China Walmart CASE Solved PDF

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China Walmart CASE Solved...

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MIT-ZARAGOZA INTERNATIONAL LOGISTICS PROGRAM MZ 545 Supply Chain Network Design Professor: Gultekin Kuyzu

Walmart China Case

Students Paul Lichenstein Juan Pablo Medrano

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Central Idea: Basically the case is about Walmart supply chain operations in China, the company is growing since it was stablished in 1996, and in august 2015, the company has 2 types of DC’S one for the Perishable fresh goods such as meat, seafood, fruits etc., and other one for Groceries, electronics, apparel and toys which is the Dry DC. Both operations currently work as a Crossdocking DC, where they directly transfer product from the supplier to the Walmart stores, however, the problem that the company is dealing with, is that the capacity is specifically with the Perishable goods DC, which is operating under a 3PL model, nevertheless, the 3PL operations has some advantages and disadvantages, the advantage in this case, is that Walmart does not have to make any additional capital investments, on the other hand, the disadvantages are related to capacity, which is limited in all sites, furthermore, the 3PL expected to run out of capacity by late 2017 and 2018 respectively, also, physical constraints in some sites, manual systems and processes; additionally, they had to train their 3PL to handle the operation. Consequently, the current operation is not scalable and sustainable for the long run. Solution: Lesley Smith the vice-president of Supply Chain in Walmart China, is planning to take this business In-House and build their own infrastructure, to replace the 3PL operations in Guangzhou and Shenzhen, and place a new DC for Perishable products in South China Guangdong and Guangxi provinces, however, she wants to know which DC model will be better for the business, and choose between a Cross dock or Staple Stock DC, she has three missions given by the Walmart country president, which are 1. To be the best-in market perishable operator 2. Be able to support business growth 3. Provide the best quality selection to customers Assignment questions: 1. Evaluate the costs of the cross dock and staple stock distribution center models.

Cost Per case:  Cross dock $1.02  Staple Stock $1.35 Comparison Chart

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Comparison Graph, between Staple Stock and Cross Dock facility costs. $10.00 $8.80

$9.00 $8.00 $7.00 $6.00

$4.68

$5.00 $4.00 $3.00 $2.00

$1.54

$1.20

$1.46

$1.32

$1.00 $-

Interior construction

Total MIS

Staple Stock Distribution Centre

Total MHE

Cross Dock Distribution Centre

The graph above shows the comparison in percentages of each option. Costs in US$ Million Interior construction Management Information Systems (MIS) Equipment, servers, printers, etc. Cabling, uninterruptible power supply, etc. Total MIS Materials Handling Equipment (MHE) Forklift and other MHE Racking Office furniture Total MHE Total

Staple Stock Distribution Centre

Cross Dock Distribution Centre

%

$1.54

$1.20

22%

$1.00

$1.00

0%

$0.46

$0.32

30%

$1.46

$1.32

10%

$6.72 $1.99 $0.09 $8.80 $ 11.80

$4.59 $

$0.09 $4.68 $ 7.20

32% 100% 0% 47%

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2. Besides costs, what other factors should be considered as part of the analysis? a. Operational Costs such as: Labor costs, handling costs b. Risks of losing sales for stock out c. Financial decision-making criteria such as NPV, Break even, etc d. Potential sales growth e. Responsiveness f. Fill Rate and Stock Service Level

Demand Capacity Utilization VALUE

Lease Cost

Operation Cost

Facility Cost

TOTAL COST

PROFIT

Cases/day Cases/day Cases/day Cases/day STAPLE STOCK CROSS DOCK STAPLE STOCK CROSS DOCK STAPLE STOCK CROSS DOCK STAPLE STOCK CROSS DOCK STAPLE STOCK CROSS DOCK

2018

2019

2020

2021

2022

2023

2024

2025

TOTAL

88,915 150,000 59% $ 2,178,418 $ 378,000

96,028 150,000 64% $ 2,352,686 $ 378,000

103,274 150,000 69% $ 2,530,213 $ 378,000

110,655 150,000 74% $ 2,711,048 $ 378,000

118,174 150,000 79% $ 2,895,263 $ 378,000

125,832 150,000 84% $ 3,082,884 $ 378,000

133,631 150,000 89% $ 3,273,960 $ 378,000

141,573 150,000 94% $ 3,468,539 $ 378,000

918,082.0 1,200,000.0

$ 259,200

$ 259,200

$ 259,200

$ 259,200

$ 259,200

$ 259,200

$ 259,200

$ 259,200

$ 2,073,600

$ 120,035

$ 129,638

$ 139,420

$ 149,384

$ 159,535

$ 169,873

$ 180,402

$ 191,124

$ 90,693 $ 1,475,000 $ 900,000 $ 1,973,035 $ 1,249,893

$ 97,949 $ 1,475,000 $ 900,000 $ 1,982,638 $ 1,257,149

$ 105,339 $ 1,475,000 $ 900,000 $ 1,992,420 $ 1,264,539

$ 112,868 $ 1,475,000 $ 900,000 $ 2,002,384 $ 1,272,068

$ 120,537 $ 1,475,000 $ 900,000 $ 2,012,535 $ 1,279,737

$ 128,349 $ 1,475,000 $ 900,000 $ 2,022,873 $ 1,287,549

$ 136,304 $ 1,475,000 $ 900,000 $ 2,033,402 $ 1,295,504

$ 144,404 $ 1,475,000 $ 900,000 $ 2,044,124 $ 1,303,604

$ 1,239,411 $ 936,444 $ 11,800,000 $ 7,200,000 $ 16,063,411 $ 10,210,044

$ 205,382

$ 195,780

$ 185,998

$ 176,033

$ 165,883

$ 155,544

$ 145,016

$ 134,294

$ 1,363,929

$ 928,524

$ 921,269

$ 913,878

$ 906,349

$ 898,680

$ 890,869

$ 882,914

$ 874,813

$ 7,217,296

$ 22,493,009 $ 3,024,000

3. If you were in the position of Lesley Smith, what recommendations would you make and why? There are two things that we need to consider in the evaluation criteria of this model, the first is the quantitative part and the second one the qualitative part, my recommendations would be that, although, the Cross Docking model is much more cheaper than the staple stock, they have to consider that if they want to start growing and being aggressive in the market, then it is fine to keep going with the staple stock mode otherwise, they will loose market share creating unsatisfied customers....