When it comes to supply chain strategies, sometimes "best in market" trumps "world class." That's the philosophy Wal-Mart Stores Inc., the world's largest retailer, has adopted in developing supply chains to serve overseas markets, according to Gary Maxwell, senior vice president of international supply chain.
In his keynote address at CSCMP's Annual Global Conference in September, Maxwell explained why Wal-Mart has decided to focus on being "best in market." Rather than try to bring world-class supply chain practices and technologies to every country it serves, the retailer considers each situation individually —analyzing factors like land and labor costs, local regulations, and risk —and then tailors its approach to that market. The company currently has stores in 15 countries outside of the United States (including those that it operates as joint ventures) and runs 228 distribution centers to support its overseas operations. In addition to food and general merchandise outlets, Wal-Mart also operates restaurants, food processing facilities, and even a bank in other countries.
A best-in-market approach requires "thinking like a customer" and "understanding where the market is on the maturity curve," Maxwell said. In some countries, consumers may not be willing or able to pay the higher prices that inevitably result when a lot of costly automation and sophisticated handling facilities are introduced. "Our first warehouse in India was small and had no automation," he said. "We had racks and forklifts because that was what the customer could afford."
In Japan, on the other hand, quality-conscious consumers can afford —and even expect —higher prices. There, Wal-Mart's warehouses employ such technology as sortation systems, radio-frequency picking, automated cranes, and mini-load systems. "Each piece of technology [in Japan] is targeted at keeping product at a certain quality," Maxwell said.
This strategy appears to have served the company well. Last year, Wal-Mart's international division earned just under US $100 billion, a figure that accounted for one-quarter of the retailer's overall sales.
While Wal-Mart tailors its supply chain for a market's current needs, it also recognizes that markets do not remain static. For that reason, the retailer introduces more sophistication and technology into a country's supply chain as its national market matures. "We need to build a best-in-class supply chain for today," Maxwell said, "and then we'll evolve the supply chain."
