HE1.

Walmart´s Case
International Logistics Operation

Professor: Marcelo Sifuentes

Team 2 :
Gabriel Alejandro Fuentes Irías A00830101
Juan Luis Tejeda Villasana A00572071
Ángel M. Meneses Bello A01659892
Valeria Jaquelin Peña Rodríguez A00829332
David Diaz Infante Ruelas A00573067
Paola Piña Lizárraga A00830098

April 5th, 2022

 HE1. Walmart´s Case

PART 1

1. Evaluate Walmart's financial performance based on various financial ratios such as

*ROE, ROA, Profit margin, Inventory Turnover, APT, C2C, ART, INVT and PPET.

HE1. Walmart's case

2. Compare Walmart's financial data with the Amazon financial data found on Appendix

- In which financial ratio is Amazon superior?

● Cash to cash conversion ratio (C2C)

- In which financial ratio is Walmart superior?

● Return on equity (ROE)

- Which supply chain actors and metrics could explain this difference in performance?

Walmart and Amazon are two biggest retailers in the world, due to the nature of their
business they rely heavily on their supply chain to be able to work their business
model in an effective way. Walmart has a strong supply chain where their providers
ship their products to Walmart’s distribution centers where they later use their own
distribution trucks to the Walmart stores where they finally the consumer will acquire
their product, this type of supply chain they have allows it for a big investment and
therefore the company has a bigger quantity of assets. Amazon on the other hand has
a smaller and quicker supply chain, they use the help of third-party companies in the
labors of delivery. The company has its own fulfillment centers where the providers
ship their products to them later, Amazon sort it depending on the needs and will
deliver it through their own trucks or through a company like FEDEX, this supply
chain does not need a larger quantity of assets such as the one for Walmart, yet allows
Amazon to have a better cash to cash conversion ratio since it is smaller and quicker.
PART 2

In 2010 Walmart announced that it has planned to move to urban areas in the United States by
building and operating smaller format stores compared to the large stores it had operated so
far.

- Which indicators will be affected by this move? How will this shift impact the various
financial ratios and why?
● ROE:
○ How: The return on equity of the investors could be diminished if the
strategy fails as a result of the consumers’ rejection of the new type of
stores and increase if they start buying from them as they are more
convenient and better located.
○ Why: The investors are the ones who risk their capital at every
decision that the Walmart Corporation makes, so if sales decrease, then
the profitability that they gain from their investment does too.
● ROA:
○ How: The Company will have to increase their assets in order to build
the smaller format stores, so the profit that they gain from the assets’
purchases could increase if sales do so, or decrease if sales are not as
high as expected.
○ Why: Since these stores are part of what we call ‘assets’, when a
company purchases the construction materials, land, etc, the return on
their assets gets affected if the profit does not increase by those
purchases.
● PPET:
○ How: Walmart’s acquisitions of property, plant and equipment will
increase the net value of those assets, so if Walmart does not increase
their sales through those acquisitions, then its value will decrease.
○ Why: Since this ratio expresses how many dollars of sales a company
gets for each dollar invested in property, plant, and equipment (PPE),
this indicator gets very affected if an expansion like the one that
Walmart is trying to do goes well or bad, because it implies increasing
sales by acquiring PPE.

1. Facts: list of relevant events to determine the framework of the situation

presented in the case. Make sure you answer the following questions: who, what,
how, when, where.

Who: Walmart and Amazon.

What: The expansion of Walmart into urban areas.
How: Walmart looked upon building and operating smaller format stores compared to
the ones they currently operate, which are large stores.
 When: In 2010.
Where: In the United States.

2. Problem: state the problem(s) that the company faces and on which it has to
determine an action plan.

Walmart decided in 2010 to expand to urban areas in the U.S operating in smaller
format stores. This decision will definitely affect the company's financial ratios and
logistics operations, therefore it is important to identify which ones and why.

3. Cause: identify the root cause of each of the problems, perhaps a single event is
causing different problems.

The problems would be two events, the decision of Walmart to expand to urban areas
in the United States and the decision to open smaller stores rather than what they are
originally accustomed to, which are larger stores.

Nonetheless there may be additional root causes that led to that decision, for example,
there’s a worldwide trend of moving from rural to urban areas, which makes the
economic power to be concentrated in particular areas, so Walmart may be focusing in
those areas in order to increase their sales.

Additionally, the old-fashioned Walmart’s strategy of building big stores may not be
effective any more, since expanding to those areas may be costly and time consuming,
while smaller stores allow a faster and more efficient expansion.

4. Alternative solutions: propose viable and concrete actions that lead to the
resolution of the problem(s), considering both quantitative and qualitative
factors. Evaluate the alternatives and select the one(s) that should be
implemented and how to do it.

The diverse solutions that can be taken in order to carry out viable and
concrete actions to solve the problems, are the following:

1. Improve Logistics / Inventory Management

The first solution in order to resolve the problem of the transition of Walmart from
larger to smaller stores, would be to improve the logistics of the inventory(Inventory
Management). In other words, implement or readapt their WMS system to the smaller
stores. Due to the fact that Walmart is a huge enterprise, therefore the inventory for
 larger and smaller stores would not be the same which could bring them into conflict,
if they keep the same inventory. Therefore, by implementing or readapting the WMS
System, this would reduce the financial impact/costs that Walmart would perceive.
Since, for the inventory management of the new small stores in the urban area, the
inventory would be much less, than the larger stores. Which would enable Walmart to
prevent diverse things to happen such as: “running out of stock, or having excess
stock (which translates to tied-up funds), or having obsolete stock or spoilage are as a
result of poor inventory management” (Soh, 2019). This solution would permit
Walmart to have the correct balance between the order fulfillment of inventory and
the sales floor square footage. Which would translate to an improvement in the
bottom line of Walmart. Walmart would be increasing its earnings with these new
small stores and reducing its costs by a superior management in the logistics
inventory (Inventory Management). Which would save them money and time, since
the logistics would be far better and there won't be an excess or waste of expenditure
on inventory. Walmart would be able to know the right amount that they would need
on their smaller stores from the start. In addition, the company's reputation would
facilitate and enable Walmart to have the same impact on their customers. Their
relationship with their suppliers/key vendors would be improved since there would be
much more communication due to the diversification between the smaller and larger
stores. In which all of what constitutes this first solution would enable Walmart to
have a successful transition from the larger stores to smaller stores in the urban areas.
2. Expand list of suppliers
As the company is looking to move from the countryside to urban areas, it is
important to understand that the shopping behavior of the customers are quite
different. As seen in the financial ratios teh company did not perform the same as in
past years. Especially compared to Amazon we can see a superiority from this
company in comparison to Walmart, specifically in the year where the expansion to
urban areas began. As mentioned, it is a megatrend for companies to migrate from the
countryside to urban areas, therefore we must look further into the performance of
Walmart in order to understand this decline. One of the best ways to adapt in a new
area is to adapt the store to what the customer is looking for. Therefore it is crucial to
take into account to expand the list of suppliers to fit the new demographic. Being
new in a field where competition is already established and where the user is used to
 a certain type of products, it is important for the company to seek for the customer's
desires.

Evaluation of Alternatives:

From the evaluation of both solutions it can be concluded the following:

For the first solution that is proposed it can be observed that it is oriented towards the
logistics of inventory (Inventory Management). From that solution, it will help the
company tackle the problem that was identified. Due to the fact that Walmart is
looking to expand towards urban areas but switching from large stores to smaller
stores. Therefore, with this solution it will look upon the inventory management of
Walmart, in order to improve it and guarantee success for the company. Since,
technology would be used for inventory management. In addition, by using the WMS
System, it would help Walmart to not excess on stock or have too few stock. Since,
the inventory that they would be managing in smaller stores it ain't going to be the
same as the one they manage on larger stores.

Therefore, this would also help the financial aspect of Walmart, due to the fact that by
ensuring that there is not an excessive amount of stock. Then there would be less
unnecessary expenditure allocated towards that area. Which could be used for other
aspects of the company that Walmart deems as useful. Furthermore, this also will help
Walmart’s bottom line, since they would improve their logistics and they would be
spending less money or they won't waste money. In addition, taking into consideration
that Walmart has already established a brand reputation/recognition, then their
customers would still attend those small stores. Which would translate to an increase
in earnings due to the expansion that is caused by opening these small stores. Since
they would reach more of their target market and also, a reduction in expenditure. Due
to the fact that, the logistics of inventory (Inventory Management) would be
improved, which guarantees Walmart that they won't be overstocked, neither without
stock.

For the second solution that is proposed, we consider that the objective of fitting the
customers expectations would be tackled. Alongside, raising the popularity of the
stores in the new urban locations. As mentioned before, since the opening of the new
branches in the urban area in 2010, the company has had some decline in their
financial performance and this can be seen in the financial ratios. Also with the
comparison of their competitor's growth. Therefore, adding a variety of suppliers after
a deep research on the desires of the new demographic is necessary and would not
only resolve the issue but benefit the company greatly. Since urban areas are a great
target.
Furthermore, taking into account the situation that Walmart is undergoing in this
respective case, this solution would be able to tackle both of the problems that were
identified. Since we had observed that it would affect the financial ratios and the
logistics operations. Therefore, with the implementation or readaption of the WMS
System for the smaller stores, as it was previously explained, the logistics for the
smaller stores would be improved. In addition, that would improve the financial
ratios, since it would reduce the costs and improve the bottom line; which basically is
an increase in revenues and decrease in costs.
Both of the solutions proposed, should be implemented taking into account that one
looks upon improving the Logistics/Inventory Management and the other one looks
upon expanding the list of suppliers. As it was previously explained, each solution has
its way to be implemented however both of these solutions complement each other.
First of all, the second solution is what should be carried out first due to the fact that
the list of suppliers would be taking into consideration the demographic. Therefore, an
analysis of the demographic of the urban areas that Walmart is expanding to should be
carried out. In addition, a list of the possible suppliers should be taken into
consideration, and then choose those that fit economically, financially, socially and
enterprise wise. Also, carry out a market analysis in order to gather a better
understanding of the customers desires (wants and needs), this for the company to
choose better the suppliers
With that carried out, then the first solution could be implemented, since the suppliers
would already be set. Then the WMS System, if they don't already have it, could start
to be implemented. In order to have a better inventory management system, which
would enhance and maximize the stock of Walmart. By implementing these, Walmart
would be able to keep track of the stock from the new suppliers and old suppliers.
With that, they would only look upon the amount that they deem necessary, no
overstock or need of stock. Basically, this step is just implementing the technology
 and adapting it to the new smaller stores, since the inventory is not the same for larger
stores and smaller stores.
Therefore, when both of these solutions are carried out, Walmart would be able to
position themselves in a good manner with their transition from larger stores to
smaller stores. Since, the logistics (Inventory Management) and the situation of the
suppliers would be managed. In addition, the market analysis would be carried out
which would give an idea of the demographics, target market and their wants and
needs. In which all of these would lay a foundation for Walmart since, as a company,
they already have a brand reputation established and are the top of mind of the
consumers. Therefore, these solutions tackle the problems that they encountered and
resolve them, in order to prevent Walmart from suffering drawbacks/risks that could
develop from the problems that were identified.

5. Recommendations: to successfully implement the alternative solution(s), one has

to consider how to prevent and/or solve other mid to long term situations.

One recommendation in the short term and that transitions to the long term in order to
successfully implement the possible solution is to hire or partner with a professional
logistics company that helps Walmart move to smaller and compact stores.
Nevertheless, it's important that Walmart still operates with their conventional stores,
because there is inventory that requires bigger space. By having both big and small
stores, Walmart prevents the customers from forgetting the original image of what
Walmart has been for a very long time.

Since Walmart expanded to an urban area they need to take into consideration
customers’ lifestyle and needs, as opposed to other areas, their shopping habits can be
focused in a specific area such as groceries, entertainment, medical care, etc. and their
trips to the store can be a lot more frequent; we recommend the company to hire
professionals to realize a Market Analysis of their customers in the areas they are
looking to expand in order to craft a better in store shopping experience, keeping a
variety of most selled products, a better store design, and more details that will help
the company position themselves as the go to grocery store in new areas, increasing
their revenue stream in the long term.
 One long term recommendation for Walmart is to implement and maximize the
marketing strategy in the urban areas they want to expand, and most importantly, in
the smaller stores, Walmart would have to make a cut of inventory and only show in
those stores the most selled or popular products, this for the sole reason of making
more efficient the rotation and accumulation of inventory.

References

Soh, W. (2019). 5 Essential Technologies for Inventory Control in a Warehouse Contract.

SIPMM Publications. Retrieved April 7, 2022, from
https://publication.sipmm.edu.sg/five-essential-technologies-inventory-control-wareh
ouse-contract/