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Walmart China Supply Chain Transformation Case Solution
The case is focused in 2015 – when Walmart china was planning expansion and growth through China's network of distribution centers. The case focused on the decisions that needed to be made by the senior vice-president of supply chain management at Walmart China regarding the business and supply chain models that could help the company grow and achieve its targets through the distribution centers. The decision an important as it would impact the design and the investment in the infrastructure development. The case highlights the decisions that companies must take regarding their supply chains in evolving economic environments as in the instance of China. The case also allows readers to assess qualitative and quantitative aspects of investments in the supply chain, and its development through debating between two competing distribution center models. Lastly, the case also presents riders with the opportunities to identify factors beyond costs that impact the development of infrastructure, and selection of supply chain models beyond the direct associated costs.
Following questions are answered in this case study solution
Evaluate the costs of the Cross Dock and the Staple Stock center distribution models. Consider the advantages and disadvantages of each model
What is the financial impact of stock outs caused by lower line fill rates in the cross dock DC model?
Besides costs, what other factors should be considered as part of the analysis?
How different will the needs of WM China be in five or ten years? What do WM China’s future needs represent in terms of its supply chain infrastructure?
What are the capabilities of WM China’s suppliers in 2015? How will their capabilities evolve over the next decade?
If you were in the position of Lesley Smith, what recommendations would you make and why?
Case Analysis for Walmart China Supply Chain Transformation
1. Evaluate the costs of the Cross Dock and the Staple Stock center distribution models. Consider the advantages and disadvantages of each model
Lesley had considered the predicted demand, and approximated that Walmart China would be needing a staple stock DC of 35,000 square meters or a cross-dock DC of 24,000 square meters –for handling the estimated demand volumes. This translated into different Handling costs. this was largely because having a cross-dock would mean that there would be no capacity for storing inventory. Consequently, Lesley knew that the cost per case for the cross-dock operation would be $1.02; and $1.35 for staple stock DC operations. However, apart from the direct cost, other advantages and indirect costs must also be considered in the decision-making.
Staple stock-flow DCs would allow Walmart to store inventory in the short term, which would, in turn, require a warehouse with a larger footprint and a greater capital investment as well – adding to the overall cost. In addition, this option would also require additional setting up costs. However, Staple stock-flow DCs offered an improved design for better utilization of the total cubic footprint. Moreover, with inventory storage, the organization would have control over stocking options for perishable items depending on their shelf life – allowing the company to buffer against supply problems. With closer placement to stores, the transportation costs will also be minimized under this option.
In contrast, the cross dock flow DCs was based on a flow-through model that did not allow the maintenance or check inventory. As a result, cross dock DC did not require space for inventory storage, ‘which resulted in a smaller footprint and a lower ceiling height.’ This transited into lower capital investment, lower construction costs as well as lower handling costs. However, the option would not be feasible with a larger number of stores, and would lead to increased costs for the company then. Indirect costs would also be incurred with the complicated scheduling processes in a cross dock DC – which meant that suppliers would need to follow and stick to hard schedules and quantities for deliveries. Failure to do so will result in additional costs for the company.
2. What is the financial impact of stock outs caused by lower line fill rates in the cross dock DC model?
In a cross dock system, the organization i.e. Walmart would be at a risk of a lower full rate owing to the complicated system and processes – where the product would be shipped to the DC in full truckloads, would be unloaded from inbound trucks, and would then directly be loaded onto outbound trucks for deliveries on the same day. However, this was strictly dependent on supplier schedules for deliveries and quantities – failure of which would result in losing customers and orders. the cross dock DC will be unable to manage and keep track of capacity flow and inventory largely because of the same day arrival, unloading, and loading plus dispatch of goods. This may cause lower fill rates, leading to stock-outs. In this case, the company will suffer financially as well because it will lose out on potential sales because of a disruption in the flow of goods owing to supplier fill issues. With no inventory in hand, and in stock, a cross dock DC system will mean a lack of buffer against supply issues and problems. This may also lead to short shipments and delays in deliveries. This system consequently will be unable to predict the demand of the customers, and what the customers want in different stores at different times – for example during festivals and seasons. The overall infrastructure within the country also lacked mature planning and demand fulfillment capabilities. Consequently, with a loss of sales owing to stock outs will result in reduced revenues and profitability for the company, as well as increased expenses – causing a dent in the company’s financial performance as well.
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