Tuesday, July 22, 2014
How to Achieve Effective Supply Chain Management?
This article demonstrates an
effective supply chain management strategy.Effective supply chain management
strategy helps businesses to lower their product/service costs. This enables them to offer their products & services at highly competitive
prices to customers.
We have taken the example of
Walmart.
It’s regarded as world’s largest &perhaps most powerful retailer. Walmart
credits all its achievement in terms of highest sales/square foot, highest
inventory turnover & highest operating profit than any other discount
retailer to its effective supply chain management. It owes its evolution from a regional
retailer to a global powerhouse to its effective management of supply chain.
This clears one thing that effective
management of supply chain is crucial for businesses to reduce their costs and stay
ahead of competition.
Further
you can learn the strategies Walmart employed to achieve world-class supply
chain-
#Provide
customers with goods they want
Walmart began with the goal
to provide customers with the goods they wanted. Walmart believes that good
must reach customers at the right time & at the right place.
#Developing
cost structures
In order to achieve the
above caveat of providing customers with goods they want,Walmart focused on
developing its cost structures. This allowed Walmart to offer products at low
prices everyday!
Walmart achieved this by
effective replenishment of its inventories. This wasthe centerpiece of
Walmart’s strategy to achieve effective supply chain management.Walmart used a
logistics technique called as “cross docking”. Cross dockingallowed
Walmart to re-route its products from suppliers to the Walmart’s warehouses. From
the warehouses, the products where then shipped to various stores. This
prevented sitting of products for long periods in inventory. This
strategy decreased Walmart’s costs significantly. As a result, Walmart was able
to pass on those savings for their customers’ benefitsby offering products at highly
competitive prices.
Further, Walmart focused on
developing an enhanced supply chain management strategy to further exploit
&leverageits competitive advantage.
Elements
of Supply Chain Management (SCM)-
- The main elements of a supply chain include purchasing, operations, distribution &integration.
- The supply chain begins with purchasing. Purchasing managers or buyers are typically responsible to determine which products their company will sell. This is followed by sourcing product suppliers & vendors. Further, the purchasing managersprocure products from the selected vendors at prices &terms which meet profitability goals.
In order to achieve
effective supply chain management, the supply chain operations of a business
must focus on accurate demand planning, forecasting & inventory management.
Forecasts help a business to
estimate demands of customers for a certain product during certain period of
time. This is calculated based on historical data &external drivers like upcoming
sales & promotions. Also the changes in trends & competition affect demand
planning. This practice of employing accurate demand planning will help to create
accurate forecasts. This is critical for effective inventory management
which is at the crux of effective supply chain management.
Walmart’s Strategy
of Managing its Supply Chain
Walmart enjoys market
leadership position primarily because of its efficient integration of suppliers,
manufacturing, warehousing &distribution to stores.
#Walmart’s
supply chain strategy employs 5 key components which are-
- Vendor partnerships
- Cross docking
- Distribution management
- Technology
- Integration
Walmart’s supply chain starts
with strategic sourcing to search for products at best prices from suppliers. Also
Walmart ensures that the suppliers will be able to meet any demand. It establishes
strategic partnerships between most vendors. Walmart offers selected vendors,
the potential for long-term & high volume purchases. And in exchange Walmart
gets bulk-purchases at lowest possible prices!
The suppliers then are
responsible to ship the products to Walmart’s distribution centers. Here, the
products are cross docked & delivered to the Walmart stores.
Hence, Walmart uses cross
docking, effective & collaborative distribution management &efficient transportation
management to keep inventory & transportation costs down. This reduces the
transportation time & eliminates inefficiencies.
Another major feature of
Walmart’s effective supply chain management is Walmart’s possession of largest IT
infrastructure than any private company around the world!
Walmart regards technology to
play a key role in it effective supply chain management. Walmart’s
state-of-the-art technology & network design enables accurate forecasting
& demand planning. Also it enables Walmart to monitor &predict
inventory levels &create efficient transportation routes. This helps
Walmart to manage long-term customer relationships & provide immediate service
response logistics to customers!
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Scsa is a Inventory and Supply Chain Management Consultant from Western Australia, a leading firm in SCM and warehouse design service, Contact for Inventory Management Services, procurement and business management.
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