Wal-Mart's Operations Management
Category : Inventory Control, Operations Management, Wal-Mart Corporation
While at the University of Missouri, Sam Walton augmented his income by selling newspapers and organizing others to do so for him; he held down other part-time jobs as well. It is perhaps not surprising; therefore, that Walton took a job in retail with J. C. Penney after his graduation in 1940. Although he did not stay in the job long, his experience with Penney had a big impact on Walton. He learned to refer to his colleagues in the business as associates (Kennedy 2000). He learned the importance of keeping a finger on the pulse of retail trade by visiting one's own and competitive stores. He learned about giving local store managers a small stake in the profits from their stores as a way of having them buy into ownership in the stores' success. A few years after, the idea of the discount store was beginning to take hold. Indeed, most of the retail revolutions that had occurred up to this point had in one way or another found some way to achieve a cost advantage and pass this advantage on to consumers in the form of lower prices (Kennedy 2000). On July 2, 1962, Walton opened his first discount store, which he called Wal-Mart. In its first year in business, the store had a high turnover almost double the average of Walton's other stores (Kennedy 2000). Wal-Mart is one of the popular retail stores not only in the US but it various parts of the world. It makes use of a well organized inventory system. This paper will focus on the inventory system of Wal-Mart and it will answer questions about its inventory system particularly on solving the problem of supplies/materials shortage. The paper will determine the difference between MRP and ERP.
Supply Chain management
Supply chain management (SCM) is a helpful management theory; the goal of SCM of is to improve the efficiency and effectiveness of a company’s entire supply chain operations. The supply chain runs from raw material suppliers at one end, right through all the intermediate processing stages, to the customer at the other (Mcmenamin 1999). The focus of SCM or logistics management is on adding value and eliminating inefficiencies at each stage of a company’s supply chain. This will include, for example, the optimization of stock or inventory movements; planning for peak activity periods; and the organization of transport and distribution systems. The process seeks to ensure that the right materials, supplies and personnel are in the right place at the right time. The emphasis of SCM on adding value at each intermediate stage, has given rise to the term value chain. Supply chain or value chain management emphasizes the strategic value-adding and financial role of a company’s entire logistics management process (Mcmenamin 1999). In recognition of the new emphasis on providing the best net value for the customers, logistics represents a key bundle of resources that can be applied successfully to this end (Bounds & Stahl 1991).
In effect, this formally recognizes the fact that customer value can be created by providing elements of customer service such as product availability, timeliness and consistency of delivery, and ease of placing orders. The net impact is that logistical service is becoming recognized as an essential element of customer satisfaction in a growing number of product markets today. The logistics process has several unique characteristics. First, it is comprehensive, extending from the original source of raw materials to the location of the final customer (Bounds & Stahl 1991). The second characteristic is that it pertains to the flows of both product and information, and considers each as essential to the value-creating process. Third is that logistics represents a viable means to satisfy and create value for the external customer of the firm and/or the channel of distribution (Bounds & Stahl 1991). The supply chain is an important part of business because through it a raw material can be transformed into a finished product, this product is then sold to clients for the company to gain profit. In supply chain management there can be different risks that a company encounters.
To counter problems coming out of the risk a system would likely be used. The system would be able to input different information and data that are important to the logistic section of a company. The system would then arrange the said records according to the classification they belong to. To protect the system a specific password would be asked to the user so that only those authorized by the company can access the information they need. This system will help in lowering the levels of risk in the organization. It also provides assistance on making sure that the business will operate smoothly. The logistics system can encounter some problems. Wal-Mart makes sure that even if there are problems with the logistic system; it can still find and make use of probable solutions to solve the problems.
The company and its logistic system
For its employees, the company has recruitment, compensation, and training policies. Wal-Mart is a company that has adopted an innovative approach to the management of people. Some of the actions that characterize it are the profit-sharing scheme linked to the improvement of each store's management, a participative culture that encourages its employees to implement continuous improvements, and a high level of decentralization in decisions concerning the product categories to be kept or replaced, inventory management, or purchasing (Canals 2000). For its customers, the essence of Wal-Mart's strategy has consisted of two principles. First, there is the 'We sell for less' policy. Wal-Mart consistently offers products with the lowest prices available in a particular geographical area. The second has consisted of a wide product mix, much more varied than that of any other discount retailer in the USA. Against an average of about 30,000 items stocked by the discount stores, a typical Wal-Mart store may hold more than twice as much (Canals 2000).
Wal-Mart's efficient cost structure rests on several pillars. It includes an extraordinary logistics system based on holding inventories in large warehouses, and not in the stores. Stores are for selling, not for inventories (Canals 2000).This improves space management, where it is most expensive. A communication system between stores, warehouses, and suppliers enables the company's inventories to be kept to a minimum, while also facilitating identification of the best-selling products. Secondly, Wal-Mart stores are located in areas where the land and rentals are cheaper than in the main urban conglomerations on the USA's east or west coast. Wal-Mart's main shopping centers are located in the Midwest. Thirdly, Wal-Mart's marketing costs are lower than those of its rivals. Furthermore, Wal-Mart's low prices and wider product range mean that the flow of shoppers to its stores is greater than in other companies (Canals 2000). When Wal-Mart encounters problems on inventory the company tries to check its inventory systems and the management of the inventory department. The company also finds an immediate solution for the errors in the inventory system. As a safety control the company constantly checks for errors in its inventory system. The company makes sure that the inventory system is constantly checked for any errors or problems.
The company uses back up plans or secondary sources whenever there are problems with the inventory system. The company has established some strategies that will be used when there are problems with the inventory system. Moreover the company changes its production plan to ensure that the clients will promptly receive the products even if there are inventory system problems. The company makes use of alternative procedures that will ensure that there will be no delay in the delivery of service even though there are problems with the inventory system. Lastly the company gathers information from the clients so that there would be minimal use of the inventory system. The clients would provide information on what products should be constantly available so that there would be lesser inventory requests.
The focus of enterprise resource planning ERP is to facilitate the exchange of manufacturing and related information and knowledge throughout a company (Thierauf 2001). Software vendors usually sell it in suites containing modules such as purchasing, point of sale, manufacturing, inventory, job costing, bill of materials, payroll, and audit trail. In essence, ERP can speed up business processes, reduce costs, increase selling opportunities, improve quality and customer satisfaction, and measure results continuously (Thierauf 2001). The modern business enterprise is a complex social and economic organization, operating in a world of uncertainty. ERP is an approach to business planning that attempts to allocate business resources in quantity and time to activities in an effort to produce the best return on value for the business stakeholders. Decisions must be made at many levels throughout a business enterprise. Although some of the decisions are clearly responsive to changes in the internal and external state of affairs for the business, other decisions are more deliberative or strategic (Jacko & Sears 2003).
The two major decisions facing a business enterprise are how to increase revenues and how to reduce costs. These two decisions interact at many levels of a large enterprise. Decisions that increase revenue may also increase cost, and decisions to reduce costs can lead to negative effects on revenues. Often, these interactions are between business activities that are widely separated in the enterprise in terms of time, space, and lines of authority (Jacko & Sears 2003).A decision made by a production engineering manager may conflict with the decision of a marketing manager, undermining a promotional campaign; a shipping decision by a product manager may be undermined by a training decision made by a human resources specialist. The larger an enterprise, the more difficult it becomes to detect and avoid resource allocation and scheduling conflicts. The output of a typical ERP system is similar to a schedule of activities for the enterprise for a period of time. The time scale of the schedule is often to the hour or smaller units of time (Jacko & Sears 2003).The inputs to an ERP system are intended to represent the comprehensive set of resources and activities that the enterprise can control. Data from all of these systems are needed to determine the quantity of each resource that is available and the financial impact of using or creating an increment of a resource (Jacko & Sears 2003).
Currently, ERP systems are under criticism for their high cost and low return on investment across many industries. A significant number of major ERP installations remain incomplete and several have been abandoned altogether (Jacko & Sears 2003). The ERP system integrates all processes and data of an organization into a unified system. The ERP system uses various computer hardware and software systems to integrate information. Through the ERP system a better business process was made and efficient service was given by the organization to its clients. The ERP system helped companies provide better services to their clients in a much faster time.
MRP can stand for Material Requirements Planning and Manufacturing Resource Planning. In a short-range production plan, one of most important developments has been that of material requirements planning (MRP). MRP is a computer-based information system for planning production and purchases of dependent demand items. It uses information about end product demands, product structure and component requirements, production and purchase lead-times, and current inventory level to develop cost-effective production and purchasing schedules (MacCarthy & Wilson 2001). MRP was developed to handle dependent-demand inventory items. Originally, MRP was a system for calculating the quantities needed of all inventory items as well as the precise timing of purchase orders or production runs (Summers 1998). MRP is software based and is focused on production planning and inventory control system. This type of system is used to manage manufacturing processes. MRP systems can be used to items that are purchased from outside suppliers and to sub-assemblies. The Material Requirements Planning is an older version of the Manufacturing Resource Planning.
Manufacturing resource planning (MRPII) pushes the involvement of the computer deeper into the manufacturing process. MRP explodes the bill of material to ensure an adequate supply of parts to support the manufacturing process. MRPII incorporates MRP as part of a management information and control system. Capacity requirements planning are not part of MRP, but are part of MRPII. Production managers can evaluate different operating strategies using MRPII with outcomes expressed in physical and financial terms (Nersesian 2000). Ever since the 1970s, even before quality circles, many manufacturing companies have employed a system called Manufacturing Resource Planning as a way to provide feedback and maintain their complicated operations. This linear computerized approach to managing planning, scheduling, material requirements, capacity, and execution relied heavily on the feedback of those involved in each step of the system. With the entire complex operations required to manufacture products, this was one of the most successful computer-driven approaches available. The system, however, could not and did not function successfully without diligent feedback (Sherman & Schultz 1998).
Manufacturing Resource Planning on the other hand makes sure that there is an effective planning of all resources of a company. MRP II systems have been implemented in most industries that need organization of their inventory system. MRPII is not a software function only, but a combination of people skills, dedication to data base accuracy, and computer resources. It is a total company management concept for using human resources more productively. MRP II combines many aspects of the manufacturing systems into a united entity for planning and control purposes. It combines aspects from board level to operative levels. It also combines aspects from five-year plan to individual shop-floor operation. MRPII builds on closed-loop MRP systems by adopting the feedback principle but extending it to additional areas of the system.
Conclusions and Recommendation
Whenever there are problems with the inventory system the company does various things. When Wal-Mart encounters problems on inventory the company tries to check its inventory systems and the management of the inventory department. The company also finds an immediate solution for the errors in the inventory system. As a safety control the company constantly checks for errors in its inventory system. The company uses back up plans or secondary sources whenever there are problems with the inventory system. Moreover the company changes its production plan to ensure that the clients will promptly receive the products even if there are inventory system problems. Lastly the company gathers information from the clients so that there would be minimal use of the inventory system. The company should continue to use such procedures so that whenever there are problems with the inventory system their service to the clients would not be delayed. The company should use the ERP system so that any problems in the inventory system would not be a hindrance to the delivery of service. The ERP system will integrate all processes and data of the company into a unified system. The ERP system will help the company have better business process and a more efficient service can be given by the organization to its clients. The company should consider the use of web ERP. With web ERP productivity and reliability can be improved. It accelerates business cycles and provides higher levels of service to clients, suppliers and partners. The use of web based ERP helps in making sure that real time information can be acquired by the company.
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