Why Would It Be Beneficial for Wal-Mart to Have Suppliers in Different Countries?

Homework #3

Matthew Lewis

1. a)         One of the reasons Wal-Mart chooses to open stores globally is to diversify their market and increase consumer reach. Employing and developing this strategy is important because it spreads out risk.  Market conditions could be booming in some countries, but remain stagnant in others. An example of this would be the 2008-2009 recession that occurred here in the United States. Given those circumstances, many consumers and business decided to cut back on spending, to due times of economic uncertainty. The effect of reduced spending can be felt by many organizations, including retail giants such as Wal-Mart. The key point here is that if Wal-Mart invests everything into one market place, then it would have greater risk should that market perform unsatisfactory.  However, if Wal-Mart chooses to operate on a global level, their risk is more diversified. Another reason for Wal-Mart to engage in global operations would be to key in on areas where competition is lower.  It would be wise to get into these locations quickly, in order to gain market share before other competitors catch on and begin tapping into the market as well. Additional reasons Wal-Mart should consider when it comes to competing globally would be increased revenue/profit, increased operating expenditures, increased bottom line, add more values into the current supply chain, diversify market base, take full advantage of low cost producers found around the world, utilize effective labor sources from other countries, develop a unique and complex logistics network, and efficiently optimize the supply chain and benefit from substantial cost savings through increased economies of scale.    

b) Why would it be beneficial for Wal-Mart to have suppliers in different countries?

Having suppliers based across different countries allows Wal-Mart to buy from countries offering lower prices and take full advantage of the savings that spawn from such activity. For example, Wal-Mart could implement a strategic sourcing program where they would buy goods from low cost countries, such as China, then import them to Industrial country such as the US or Canada for resale. Another benefit that comes from having suppliers in different regions of the world would be to broaden the scope of potential suppliers, which can play an important role in creating an optimal and efficient logistics network. Another example, if a particular product can be source from supplier A, located in the US, and the same product can also be sourced from supplier B, located in Canada. Depending on where the customer is located, logistics experts can select products from either supplier, with the obvious choice being the one that is nearest in proximity to the demand. This would ultimately reduce shipping costs and transit time would decrease. In other word, Wal-Mart can specialize their offerings to customers through purchasing from suppliers in the same geographical region.

c) Why would Wal-Mart want strong centralized control of its stores? 

This allows Wal-Mart to calculate demand forecasts to its warehouse with ease, as well as to their suppliers.  This gives them the ability to adjust production and inventory to meet forecasted demand levels.  An excellent example would be how the point of sale system used by Wal-Mart collects and provides data directly to its warehouse; this method is referred to as data mining. Warehouses then have the ability to collect and extract data from each store regarding the inventory stock levels, demand forecasts, customer demographics, markdowns/closeouts, and returns. The warehouse not only contains data from Wal-Mart, but data from competitors as well.  This allows for competitive pricing through price matching, adding an additional competitive advantage to the list. One of the key elements here is that data can be easily accessed at the blink of an eye by Wal-Mart employees, along with approved suppliers. This results in cost savings experienced by both Wal-Mart and their suppliers, which poses millions of dollars of inventory, reducing costs by increasing the accuracy of future demand forecasts. It is therefore important that Wal-Mart continue the use of the centralized inventory control method within their warehouses/distribution centers.

d) What pitfalls and opportunities other than those mentioned in the case, will Wal-Mart face over the next few years?

Many consumers are changing their prefered method of purchase to e-commerce, due to reduced product prices, and improved lead times, convenience of at home shopping, increased selections, and better product quality. Wal-Mart may end up shutting down poorly operated stores, decreasing the number of new stores they open, or start decreasing overall store sizes, instead focusing more on the sale of commodity items, such as groceries. Wal-Mart could continue investing in other countries. In the past, Wal-Mart took a strategic plan to invest in South America; however, it has yet to find a niche market capable of sustaining truly efficient and effective operation. In the next few years, Wal-Mart could turn things around and become the largest retailer in South America. In addition, Wal-Mart could also invest in other regions of world such as Europe, Africa and even Asia where the population is at an all time high. As globalization becomes important, Wal-Mart must pay closer attention to its market base and its international business. Wal-Mart uses centralization and sophisticated technology because it has worked so well in the past.  Through the use of numerous forecasting methods, Wal-Mart has been able to spot consumer trends it occurs, and adjust merchandising plans accordingly.