CSCMP 2009: Wal-mart's Maxwell cites keys to developing best-in-market global supply chains
Meeting customer expectations, understanding the market, and sustainability are major action items, says supply chain executive
Jeff Berman, Group News Editor -- Logistics Management, 9/25/2009
CHICAGO—In a speech that focused on various aspects of global supply chain management, Wal-mart Senior Vice President, International Supply Chain Gary Maxwell said that understanding what a customer needs is key when designing a fluid supply chain.
Addressing attendees at the Council of Supply Chain Management Professionals Annual Conference in Chicago this week, Maxwell discussed how things like diversity in supply chain networks and evaluating supply chains based on the needs of a particular geographic market according to financial condition, education, and the customs and needs of a market, coupled with expectations, are major drivers when setting up developing an international supply chain.
Along with these factors, explained Maxwell, other things that need to be taken into consideration for supply chain planning are land and labor costs, asset allocation, and potential economic risks.
But one of the most important elements when designing a supply chain that Maxwell said is often overlooked is effective inventory management.
“A lot of times when working with engineers [to create a supply chain in a new international market] the question is in a new market and a new country what is a supply chain going to look like,” said Maxwell. “You build your assumptions on distance and volume, and inventory is typically viewed as a fixed variable.”
He explained that network engineers will present data on how many days and dollars worth of supply of product by category that Wal-mart’s distribution centers need to hold.
“My challenge back to them,” said Maxwell, “is why is that the number? When you look at the number of days on hand we have in the DC today, why aren’t we looking at a DC two years out in the future that is going to hold the same days worth of supply? Inventory in our network needs to be a variable and not fixed, and we need to build and design for more efficient supply chains with less inventory. When you look at supply chain design, don’t look at days on hand and inventory as a fixed margin that you cannot do something about.”
And the inventory management function in many organizations of often thought of as “separate” from other logistics functions, noted Maxwell. But to run a truly thorough and efficient supply chain, you need to start with inventory and look at how you can carry less inventory and turn it faster, he said.
A capital investment: Securing corporate capital to build efficient supply chains is often a major challenge, said Maxwell. But supply chain and logistics executives need to overcome this by thinking of themselves as a “marketer” for the supply chain.
“You have to sell your ideas, and you have sell why starting with the customer and building what’s right for them all the way through the supply chain through labor costs, land, and regulations is critical,” said Maxwell. “Your CFO may not be thinking about these things when they think about the supply chain, but that is our job as educators and promoters of the value we add to the business.”
A “Green” approach: As with any business case, Maxwell stressed how sustainability is a core component to any company’s future success.
He cited Wal-mart CEO Lee Scottt’s three key goals for sustainability: to be supplied by renewable energy, create zero waste, and to sell products that sustain the environment and were good for the environment.
“These are high and difficult goals for a supply chain that is filled with hundreds of thousands of trucks and large DCs,” said Maxwell. “This leads to a lot of experimentation, and in this pursuit of a more sustainable network you need to try some things.”
Some green tactics Wal-mart is trying, according to Maxwell, are hydrogen fuel cell-powered forklifts to more simple one like reducing the number of yogurt lids per container from two to one and reducing package sizes for toys.
For the latter, Maxwell said Wal-mart took 277 toys from its own product line and completely re-designed—and shrunk—the packaging for them. This effort resulted in using 727 fewer containers to ship the toys from China to the U.S. for the same number of toys. It also saved more than 5,000 trees and an estimated 1,300 barrels of oil.
“Putting things in smaller boxes and using less carbon produced a tremendous savings for the environment and a financial savings for the company,” said Maxwell. “Our approach to sustainability is to be better for the environment and save money at the same time.”
Going forward, Maxwell said that Wal-mart customers will expect and demand more from the company’s supply chain in the form of sustainable products so that when they buy a product they know what is in it, with some understanding of whether that product is good or harmful to the environment—during the period of its usage and beyond.
“We really believe customers are going to expect to understand the full lifecycle of products—what is in it, what happens to it when they use it, and where does it go after it is over?”
In July, Wal-mart rolled out plans for a Sustainability Index in which the company is working with educators, universities and a consortium of companies to build a product index that would tell a customer on a to be determined scale how a product will impact the environment when used by a customer.
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