Wal-Mart Set to Fine Suppliers for Late Deliveries
As we have talked about extensively in class, the Amazon affect is taking over seemingly every part of our lives. We now come to expect all things we order online to come in the two day delivery we know and love. While this is a great thing for consumers, it has put a great amount of pressure on other big retailers trying to keep up.
One of these retailers is Wal-Mart. As discussed in the Wall Street Journal, in order to keep up with Amazon, Wal-Mart is trying to speed up their suppliers’ delivery times. This, in turn, will allow the retailer to quickly refresh merchandise rather than holding on to the stocks of goods. The main reason behind this change is to make their stores more profitable and efficient so they can use this excess money to improve online orders, in the hopes of competing with Amazon.
Since their suppliers can’t guarantee fast delivery 100% of the time, Wal-Mart has to settle for 85% of deliveries coming in on time for big retail suppliers. For smaller suppliers they have to settle for 50%. If suppliers are not able to meet this demand, they will face fines from Wal-Mart. This is also coming at a time when freight transportation costs are soaring. Not only are trucks in short supply, but rising gas costs are increasing the price of transportation. Despite these possible setbacks, Wal-Mart is doing a great job at highlighting their problem areas and creating feasible, effective solutions.
As we discussed in class, one key aspect of a business’ success is their self-evaluation. As Amazon gains more and more subscribers, Wal-Mart in turn is faced with fewer customers wanting to come into their store for something they can get shipped right to them. Through analyzing their process structure Wal-Mart clearly highlighted what makes Amazon an order winner over themselves. The main problem in Wal-Mart’s system is time delivery. In order to be a legitimate competitor in the market, they have to speed up their delivery process both in stores and online. Because of the retail giant that Wal-Mart is they can’t just switch everything over to be completely online. This problem could be greatly outlined using the fishbone method we implemented in class. Through productive brainstorming Wal-Mart came to their solution of incentivizing their suppliers through fines.
This race to speed up Wal-Mart’s everyday process cannot come soon enough. In 2015, Amazon introduced their prime drones. As it is now coming up on three years expansion has spread from the U.K. where the first delivery was to the U.S. last spring in California. Not only do these machines speed up Amazon’s already ridiculously fast deliveries, but it cuts out the problem that Wal-Mart is currently facing with transportation costs and shortages. In order to compete in the long run, it is vital for Wal-Mart to continue reevaluating their process strategies and adapt to the changing times.
First off I just want to address how cool the video for Amazon Prime Air is. I haven’t seen that yet and it actually just blew my mind that we are in a day and age where tiny drones can fly in the air sensing and avoiding objects to safely deliver packages at our doorstep (CRAZY). The continuing innovation and advancements in technology is creating a culture of efficiency and productivity.
After reading your article I decided to look further into Wal-mart’s strategiy to compete with Amazon and other big online retailers. To try and improve its e-commerce operations Walmart has decided to partner with Lord & Taylor (a department store) so that they can turn walmart.com into a sort of online mall. This will enable Walmart to gain access to higher-end brands which is rather interesting considering they have always been known for their cheaper, discounted brands. They also acquired jet.com which helped lead to a 60% increase in their e-commerce sales last year.
One thing that I think Walmart should work on is analyzing and changing the format of their online shopping experience. The process is disjointed and time consuming, browsing through inventory from multiple merchants instead of a single product listing like Amazon. Like you said Time Delivery is the most crucial part of their process structure as is with any other company at the moment. It is clear that Walmart is implementing a process improvement in the capability of their logistics because they recognized the fault at hand, planned their course of action, and are taking the necessary steps in order to become more efficient and increase sales.
I think it is super interesting that Walmart, through their process improvement, has decided to partner with the department store Lord & Taylor. The consumer perception of Wal-Mart is that it provides cheap and discounted brands. This partnership with Lord & Taylor seems to be a switch in their competitive priorities in a way. Wal-Mart is moving away from providing customers with consistent quality to offering consumer’s more top quality products. Wal-Mart has done a good job in providing consistent lower quality goods so the switch to now providing one higher quality product does not make sense to me. Is Wal-Mart planning on expanding this partnership to offering other higher quality products to consumers? Is this an attempt to re-brand what consumers perceive Wal-Mart to be?
In an attempt to answer these questions, I decided to do more research into the strategy behind this new partnership between Lord & Taylor and Walmart. An article on CNBC states that Wal-Mart’s retail strategy has been to acquire smaller fashion brands. The rationale behind this strategy is that Wal-Mart “see customers on their site searching for higher-end items” and as a result they are expanding their business online “to focus on adding specialized and premium shopping experience, starting with fashion”. Based on research conducted through their website, it is apparent that consumers are desiring higher-quality products in addition to the products Wal-Mart already offers.
Wal-Mart is going through extensive changes within how they conduct their processes. Fining late suppliers on their delivery is just one example of how Wal-Mart is going through extensive process improvement and reengineering.
https://www.cnbc.com/2017/11/13/wal-mart-set-to-launch-lord-taylor-fashion-store-online.html
I agree with Isabella, that this idea of delivery through a drone is truly remarkable. Amazon is aware that with Walmart trying to compete with it in the e-commerce industry, it will have to bring significant improvements to its process structure in order to continue to dominate the e-commerce industry. It wants to make the process of competing for Walmart as painful as possible which is why it is coming up with revolutionary process improvements such as the drone dleivery. Walmart is slowly trying to increase its customer base in the e-commerce industry but I agree that their shopping experience is very disjointed. However, I believe that we should give Walmart some time to establish itself in an industry that is quite alien to it. Maybe we will see such revolutionary improvements by Walmart in the near future as well, who knows!
Good point, Laura. I agree with what you have to say. It’s hard for Walmart to transition completely to online because they have been a retail giant for decades. It’s hard to change a brand that has been established for that long. People enjoy the process of going to Walmart because of past experience and their consistent customer service. But the trend of the consumer points toward convenience and online shopping provides that. People like the free two day delivery and the easiness that Amazon provides.
Walmart needs to advertise their consistent in house customer service, their friendly personal contact, etc. Amazon has revolutionized large quantity shipping that it’s almost impossible for competitors (Walmart) to compete with them online. Until Walmart can compete with Amazon’s speed and convenience, they need to capitalize on their strengths compared to Amazon.
For now, what can Walmart do to speed up their delivery times? Fining their suppliers is a great start, this will speed up the supply chain. They need to set a fair fine to find the happy medium between speeding up delivery times and keeping their suppliers. This is process improvement. By improving their supply time, which will not happen over night, they can increase their base of customers that have convenience and timeliness as their order winners.
I find Wal-Mart’s strategy for competing with Amazon a little questionable. First of all, I don’t think Wal-Mart is losing out to Amazon because they do not have enough items in stock. It doesn’t seem likely that the only reason people are choosing to shop at Amazon rather than Wal-Mart is because they think Wal-Mart will be out of the product they are looking for. I think there are a variety of reasons for people to choose Amazon over Wal-Mart, and Wal-Mart would be better off looking into and fixing these problems, rather than focusing fining its suppliers. While consumers obviously pick places to shop based on quality of products sold, prices, etc., it is becoming more common for consumers to be increasingly conscious of how the companies run their businesses. Wal-Mart is a great example of this. Of course, Wal-Mart is known for low prices, but it is also known for treating its employees unfairly and exploiting workers overseas. When that type of information comes out, consumers are persuaded to shop elsewhere. As we learned in class the other day, social media has given consumers’ opinions a lot more weight in the market place. So, when consumers are unhappy with the way a company is run, there is a price to pay. Wal-Mart has seen improvement in this area when they started paying employees more a few years ago, and as a result, experienced happier employees, cleaner stores, and higher sales (https://www.nytimes.com/2016/10/16/upshot/how-did-walmart-get-cleaner-stores-and-higher-sales-it-paid-its-people-more.html). To me, fining its suppliers will not make Wal-Mart more successful or fix its problems. If anything, it will make Wal-Mart worse off. On page 21, the book talks about how important it is to maintain good relationships with suppliers in order for the supply chain as a whole to run smoothly. Wal-Mart needs its suppliers to be successful, and making things harder on them will hurt business relationships, and worsen the process in the long run. I found an article that talks about how Wal-Mart is not only fining suppliers for late deliveries, but for early deliveries as well (https://www.bloomberg.com/news/articles/2017-07-12/fined-for-arriving-early-wal-mart-puts-its-suppliers-on-notice). I think suppliers will eventually tire of Wal-Mart’s strict rules and go supply to companies like Amazon that work with its suppliers and try to make business easier for them as well, like talked in the other blog post about Amazon’s warehouse space.
My marketing professor said to me “the day you sign a contract with Walmart is the best day and the worst day for your business.” It’s the best day because Walmart has such an incredible ability to get your product out to so many people and increase sales tremendously. On the flip side, because of Walmart’s reputation and brand of having the lowest prices they constantly put pressure on suppliers to push down their costs so Walmart can give their customers the best prices. After reading about Walmart’s new pressure to speed up delivery times I can’t say I’m surprised. However, Walmart needs to be careful with how hard they push their suppliers. Amazon has the advantage in that their company was built as an online presence and developed into the shipping giant it is today. Walmart has to be careful not to leverage their power too much over suppliers or they may turn to other companies like Amazon to sell their products. What I do think is smart on Walmart’s part is that they will be saving money by shortening supply times and using this to improve their online presence. Walmart is utilizing resources to expand into the online marketplace making them a much better competitor to Amazon. I believe they have made a smart decision using their power to leverage their suppliers, as it will provide benefits to them as well as the suppliers they are pressuring if they are able to expand into the online market further.
I am glad I saw this post because I did not even know Amazon Prime Air existed! I understand Wal-Mart’s push to try and compete with Amazon, but I feel as if they do not need to compete with everyone. Wal-Mart has already dominated the industry for years; they are good in many different departments such as having a wide variety of food, clothing, and general household supplies. In my opinion, Wal-Mart is wasting their time trying to do something they shouldn’t. As you mentioned, their huge inventories and a large number of business intermediaries make it hard for them to keep up with a two-day delivery promise or restock on time constantly. I like your comment about Wal-Mart’s self-evaluation, but I feel like what would be best for them would be to figure out what their order-qualifiers are and turn them into order-winners. For example, if people come to Wal-Mart because they know they can get a wide variety of cleaning supplies, then Wal-Mart should actively work to make sure they have all the popular brands available. Despite Amazon Prime Air, you have a wait a least a day for anything you order online to come to you. Wal-Mart has the advantage of people’s needs and wants being satisfied instantly and they should work to simply keep it that way.
Best Buy, like Wal-Mart, has done a great job of adapting their business model to compete with Amazon. For a good amount of time, they were experiencing an issue where they would be showrooming a product, only for the consumer to go online and order the product they liked best from a competing online retailer. In order to combat this issue, Best Buy did a few things. First, they began to carry large household appliances because these represent products that people seldom order online and have shipped to their home. More importantly, Best Buy shifted their online distribution to utilizing their store locations as distribution centers. Not only did this greatly reduce their shipping costs, but it also allowed them to compete with Amazon in terms of delivery time at about 2 days. In making this decision to shift, Best Buy likely used an array of analytical tools to figure out where they were most exposed and where they had the best leverage. From there, they likely carried out their plan by using the 80/20 rule. The reason for this suggestion is best explained through their hard push towards e-commerce and their rapid shift in the types of products they carry. Although these shifts only account for a few of the problems that Best Buy faces, they have effectively allowed Best Buy to continue to thrive.