Walmart China Supply Chain Transformation Case Solution

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.