

of the Walmart’s strategies:

4.1.1 Cut or decrease the links in the supply chain

Walmart has been able to cut some costs because this strategy. For the start,

Walmart removing some chain links. Instead of buying some goods from other vendor,

they starts buying goods directly from the manufacturer. For example, Walmart buys t-

shirts from directly from the manufacturer in Bangladesh. Bangladesh is the second most

important garments producers. Walmart take the t-shirts directly from Bangladesh instead

of buying from another vendor that buy their t-shirts in Bangladesh. First, if they take it

directly from Bangladesh, they will be able to buy the t-shirts cheaper than buying from

another vendors. The manufacturer in Bangladesh will become responsible for managing

their products in Walmart warehouses. As the result, Walmart will be able to expect

almost 100% order fulfillment on the t-shirts. This strategy has make the Walmart supply

chain become more effective.

4.1.2 Vendor partnership

Just like the name of the strategy, vendor partnership is relying on the

communication and relationship network. In simple term, it is mean that vendor

2 Tradegecko, “Incredibly Successful Supply Chain Management: How Does Walmart Do It?” http://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart. (accessed September 11, 2015)

partnership is a collaboration of the supplier and Walmart. Basically, it a strategy based

on the company’s trust. Walmart think of strategic sourcing to find products that is sold

with the best price by the supplier while they ensure they will can meet the demand. They

will be establish the partnership with the vendors by offering them long term and high

number of purchases in exchange for giving Walmart benefits such as low price and

fulfill the demands. For example, Walmart has make promise with B company. The B

company promise that they will provide all the products that they need with the minimum

cost for about $1 per product. But in exchange, Walmart has to purchase minimum

500,000 products each month for 10 years. By making a deal like that, both of the

company could get profits. With this strategy, Walmart and the vendors will be able to

corporate and able to work like a single firm.

4.1.3 Cross docking

Cross docking is a strategy to manage the inventory efficiently. Walmart will

directly transfer the product from truck trailers without extra storage. They unloading

items from the incoming trucks and loading those products directly to the outbound

trucks with no storage between. In other words, they supplier will be delivering the

products to the Walmart’s distribution (place where the product is crossed docked and

then distributed to the stores) and they will be stored, repackage, and then distributed

without keeping the inventory.3 Usually, all of those process are finished in less than 24

hours. Time is really important in running this strategy. By using this strategy, it really

3 Tradegecko, “Incredibly Successful Supply Chain Management: How Does Walmart Do It?” http://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart. (accessed September 11, 2015)

helps Walmart to cut some costs such as inventory cost, transportation costs, reduce

transportation time and make the whole system become efficient.

4.1.4 Innovative technology

The innovative technology always has been an important aspect to make the

system become more efficient and affective. Innovative technology also play a big role in

Walmart system and help them to reduce cost and time. Technology help Walmart to

accurately forecast demand and predict inventory levels so there are no cost needed for

saving extra product/ inventory. For example, Walmart has use the Universal product

code bar codes. This technologies has help them to collected, analyzed and devised retail

link of the store level information. Then through the global satellite system, the retail link

is connected with the analysts who forecast the supplier demands to the supplier network.

They will show the real time sales data from the cash registers and to Walmart

distribution centers. In addition, the supplier and the manufacturer within the supply

chain try to match their demand using collaborative planning and every link in the chain

is connected through technology and connected into a central data base, store level point

of sale system and satellite network. 4

Technology also could help Walmart by tracking or create highly efficient routes

and scanned the product efficiently so that they will be able to reduce time needed to

deliver the goods that is needed by the store. Recently, Walmart has used radio frequency

identification tags (RFID). The use of the RFID is that numerical codes can be scanned

from distance to track pallets of merchandise. This technology proven to be effective by

researcher at the University of Arkansas. They said that there are a reduction of 16% in

out of stocks since they implement the RFID technology in the supply chain. The other

use of technology also to manage customer and give service response to them. With

technology, we are easily communicate to the customer and asked feedback about their

company. 5

Despite they have a great and creative strategy to cut some costs by cut or decrease the

links in the supply chain, vendor partnership, cross docking and using innovative technology,

Walmart also cut some costs by giving the employee low salary. The fact that they have given a

low salary to the employee makes people think badly about the Walmart. If think about all the

strategy that Walmart have, it all could not be realized if there are no human resources that

4 Tradegecko, “Incredibly Successful Supply Chain Management: How Does Walmart Do It?” http://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart. (accessed September 11, 2015)5 Ibid.

support the process. For the simplest example is in the cross docking strategy. Imagine that there

are not enough workers or no workers that work to help in the process such as repackage the

product, loading the products and distribute the products, the product will nor arrived on time to

the store. The employee is also expected to not make a mistake because a single mistake could

cause millions dollars loss. By this example, we notice that human resources play a crucial role

in running the business. That is why, Walmart should have taken care the employee more.

According to the payscale.com on July 4 2015, the hour pay for $7.58 - $11.42.6 It is

considered as a low pay and it is still not exciding to the federal poverty level ($7.58 x 34 hour x

52 weeks = $13,401.44) that is $14,720 (for Alaska) or $13,550 (for Hawaii). 7In addition,

Walmart also did not give any benefits to the employee. This certainly give disadvantage to

employee. Many Walmart worker has actually tried to file some complaints to the firm, but they

were stopped in the middle of it. If however they tried to file complaints, they will be put into

disciplinary act such as disciplinary hearing, work hour reduction, or even dismissal from the

company.

Walmart has treated the employer unfairly in many ways. Just like we said before, each

strategy that they used require a human touch to finish their work. In the distribution center, they

has overwork the employee so that causing many injuries to them. They actually had to move

about 400 boxes each hour by hand. They also had to work in hard environment such as a very

high room temperature (120˚F), low security, etc. in fact, they also work under pressure because

of the company demands to work quickly and efficiently. Moreover, they are not giving any

benefits such as health insurance to the employee that works in distribution center. In other

6 PayScale, “Average Hourly Rate for Wal-Mart Stores, Inc Employees” http://www.payscale.com/research/US/Employer=Wal-Mart_Stores,_Inc/Hourly_Rate. (accessed September 11, 2015)7 ASPE, “2015 Poverty Guidelines” http://aspe.hhs.gov/2015-poverty-guidelines. (accessed September 11, 2015)

words, Walmart is not only torturing the employee physically but they also torture their workers

mentally.

Even if it is not directly, but Walmart has also gives pressure to the supplier’s worker.

Because of the agreement between the companies, the employee are pressured to finish their

product on time to meet the total demand. According to Uni Global Union, some manufacturer

employee such as t-shirts manufacturer in Bangladesh is pressuring their employee to meet the

target. They are forced to work overtime without getting a good pay. Bangladesh textile workers

are among the lowest pay in the world. Their minimum wage per month is about $38 and it is not

enough to make a living (they work 80 hours per week). In addition they also have a bad

working environment which accident are commonly happened. Even after the largest fire

accident that happened in 2012 (117 people died in the accident), Walmart still refuses to pay

more to upgraded the working environment in Bangladesh.

This act should be stopped by Walmart. Everyone knows that cutting cost is crucial for

Walmart. They have to get the cheapest price to be able to achieve their mission which “saving

money, live better”. But to take advantage in people’s need is not ethical and they had restricted

the employee rights to get what they deserve. It is obvious that the employee deserve more pay.

Without them, Walmart could not achieve their goals and gain many profits.

"Incredibly Successful Supply Chain Management: How Does Walmart Do It?"

Incredibly Successful Supply Chain Management: How Does Walmart Do It?

Accessed September 10, 2015. http://www.tradegecko.com/blog/incredibly-

successful-supply-chain-management-walmart.

"2015 Poverty Guidelines." ASPE. May 31, 2015. Accessed September 10, 2015.

http://aspe.hhs.gov/2015-poverty-guidelines.

"Average Hourly Rate for Wal-Mart Stores, Inc Employees." Wal-Mart Stores, Inc

Employer Wages, Hourly Wage Rate. Accessed September 10, 2015.

http://www.payscale.com/research/US/Employer=Wal-Mart_Stores,_Inc/

Hourly_Rate.