What is the first thing that comes into your mind when you hear the word...by Alba Castanyer and Sandra Quesada

What is the first thing that comes into your mind when you hear the word…

There are some companies that seem just great from the outside, but that suffer a lot in their internal processes. The idea of this post is to provide some examples of famous companies that took some bad decisions when it comes to inventory management.

Talking about WALMART, all that comes to our mind is success and billions of dollars. However, this giant company has faced challenges when it comes to inventory management. As all the multinational companies, Walmart’s structure of supply chain is amazingly complex and every detail is measured.

Nevertheless, Walmart is suffering out-of-stock problems recently that could bring huge losses to the company. The problem they are having is believed to be due to not managing the inventory in the right way. Although every logistical detail is measured, it seems that the shoppers don’t have the experience of inventory procedures as clear as the managers expect them to have. Basically, the problem is that the stock does not arrive to the shelves and it stays in the down floor, and if it is not in the shelf, people cannot buy it… seems an easy-to-fix problem, right?

Well, it is not. It is not only that Walmart is losing money (around 2 billion dollars) in terms of potential sales they could have if they had 100% stock level. The real problem is that they could have greater losses because of loss reputation as a brand, people just prefer to go somewhere else where the shelves are full and service is better.

In fact, this is a vicious cycle. As customers stop buying in Walmart, the company takes the decision to fire some workers. Then, due to shortage of staff, the stock can’t entirely move out from the warehouse to the shop floor. And that is why it is so important to see the effect that the out of stock inventory can have on big companies and that a simple decision could bring huge losses in the future if the effects are not predicted.

How Walmart could solve its inventory problem

First of all, the vicious cycle must stop. Walmart plans to add more payroll hours to allocate the products on the shelves.

Moreover, there is a technology called Radio Frequency Identification (RFID) that could be useful to solve this problem. In consists in chips that are located in the pallets and don’t require line-of-sight to be read. Walmart started implementing this technology in its supply chain in 2003. However, they stopped implementing this system to go back to the traditional bar codes which served the same function at a lower cost.

As technology has evolved, RFID has become more affordable and the benefits have increased. This technology helps Walmart to track inventory and get real-time data of which product is missing in each shelf and if the product is approaching the expire date and should be replaced.

With just an electronic reader close to the shelves the worker can know how many products have been sold and how many should be replenished. It also tells how many units are left in the warehouse and where to find them.

The picture below describes in great detail how RFID technology works.

As a conclusion, Walmart’s inventory management problem can have serious consequences for the company if it doesn’t start acting fast. However, using the right tools at the right time Walmart can be back to being the successful company it was.

Alba Castanyer

Sandra Quesada