Inventory Management at Amazon and Walmart
Inventory Management at Amazon and Walmart
Amazon.com, Inc. (Amazon) and Walmart Inc. (Walmart) are two service companies based in the United States. These companies have grown from the humble beginnings of their founders to become some of the largest corporations in the world with extensive global presence. Amazon started as an online retailer and grew into a global technology giant, while Walmart started as a grocery store and grew into one of the largest discount retail outlets in the world. Although both firms employ different business models, they share a commonality in having extensive supply chains and distribution networks because they deal with huge inventories and service millions of customers around the world. Yet each company has curved a distinguished position in the marketplace and commands significant market share due to the high-quality of their service.
The discussion presented here focuses on the inventory management of Amazon and Walmart. The inventory types and characteristics, design concepts, the role played by inventory, the different layouts of service operations and the metrics to evaluate both companies are identified and compared. After that, suggestions for the improvement of the inventory management in both companies are advanced.
Amazon and Walmart deal in fast-moving consumer goods, ranging from electronics, groceries, light machines, and home furniture and equipment among many others. This means that both companies deal with physical inventory, primarily. In other words, their inventories can be described as finished goods. However, Amazon has greatly diversified its business operation to become a technology. This means that it also deals with cloud services, deployment of advanced technologies, like artificial intelligence, deep machine learning, and blockchain, to enhance customer experiences and promote the internet-of-things (Tan et al., 2018). In this regard, Amazon has digital inventory, thus differentiating it from Walmart. Nonetheless, both companies have inventories that are ready for consumers. Some of the inventories have long shelf lives. These include tools, electronics, and household equipment and furniture. Other inventories are perishable and, therefore, have a much shorter shelf life. These include groceries like meats, fresh vegetables, fruits, and ready-to-eat-meals. Holding the perishable inventories challenges both companies because such stocks are prone to spoilage and can incur losses for the company. For this reason, such inventory is held close to the targeted markets or is delivered speedily to customers to avoid spoiling in transit. Also, the perishable goods are not available to far-flung areas or international customers due to the high distribution and delivery costs.
Goods and Services Design Concept
Business strategies influence the design of operations in service companies. For instance, Amazon’s business strategy is premised on heavy investment in technology to enhance its logistical operations and order fulfilment capacity. Therefore, Amazon places a high premium on speedy and convenient deliveries of customer’s orders, and hence, employs advanced technologies to make this process seamless. This is noticeable in the deployment of robots in its smart warehouses to place and retrieve orders autonomously and efficiently and deliver orders using drones and driverless vans to shorten delivery times. Some Amazon customers enjoy same-day delivery, especially if they are subscribed members of Amazon Prime. In this regard, Amazon customers have become accustomed with fast deliveries of their orders.
Contrastingly, Walmart’s business strategy is focused on everyday low prices to make its merchandise available to everyone, particularly those in the low-income bracket and facing financial hardships. Therefore, Walmart’s focus is on bulk sourcing of merchandise while using its market power to negotiate low prices from the suppliers. This enables Walmart to transfer the cost benefit to its customers by making its items lowly priced and therefore affordable to ordinary consumers.
However, both companies have a retail aspect in their business model. Specifically, Amazon offers an online platform to vendors and helps link them to consumers. However, it has also created its proprietary labels, which it markets on its online outlet. In addition, Amazon is already experimenting with physical locations to augment its essentially online presence. These outlets focus on enabling prospective clients to test the products hosted on its website to influence their purchasing decisions. These outlets, which have been branded as Amazon Go, Amazon Fresh, Amazon Books, and Amazon Pop Up serve essentially and pickup and return points alongside availing perishable goods, such as meals and groceries. In turn, Walmart comprises primarily of over 10,500 physical stores strewn across 24 countries. The store formats are customised to suit their locations, with some of them operating for 24 hours. Walmart has a online retail outlet to augment is brick-and-mortar stores. Since 2008, Walmart customers can order online and pick their orders from the stores they prefer. Besides, like amazon, Walmart introduced its private label to diversity the stock available in its stores.
Inventory and Role in Performance
Amazon and Walmart manage huge amounts of inventory. In fact, the management of this huge inventory is central to the success of both companies, because they hope to transfer their inventory management efficiencies to their customers to enhance and exceed their expectations and satisfaction levels. Customers expect Amazon and Walmart to have a diversified inventory so that they can make one stop for most of their supply needs. In turn, a huge and diversified inventory guarantees customers of fulfilled orders. Therefore, when many clients make their orders and the companies fulfil them, they generate revenues and profits, which are critical indicators of their performance. Besides, the huge inventory diversity required to satisfy numerous and diverse customers calls for operational efficiency to ensure that items do not run out of stock and returns are minimized. In this regard, Amazon and Walmart operate huge warehouses and distribution centers close to their clients’ location to facilitate logistical efficiency. The two companies also employ lean inventory management to avoid holding excessive inventory while managing operational costs and reducing wastage of resources. Just-in-time inventory management is one tactic deployed by Amazon and Walmart to avoid holding excessive stock and incurring storage costs. They use demand forecasting and supplier collaboration to ensure that inventory is delivered just when needed by the consumers.
Layout for Each Company
Companies employ different layouts based on their products and processes. Amazon and Walmart share many common layouts as retailers, although the finer details different due to the differences in business models. For instance, they share a process layout that is premised on digital technology assistance. For instance, their warehouses and fulfilment centers have deployed digital technologies intensely, while their interaction with customers is digitally-assisted through social media and applications. More recently, Amazon and Walmart have implemented automatic checkout systems to avoid contact during the ongoing Covid-19 pandemic. This layout is also technologically –assisted and seeks to encourage shoppers to use Amazon’s and Walmart’s mobile applications (Wahba, 2020). However, Amazon is way ahead of Walmart in this aspect, and Walmart has recently emulated Amazon in implanting cashless and automated operations.
Metrics Used in Evaluating Performance
Inventory turnover and the perfect order index are two metrics that can be used to evaluate the performance of Amazon’s and Walmart’s supply chains. Inventory turnover is the rate at which the inventory is shipped out to customers and replaced at the order fulfilment centers or stores. A high inventory turnover indicates that the company is selling its foods fast and in huge quantities. It also indicates whether the company is holding excessive inventory compared to the current sale levels. Since inventory occupies much and valuable space, it is critical that amazon and Walmart utilise their warehouse capacity efficiently and profitably by not holding excessive inventory unnecessarily. Inventory turnover is described by the inventory turnover ratio, which is calculated by dividing the cost of goods making up the inventory by the average inventory. These ratios are compared for the same time periods annually to track the inventory management performance.
Similarly, perfect order index is a measure of the preciseness and timeliness of and order to a client. A high perfect order indicates that the company delivers orders to clients accurately, within time, and in undamaged conditions. A high rate of returned goods in and indicator of a low perfect order index and an indictment on the order fulfilment process in the company.
Suggestions for Improvements
Although amazon and Walmart are adept at inventory management, these can still be improved to enhance the performance of the firms amid fierce competition from companies like Alibaba. Vendor or supplier relationships are critical in maintaining a constant supply of inventory on time, in the require quantities and the agreed quality (Cui, Zhang & Bassamboo, 2019). With the number of competitors increasing tremendously and globally, Amazon and Walmart cannot continue overpowering suppliers and vendors because the switching costs have lowered significantly (Janger & Twerski, 2019). In this regard, Amazon and Walmart have to revamp the suppler relationship management to keep the vendors and suppliers locked in to their supply contracts for a long time.
Since Amazon is highly reliant on third party vendors on its online platform, it should encourage these vendors to utilise inventory management software. Specifically, consolidating suppliers to help forecast demand more accurately can help the vendors, and in turn, Amazon, streamline their inventory management (Cui, Zhang & Bassamboo, 2019). However, Walmart has struggled with inventory and sales mismatch which indicates that despite the significant growth in inventory, sales have not be commensurate (Shin & Tucci, 2015). Walmart has several warehouses and order fulfilment centers across the United States. It needs to coordinate the inventories held at different locations to ensure that the inventory management is synchronised and integrated. This would avoid some fulfilment centers and warehouses holding excessive stoke while others are running out of stock. In this regard, Walmart should employ smart technologies, such as artificial intelligence, which should be coordinate with its elaborate transportation network to help redistribute the inventory when the trucks are long loaded.
There is increased value in deploying technology in inventory management. Amazon and Walmart handle large inventories scattered across diversely-located warehouses and order fulfillment centers. However, the two companies are keen to fulfill all the orders of their customers to prevent them from switching to competitors. However, despite their impressive logistical networks and distribution infrastructure, they can still deploy advanced technologies strategically to overcome their inventory management hurdles and streamline it further.
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Janger, E. J., & Twerski, A. D. (2019). The Heavy Hand of Amazon: A Seller Not a Neutral Platform. Brookyne Journal of Corporate, Financial & Commercial Law, 14 (3), 259-273.
Shin, S., & Tucci, J. E. (2015). Wal-Marts dilemma in the 21st century: Sales growth vs. inventory growth. Journal of Applied Business Research (JABR), 31(1), 37-46.
Tan, B., Yan, J., Chen, S., & Liu, X. (2018). The impact of blockchain on food supply chain: The case of Walmart. In International Conference on Smart Blockchain (pp. 167-177). Springer, Cham.
Wahba, P. (2021). Walmart unveils new store design inspired by Amazon and airports. Fortune. Retrieved from https://fortune.com/2020/09/30/walmart-new-store-design-app-online-pickup-amazon-airports/.