Background and Nature of the Business
Procurement is an important area in every organization regardless of the goods and services the company provides. A proactive procurement operation is necessary as it can give the organization it presents a competitive advantage by reducing the waste in the value chain. Sam Walton founded Wal-Mart Stores Inc. in 1962. Currently, the store has over 8416 in the United States, it is also located in over 14 countries, and it serves over 176 million consumers yearly (Boye & Arcand, 2012 p. 19). The firm engages in the sale of merchandise from electronics, apparels, households, groceries, automotive products, and others. The business culture practiced by the store has made it one of the prosperous retailers globally. The supply chain network enhances the distribution options for procurement of finished and unfinished raw materials. Some of the procuring functions that can be improved and compensate the external turbulences in the market include strategic sourcing and outsourcing, e-procurement, and sustainable procurement. These features play a significant role in improving various processes of an organization.
Strategic Sourcing and Outsourcing
Strategic outsourcing refers to a company's procurement process, that enhances and re-evaluates its buying activities (Gottschalk, 2006). It also involves developing channels of supply at lowest cost. On the other hand, strategic outsourcing refers to the process in which the services of a provider are required to manage tasks administered by in-house personnel effectively (Greaver, 1999). It also entails using a third vendor party specialized in an area platform to conduct the functions considered non-business.
Wal-mart changed its sourcing strategy in 2010. The company saved billions to help it consolidate the global procurement functions and reduce the utilization of intermediaries during the process (Walmarts approach to Strategic Sourcing, 2014 p.1). Wal-mart mostly relied on the global sourcing activities. The firm hardly bought 20% of its products from the suppliers. The company should use the strategy of purchasing 80%. Furthermore, the global sourcing should be centralized to help in eliminating intermediaries in the transactions.
Clients from different countries demand products of Wal-Mart because it is an international company that provides customers with quality products at affordable prices. Therefore, it should improve its global sourcing. Global demand for better goods and services is increasing, and competition is becoming intense (Lu, 2014 p.1). This issue makes it important for the business to keep up with the rapid changing technology as the costs are lowered, quality increased, and improved customer service. Global sourcing is a good strategy for the company as it helps in sourcing products and services from the international market to geopolitical boundaries (Lu, 2014 p.1). This plan also aims at exploiting the global efficiencies like cheaper raw materials, lower cost of skilled labor, and economic factors like low trade tariffs.
Some of the advantages of global sourcing include learning how to conduct business successfully in a new market, find, and develop an alternative supplier to help in stimulating competition and reducing cost (Gong, 2013 p.159). Additionally, it exposes a firm to political, financial, and legal risks that it may encounter in the developing countries. Global sourcing will also help the company to offer competitive prices on merchandise and provide the consumers with a compelling and clear assortment of high quality products and services at lower prices. Developing channels of supply at the lowest cost will help in compensating the external turbulences by making the firm to sell goods and services to the consumers at a competitive price (Gong, 2013 p.159).
In considering the issue of strategic outsourcing in Wal-Mart, its strategy of low prices has backfired. The plan has failed because of quality issues it faces with the Chinese suppliers who make inferior products to help them meet the lower prices strategy (Chan, 2011 p.35). The issues are on the front line in China and US as the Chinese manufacturers are pushed in keeping the costs low, and most of the quality claims of hazardous products found in the store, located in the US. Wal- Mart is a big company, and its activities might affect the economic situation in other countries. There are also complaints that supply chain experiences loss of American jobs to countries like China, which has low wages. It is evident that Wal-Mart is outsourcing to China because it imports $22 billion of goods from China (Chan, 2011 p.36). The company also ships the American jobs overseas directly and indirectly through putting pressure on the American suppliers to change offshore. Additionally, the business lobbies for free trading agreements making it easier for other companies to ship the American jobs. Research indicates that 1.8 million jobs have been lost since 2000 to China.
One of the strategies the company can use to help it improve its strategic outsourcing is engaging in quality management. Although Wal-Mart has obeyed its aim of lower prices since it was established to satisfy the clients, it forgot to maintain its quality. The reason is that the current Wal-Mart gets products from China to help it save on the cost. However, the customers will be satisfied fully with products of high quality and not only low cost. Some clients are usually willing to pay more for quality products and services. Concentrating on quality rather than price helps a firm to remain profitable and competitive at the end (Babin & Nicholson, 2012 p.10). Producing quality products also makes a business to increase its sales, better reputation, and fewer costs of solving the issues on quality. The company should also ensure that quality of its products is based on the expectation of the clients to help them remain loyal to the firm. Outsourcing is a good strategy. However, it should not affect the quality of the companys products.
The company should also align and staff its supply chain to help in outsourcing. Organizing a supply chain function can be difficult in a way that it will maximize its effectiveness and bring real benefits to the company. Therefore, the company should employ a centralized operation to help in gaining a consensus with the decentralized execution to help it improve its services (Babin & Nicholson, 2012 p.10). The firm should employ this strategy but ensure that the products the outsourced companies are producing are quality, as it will result in its success. Outsourcing is a good strategy for Wal-Mart because it enables the company to provide products and services to the market at a lower price as compared to the competitors. Furthermore, outsourcing will help the company to make the goods and services preferred by the consumers. This strategy will make the firm to gain more clients resulting in growth of sales and profits.
Electronic procurement refers to business to consumer, business to government, or business-to-business sale and purchase of supplies, services, and work through the internet plus other networking services like enterprise resource planning (Toktas-Palut et al., p. 77). The elements of e-procurement include a request for proposal, request for information, or request for quotation. Additionally, e-procurement is currently emerging internationally. E- Procurement is important is every business because the market is large and expanding. Furthermore, it helps in changing business and automating supply chain (Boone and Kurtz, 2015 p.143). It also has a great benefit for the supplier, buyer, and the general economy. Wal-Mart being an international company has an online system that provides different services to its clients including customers and suppliers. Vendors from all over the world participate in the system, and it is available in over 30 languages. Additionally, it works on the ground level, and it offers online training. The system also has law and policies on anti-corruption, labor hour, compensation, and hiring.
E-procurement is the process of satisfying the customers needs as soon as they appear. Electronic procurement is essential in every organization as it helps in addressing the concerns, on transparency and efficiency of the firms supply chain management protocols (Toktas-Palut et al., p. 77). Although the system of Wal-Mart has the option of suppliers, this is not sufficient. It should also have a system, which optimizes the management process in a way which allows for real cost savings and true transparency. Additionally, the internal structure of the firm does not permit the pre-qualification of suppliers by location, experience, and certification which results in a labor-intensive process. However, the firm has improved this process by introducing some of the merits the supplier should meet before becoming a vendor of the company.
The company should improve its system by making it have the ability to distribute documents and addenda electronically, automated communications tracking, flexible options for displaying data, and auditing capacity. These features are necessary for the organization and its consumers as it enhances growth. Improving the system of the firm will give Wal-Mart the chance of grading the suppliers using the scorecards, which give managers the chance of integrating critical objectives in the project overviews (Monczka et al., 2010 p.46). This strategy is good as different suppliers can bring different products, which will impress the consumers considering the current turbulences in the market. For auditing purposes, a complete data trail containing the project information can be achieved for even a period of seven years and with few clicks to provide the managerial reports quickly.
The company should improve its e-procurement to reach more suppliers (Monczka et al., 2010 p.47). Furthermore, developing its system will help it get quality products at lower prices, which will make millions of clients happy. Having different suppliers with the current goods needed in the market is effective. Furthermore, these strategies will cause the firm have loyal and returning customers. The company also has a section where the clients and workers can talk to the company about their concerns, questions, and comments. Wal-Marts website also gives one the opportunity of finding the nearest store after entering the postal code or address (Roberts & Berg, 2012 p. 26). Adopting this strategy is good, as it will help in reducing the cost of the procurement process, reducing inventory cost, efficient logistics, and lowering cycle times for the buyer. It also reduces the sales, lowers market cost, help in reaching new customers who generate revenue, and it results in better customer support for the supplier. Some of the overall benefits of this strategy include greater market intelligence and increased market efficiency.
Wal-Mart has tried to launch B2B e-commerce in the companies that it is operating (Walmart Brings Its eProcurement Strategy Back Home, 2015 p. 1). It also launched a smartphone in India to enhance the procurement of the small stores. The company should have a website that is also friendly to the consumers and suppliers. The website should be able to provide the vendors with the services they need. Furthermore, the firm should aim at getting goods directly from the suppliers instead of passing through the intermediaries (Dominick & Lunney, 2012 p.39). However, acquiring raw materials from the clients that the company needs may become difficult at times and it can only be resolved by offering competitive prices to the consumers. The company should also improve its website to make it easier for accelerating...
Frequently Asked Questions (FAQ) for Essay:
What is the significance of strategic sourcing and outsourcing in the procurement process?
Strategic Sourcing and Outsourcing play an instrumental part in optimizing procurement processes by reviewing buying activities, developing supply channels at reduced costs, and engaging third-party vendors specialized in non-business functions.
How can Wal-Mart improve its strategic outsourcing strategy?
Wal-Mart can enhance their strategic outsourcing strategy by emphasizing quality management to meet customer expectations, aligning and staffing its supply chain to maximize effectiveness, and optimizing management with an automated system offering cost savings and transparency.
What are the benefits of e-procurement and how can Wal-Mart enhance its e-procurement system?
E-procurement provides numerous advantages, including transparency, efficiency, cost savings and market intelligence. Wal-Mart can improve its e-procurement system by increasing supplier diversity, improving communication and tracking capabilities and creating an intuitive website designed to be user friendly for both customers and suppliers. Indirect sourcing from suppliers at competitive prices may help mitigate challenges related to raw material acquisition.
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