ASSIGNMENT OF OPERATIONS MANAGEMENT

GREEN SUPPLY CHAIN IN INDIA

SUBMITTED BY: SAMBIT BISWAL

SUBMITTED TO : PROF. SOLOMON JAMES

GROUP : 3

REGD NO: PGDM/14-16/32

Wal-Mart India, the wholly owned subsidiary of Wal-Mart Stores Inc., launches B2B e-

commerce platform - www.bestpricewholesale.co.in exclusively for members of Best Price Modern Wholesale stores in Hyderabad and Lucknow, providing them with a convenient

online shopping opportunity. As a virtual store, the e-commerce platform provides a similar assortment of products, as well as special items to its members.

Green Supply Chain Management:

Green Supply Chain Management reveals the implications of today’s most pressing

environmental issues and demonstrates how green practices can actually save money,

increase efficiency and reduce delivery time.

Major topics covered in the Green Supply Chain Management course include: carbon

accounting; sustainability; renewable energy; greenhouse gases (GHG); water and land use;

LEED; sustainable building and green factories; climate change regulations, impacts and

strategies; green manufacturing, forecasting and strategies; supplier management and

purchasing essentials; transportation, warehousing and distribution; direct store delivery,

returns and recycling; value-enhancement strategies and best practices in green supply chain

management.

Walmart’s Supply Chain Forged over Decades

Riding a rising five-year trend, retail juggernaut Walmart®

grossed $476 billion in the fiscal year that ended in January

2014, up from $408 billion in fiscal 2010, according to The

Wall Street Journal’s MarketWatch.

Put another way, Walmart’s revenue comes to 81% of what

the National Restaurant Association says the entire U.S.

restaurant industry made in 2013.

That income was generated by more than 4,100 stores and fed by a sprawling supply chain,

ranked 14th in 2014 by research and analyst company Gartner. Walmart has held a place

among Gartner’s top 20 supply chains since 2010.

In detailing its 2014 rankings, Gartner called Walmart a “perennial supply chain

powerhouse” and said the company that the National Retail Federation ranks as the world’s

top retailer in 2014 based on global sales has a “mature supplier collaboration process”

supported by technology.

Walmart uses its mammoth purchasing power to shape suppliers’ behaviour which also drives

down costs, Gartner said.

The evolution of Walmart’s supply chain includes three elements, according to a 2012 article

from Arkansas Business: distribution practices, operating its own fleet of trucks and

technology. Benefits from its supply chain efficiency result in time savings, more cost-

effective inventory management and improved product forecasting, the article said.

Identifying Goals, Metrics, and New Technologies :

To guide that change, Walmart convened “Sustainable Value Networks” of stakeholders,

including non-governmental organizations (NGOs), policy makers, eco-friendly competitors,

academics, and suppliers. These SVNs, which are organized to align with the company’s

overarching sustainability goals, have evolved over time (see Exhibit 1). Their goal was to

scrutinize the environmental performance of the company’s extended sup-ply chain, suggest

improvements, and help implement new ways of working.

In an article for Supply Chain Management Review (see “The Greening of Walmart’s

Supply Chain,” July/August 2007), we outlined these eight key practices that Walmart

adopted to “green” its supply chain:2

1. Identifying goals, metrics, and new technologies.

2. Certifying environmentally sustainable products.

3. Providing network partner assistance to suppliers.

4. Committing to larger volumes of environmentally sustain-able products.

5. Cutting out the middleman.

6. Restructuring the buyer role

7. Consolidating direct suppliers.

8. Licensing environmental innovations.

In combination, these practices have created substantial business value for the company.

First, they have led to cost reductions, notably through improved energy efficien-cy. Second,

they have introduced new sources of rev-enue.

Certifying Environmentally Sustainable Products

By participating in certification programs for the sustain- able management of natural

resources, such as fish or timber, Walmart gains third-party verification of environ-mental

performance while sustaining the resource and improving the company’s assurance of future

supply. Certification also increases transparency. For example, Walmart achieves visibility of

the entire chain of cus-tody—from boat to plate—with the certification of its wild-caught

seafood by the Marine Stewardship Council (MSC).

Decades in the Making:

The retailer started dealing directly with manufacturers in the 1980s, giving suppliers the job

of managing inventory in its warehouses, the Arkansas Business article said. The result was

something called vendor managed inventory, or VMI, that smoothed irregularities of

inventory flow which helped ensure products were always available on store shelves.

The process involved cooperation and collaboration with suppliers that produced a more

efficient supply chain with technology connecting everything.

Walmart was tapping technology even before it developed VMI when in 1975 the company

started using a computer system for inventory control in its distribution centers and

warehouses, according to a timeline of Walmart’s history from Supply Chain Digest.

Walmart’s inventory management now funnels information from stores such as point-of-sale

data, warehouse inventory and real-time sales into a centralized database. The data is shared

with suppliers who know when to ship more products.

By 1987, Walmart had its own satellite system that allowed voice and data communication

between all segments of the company, according to CIO Online, a website for chief

information officers.

By 1989, Walmart saw the benefits of its supply chain management when its distribution

costs were 1.7% of its sales, or less than half Kmart’s cost and just under a third of what

Sears was spending at the time, according to Arkansas Business.

Beyond Technology

Walmart’s SCM process is not based entirely on technology. The company has a sprawling

network of nearly 160 distribution centers covering almost 120 million square feet and all

within 130 miles of the stores it supplies, according to MWPVL International, a supply chain

and logistics consulting company. About 81% of Walmart merchandise passed through those

centers in 2013, the website said.

The retailer also instituted cross-docking at its warehouses, a method that moves inventory

directly from arriving or departing trucks. Products are taken from an arriving truck and

packed in a truck bound for a store without lengthy storage in the warehouse. The result is

lower costs for inventory storage, reduced transportation costs and products spend less time

in transit. Walmart also uses its own trucking fleet and drivers, maintaining high minimum

standards for its thousands of drivers, including three years and 250,000 miles of driving

experience and no preventable accidents in three years, according to Truckers Logic.

Components of Green Supply Chain Management (SCM)

Walmart’s overall methods of green supply chain management differ little from the main

components of most supply chains: purchasing, operations, distribution, and integration. But

the retailer has refined the methods.

A supply chain begins with purchasing managers who determine which products will sell,

find vendors and arrange deals for the products.

The operations portion of a supply chain focuses on demand planning, forecasting and

inventory management. Forecasts estimate consumer demand for a product based on

historical data, external drivers such as sales and promotions and changes in trends or

competition.

Demand planning is used to create accurate forecasts, a critical step toward effective

inventory management. Forecasts are compared to inventory levels to ensure warehouses

have enough, but not too much, inventory to meet demand.

Moving the product from warehouses or manufacturing plants to stores and ultimately to

customers is the distribution function of the supply chain.

Green Supply chain integration connects the flow of work and information among all links in

the supply chain to maximize efficiencies.

For Walmart, its Green SCM methods yield lower costs for products and inventory, better

control over selection in its stores and the ultimate result of lower prices that can be passed to

customers.

Committing to Larger Volumes of Environmentally Sustainable Products

Before launching its sustainability strategy, Walmart rarely made long-term quantity

commitments; it began doing so to drive suppliers toward more sustainable prac-tices. For

instance, in 2006, it made a five-year verbal commitment to a group of farmers to buy their

organic cotton. This long-term, high-volume commitment was meant to assure the company’s

supply of organic cotton and eliminate the risk of these farmers reverting to fast-er, easier,

and less expensive non-organic practices.

Licensing Environmental Innovations

Walmart still encourages suppliers working on new environmental or supply chain

innovations as part of the sustainability effort to consider licensing those new technologies.

Through licensing, suppliers can generate additional revenue streams and realize a quicker

payback on their investments (which helps keep costs down for Walmart). For instance, The

WERCS will ultimately make its GreenWERCS tool available to other retailers with the

company’s blessing.

Incredibly Successful Supply Chain Management: How Does Walmart Do It?

When you drop by Walmart, you are witnessing one of history’s greatest logistical and

operational triumphs.According to Supply Chain Digest, this retail giant stocks products

made in more than 70 countries and at any given time, operates more than 11,000 stores in 27

countries around the world, and manages an average of $32 billion in inventory.

With these kinds of numbers, having an effective and efficient supply chain management

strategy and system is imperative. The entire organisation is committed to a business model

of driving costs out of supply chains to enable consumers to save money and live better.

Over the past ten years, Walmart has become the world’s largest and arguably most powerful

retailer with the highest sales per square foot, inventory turnover, and operating profit of any

discount retailer. In its transition from regional retailer to global powerhouse, the organisation

has become synonymous with the concept of successful supply chain management.

“I don’t believe there is a university in the world that doesn’t talk about Walmart and the

supply chain,” said James Crowell, director of the Supply Chain Management Research

Center at the Walton College of Business. “They are just so well respected because they do it

so well.”

Walmart began with the goal to provide customers with the goods they wanted whenever and

wherever they wanted them. The company then focused on developing cost structures that

allowed it to offer low everyday pricing. Walmart then concentrated on developing a more

highly structured and advanced supply chain management strategy to exploit and enhance this

competitive advantage and assume market leadership position.

Fewer Links In The Supply Chain

Even in its early years, Walmart’s supply chain management contributed to its success.

Founder Sam Walton, who owned several Ben Franklin franchise stores before opening the

first Walmart in Rogers, Ark in 1962, selectively purchased bulk merchandise and

transported it directly to his stores.

Walmart’s supply chain innovation began with the company removing a few of the chain’s

links. In the 1980s, Walmart began working directly with manufacturers to cut costs and

more efficiently manage the supply chain.

Under a Walmart’s supply chain initiative called Vendor Managed Inventory (VMI),

manufacturers became responsible for managing their products in Walmart’s warehouses. As

a result, Walmart was able to expect close to 100% order fulfilment on merchandise.

In 1989, Wal-Mart was named Retailer of the Decade, with distribution costs estimated at a

mere 1.7% of its cost of sales – far superior to competitors like Kmart (3.5%) and Sears (5%).

The company’s supply chain has only become more effective since then.

Strategic Vendor Partnerships

Walmart embarked on strategic sourcing to find products at the best price from suppliers who

are in a position to ensure they can meet demand. The company then establishes strategic

partnerships with most of their vendors, offering them the potential for long-term and high

volume purchases in exchange for the lowest possible prices.

Furthermore, Walmart streamlined supply chain management by constructing communication

and relationship networks with suppliers to improve material flow with lower inventories.

The network of global suppliers, warehouses, and retail stores has been described as behaving

almost like a single firm.

“Wal-Mart’s whole thing was collaboration,” Crowell said. “That’s a big part of what made

them so successful.”

Cross Docking As Inventory Tactic

Cross docking is a logistics practice that is the centrepiece of Walmart’s strategy to replenish

inventory efficiently. It means the direct transfer of products from inbound or outbound truck

trailers without extra storage, by unloading items from an incoming semi-trailer truck or

railroad car and loading these materials directly into outbound trucks, trailers, or rail cars

(and vice versa), with no storage in between.

Suppliers have been delivering products to Walmart’s distribution centres where the product

is cross docked and then delivered to Walmart stores. Cross docking keeps inventory and

transportation costs down, reduces transportation time, and eliminates inefficiencies.

Walmart’s truck fleet of non-unionized drivers continuously deliver goods to distribution

centres (located an average 130 miles from the store), where they are stored, repackaged and

distributed without sitting in

inventory. Goods will cross

from one loading dock to

another, usually in 24 hours or

less, and company trucks that

would otherwise return empty

“back haul” unsold

merchandise.

Using cross docking, products

are routed from suppliers to

Walmart’s warehouses, where they are then shipped to stores without sitting for long periods

of time in inventory. This strategy reduced Walmart’s costs significantly and they passed

those savings on to their customers with highly competitive pricing.

Green Marketing :

Green marketing can be viewed as adherence to ethical and social responsibility

requirements in marketing. This approach emerged as a response to increased

environmental challenges in recent years. This marketing approach has emerged in response

to a global increase in concern about protecting consumer rights, and a concurrent growth of

organized movements to address environmental trends in such a way that people will be

protected and assured a clean and safe environment in which to live. The antecedents of

green marketing were developed through many stages since the 1960s. These movements

paved the way for the emergence of green marketing in the late 1980s.

Suppliers and

manufacturers within

the supply chain

synchronize their

demand projections

under a collaborative

planning, forecasting

and replenishment

scheme, and every link

in the chain is

connected through

technology that includes a central database, store-level point-of-sale systems, and a satellite

network.

What made Walmart so innovative was that it has been sharing all these information with all

their partners and back in the days, a lot of companies weren’t doing that. In fact, they were

using third parties where they had to pay for that information.

Walmart’s approach means frequent, informal cooperation among stores, distribution centers

and suppliers and less centralized control. Furthermore, the company’s supply chain, by

tracking customer purchases and demand, allows consumers to effectively pull merchandise

to stores rather than having the company push goods onto shelves.

In recent years, Wal-Mart has used radio frequency identification tags (RFID), which use

numerical codes that can be scanned from a distance to track pallets of merchandise moving

along the supply chain. As inventory must be handled by both Wal-Mart and its suppliers,

Wal-Mart has encouraged its suppliers to use RFID technology as well.

Even more recently, the company has begun using smart tags, read by a handheld scanner,

that allow employees to quickly learn which items need to be replaced so that shelves are

consistently stocked and inventory is closely watched.

According to researchers at the University of Arkansas, there was a 16% reduction in out-of-

stocks since Wal-Mart introduced RFID technology into its supply chain. The researchers

also pointed out that the products using an electronic product code were replenished three

times as fast as items that only used bar code technology.

In addition, Wal-Mart also networked its suppliers through computers. It entered into

collaboration with P&G for maintaining the inventory in its stores and built an automated re-

ordering system, which linked all computers between P&G factory through a satellite

communication system. P&G then delivered the item either to Wal-Mart distribution centre

or directly to the concerned stores.

Walmart’s supply chain management strategy has provided the company with several

sustainable competitive advantages, including lower product costs, reduced inventory

carrying costs, improved in-store variety and selection, and highly competitive pricing for the

consumer. This strategy has helped Walmart become a dominant force in a competitive

global market. As technology evolves, Walmart continues to focus on innovative processes

and systems to improve its supply chain and achieve greater efficiency.

A close look at Walmart’s supply chain and inventory operations definitely provides valuable

learning points that businesses can take and apply to their own operations.

Even Army Col. Vernon L. Beatty, who commanded the Defense Distribution Depot in

Kuwait, spent a year with Wal-Mart as part of the military’s Training With Industry program.

“Supply chain management is moving the right items to the right customer at the right time

by the most efficient means,” Beatty said in article about his experience. “No one does that

better than Walmart.”

The Scrutinizing process

Wal-Mart's announcement last week that it will require its suppliers to evaluate and disclose

the full environmental costs of their products was greeted with fanfare in the media and

among green business champions.

The excitement is grounded in the notion that when the world's largest retailer asks more than

100,000 businesses around the world to assess their environmental and social sustainability,

the responses may lead companies to reduce waste, cut emissions, and improve profitability.

Wal-Mart critics have applauded the company for its ambitions, while casting doubt on

whether the wider goal - a "sustainability label" similar to the nutritional information required

on U.S. food packaging - can capture the full costs of producing a product or substantially

shift consumer behavior.

Wal-Mart plans to combine data on water use, greenhouse gas emissions, solid waste

production, and worker ethics into a database shared worldwide, which the company said

could be used to form the first index of a product's lifecycle impact.

"Our goal is not to create our own index, but to spur the development of a common database

that can be used globally, a standard for all of us in the future to rely on," said Mike Duke,

president and chief executive officer of Wal-Mart Stores, Inc., at a meeting of employees,

suppliers, academics, and environmentalists on Thursday at the company's corporate

headquarters in Bentonville, Arkansas. "Customers want and will expect retailers to have

greater transparency in the future. This is going to accelerate. We might as well get used to

it."

Wal-Mart envisions that lifecycle assessments (LCAs) will provide the data for the product

labels. In addition to reading printed data on an item's pesticide use or distance traveled,

customers may be able to use personal digital assistants (PDAs) to electronically scan a

product, such as a cotton T-shirt, and learn about its history.

"A consumer will be able to see the cotton farm, maybe even the farmer who raised the

cotton," said John Fleming, the company's chief merchandising officer. "The consumer of the

future will be able to see,

whether from the sea or the

ground, where that product

came from."

The proposed labeling system

has received immediate praise

among some environmentalists

who hope that more-informed

consumers may purchase less-

damaging products.

"Consumers will be choosing

from good, better, and best.

That's when sustainability

becomes just as much a part of

the product line as safety is

now," said Michelle Harvey, an

Environmental Defense Fund consultant who is advising Wal-Mart on the index.

Others remain skeptical whether Wal-Mart customers, who shop at the chain's nearly 8,000

stores in 15 countries for its bare minimum costs, would choose to buy products with higher

sustainability ratings, especially if these products would require higher production costs and

would potentially cost more to purchase.

"Half of the [community members] around me are at or near the poverty level. All the

labeling in the world won't make a whole lot of difference even for the good working people

in my community who care about environmental issues. Wal-Mart insists that once suppliers

evaluate the environmental costs of their products, they will be able to improve production

efficiencies and provide the items at a lower cost.

"As you look through the details, there is so much hidden cost, so much inefficiency," Duke

said. "A lot of this can help us be more productive, to lower costs, to give the customer better

quality, and to live in a more sustainable world."

"Using lifecycle analysis has challenged us to determine how we bring low-carbon products

to our buyers," said Paul Kelly, Asda's corporate affairs director.

The science of conducting complete lifecycle assessments, especially for food products, is

still young, however. Researchers continue to struggle with how to evaluate a product's

various environmental and social costs from farm to fork. For a poultry farm such as Noble

Foods, LCA's have traditionally excluded the costs of feeding the chicken (including, for

example, the emissions associated with producing the fertilizers to grow the feed) or the

energy used for slaughtering, processing, refrigeration, and transportation. Instead, the

analysis measures the direct energy usage or pollution associated with the product - for a

poultry farm, this is mostly chicken feces.

Wal-Mart committed to improving its environmental track record in 2005 after environmental

and social concerns began to erode its public image. Environmentalists cited the sprawling

warehouse-sized stores as sources of air and water pollution. Labor unions blasted the

company for offering its employees low wages and poor healthcare benefits. Meanwhile,

Wal-Mart stores are stocked with thousands of low-cost products imported from developing

countries with low-wage workers and often poor environmental regulations.

The company has responded by increasing the energy efficiency of its U.S. trucking fleet and

many of its buildings in the United States, Canada, and China. Supply chains worldwide are

reducing their packaging in response to the company's demands. Low-carbon products such

as compact fluorescent light bulbs and organic merchandise such as cotton T-shirts are also

being disseminated to consumers worldwide because they are available at Wal-Mart stores.

Wal-Mart already demands that some suppliers evaluate their environmental footprints and

adhere to sustainability standards. For instance, Wal-Mart had been sourcing shrimp from

farms in Thailand that were criticized widely for destroying mangrove forests and polluting

waterways.

Some have argued that Wal-Mart's involvement in the aquaculture standard provided the

standard with credibility, but that the guideline is too weak and its enforcement inadequate.

Allegheny College's Maniates said that a sustainability label, while a laudable goal, may

overwhelm consumers with information. It also would not bring about environmental

improvements throughout a supply chain as effectively as avoiding unsustainable products all

together, he said.

"I suppose that some folks would buy the top-notch, a-OK shrimp, but [Wal-Mart is] still

putting on sale shrimp that pose incredible damage to local ecosystems," Maniates said. "To

put the burden on consumer actions only runs the risk of stringing out this transition [to more

sustainable production]."

If consumer demand can indeed motivate suppliers worldwide to lessen their impacts, Wal-

Mart's vision of a sustainability label may prove to be transformational.

Conclusion: