Walmart: Logistics and value chain, overseas operations, social and environmental responsibility and theories - Assignment Example

?International Business Introduction Walmart is a retailing giant, as it is the regarded as the world’s largest company in any field, in terms of revenues. (walmartstores.com 2011). It operates mainly through its discount stores, urban supercenters and neighborhood markets, with its business segments divided as Walmart US, Walmart International and Sam’s Club. Founded by Sam Walton in the year 1962 and headquartered in Bentonville, Arkansas, it operates in over 28 countries with around 9600 stores. With over 2 million employees all over the world, and more than 1 million employees in United States, it is regarded as the largest private employer and importantly largest grocery retailer in the United States. (walmartstores.com 2011). The company handles and sells various products starting from grocery to electronic items, food items, entertainment products, merchandise, etc, etc. Thus, Walmart sells wide range of products that has applications in every aspect of human life and their day-to-day living. In addition, to sell and reach these products to varied customer base, Walmart carries out maximum operational processes involving over 2 million employees, particularly in its value or supply chain. Thus, it is clear that Walmart’s operations are having impact on the lives of common people as well as its employees. Walmart mission toes the same line, however with a positive twist However, the when viewed critically, Walmart’s actions in its logistics and value chain particularly in its foreign operations, is being negatively. So, this paper will explore Walmart particularly its logistics and value chain and discuss about the certain practices, which make it a non-socially responsible company, and at the same time will highlight the areas in which Wal-Mart can improve its social and economic responsibility. Role of logistics and value chain in overseas operations Walmart’s overseas operations can be viewed in two different categories. One is its direct operations of retail stores and other is the indirect operations of its supplier units. That is, Walmart’s direct overseas operations under the name Walmart International consist of running of “more than 5,200 retail units in 27 countries outside the U.S.” (walmartstores.com 2011). The net sales garnered from this Walmart International exceeded $109 billion in fiscal year 2011 and that constitutes one-fourth of Walmart’s total revenues. (walmartstores.com 2011). The entry mode Walmart adopted in its various international operations differs, and it is based on local conditions. For example, in countries like Canada, Argentina, Brazil, and United Kingdom, it operates wholly owned stores (although in UK, it operates under ASDA, the name of its acquired entity). In other countries, it operates in association with local partners in order to fulfil the governments’ regulation and also as a business strategy. “More than 90% of our international stores operate under a banner other than Walmart.” (walmartstores.com 2011). Interestingly, the supply chain of these international stores exist in those countries itself and importantly in certain Third World Countries. That is, Walmart operations in United States depend on supplier network in various foreign countries, apart from its local sourcing. On the same lines, its foreign stores also depend on local and importantly foreign suppliers to supply it with the products and other services. Thus, as mentioned above, Walmart’s overseas operations include operation of stores as well as supplier network, and if it is particularly focused on its value chain and logistics, the supplier networks play a major role. That is, with these overseas supplier network providing products to United States stores, other countries’ Walmart stores as well as their local Walmart stores, they play a major role in Walmart’s value logistics and value chain. Walmart’s logistical and value chain strategies in overseas operations, particularly in relation to social and environmental responsibility and theories As the labour costs and the cost of production in these Third World countries or developing countries are low, Walmart is depending on them as part of their value chain. Many Multinational companies, based in Western countries, because of these factors are incorporating many Asian, African and South American countries as part of their value chain. In the case of Walmart, it is providing supplies and takes care of logistics both for the stores in the Western countries as well as the stores located in those countries itself. The main strategy, Walmart has adopted while focusing on this part of their value chain is making its suppliers become more socially and environmentally responsible and sustainable. Walmart started this focus from 2005 when the customers, media and the common public in United States started criticizing Walmart regarding low labour standards in the supplier units and other environmental negative impacts caused by the suppliers. Then Walmart chief executive H. Lee Scott Jr. stated that public has high expectations of the world's largest retailer, and so the company has to counter the allegations against the environmental and labor standards of the low-cost manufacturers and suppliers, located in overseas, from which it buys. (Kabel 2005). With China being the home to majority of its suppliers, Walmart organized a Sustainability Summit in Beijing inviting about 1,000 officials who are part of their supplier network, as well as from the Chinese government and Chinese NGOs. In that meet only, Walmart spelled out key strategies that has to be carried out the by the suppliers as part of optimal value chain management. The stricter standards enforced by Walmart made the suppliers to follow "rigorous social and environmental standards," which included making them sign agreements that they don’t practice child labor, forced labor, unpaid labor and the practice of paying workers less than the local minimum wage. (greenbiz.com 2008). In addition, Walmart stipulated that the suppliers should audit their factories and subcontractors, as well as allowing Walmart representatives and importantly Third-party auditors to make unannounced audits. As part of environmental responsibilities, Walmart stipulated that the suppliers have to check their factories “air emissions, wastewater discharges and management of toxic substances and hazardous waste.” (greenbiz.com 2008). These regulations for the suppliers came with an important rider that if they failed to follow it, their contract to supply products to Walmart will be terminated. These regulations were imposed on not only on the Chinese suppliers who served the Walmart stores in the US, UK and Canada, but also the suppliers who served the local Chinese Walmart stores. Thus, Walmart to elevate its image as a socially and environmentally responsible organization, mainly focused on its logistics and value chain, and made the suppliers to follow the related regulations. The other China-centric logistic and value chain strategy followed by Walmart is, it encouraged the suppliers who sold nationwide to deliver their products at their centrally located few distribution centers, because as stated by Ted P Huffman, Logistics Director for Walmart China, “it is more efficient for a supplier to deliver to one location than to all the Wal-Mart stores across the country.” (Huffman 2003). At the same time, Walmart also provided options for the local suppliers, who may be geographically far away from the distribution centers. “Wal-Mart offers back-haul services from their local marketplaces, giving these suppliers access to markets that they would otherwise be unable to reach.” (Huffman 2003). Thus, it is clear that Walmart had optimal logistics and value chain strategies place in its overseas operations, so that its suppliers can provide the products aptly to Walmart’s US and European stores, as well as their own local stores. However, even after implementing many constructive strategies, Walmart faced certain issues particularly relating to the treatment of employees in its supply chain. Labour standards in Walmart’s logistical and value chain Walmart’s founder Sam Walton always believed that teamwork and employee participation can elevate its functioning and help it reach higher echelons. “Aren't we a group of ordinary folks? We really are. And I think we, together as a team, have done extraordinary things. We've all grown, we've all accomplished much more than any of us ever thought that we could." (walmartstores.com). As Walmart employs more than million employees, most of whom work in various parts of the supply chain, Walton felt team work is very crucial to provide service to the fullest satisfaction of the customers. So, to achieve that, every employee in Walmart is treated fairly and importantly, which gives them motivation to perform optimally. This type of positive employee treatment only enabled Walmart to be ranked among the Top 10 in Fortune magazine’s Global Most Admired Companies list – 9th position. However, this position is actually a big drop for Walmart, as it got the top spot in the years 2003 and 2004. That is, quite contrary the optimal practice of giving more powers to the employees, Walmart management held most of the powers and treated the employees particularly in their logistics area and value chain countries as one, who should do their duties, without any questions or feedbacks. This form of management was particularly visible after the death of their successful leader, Sam Walton. “Following the death of Sam Walton, however, Walmart rather quickly morphed into the more typical bureaucratic company with a pattern of employee relations where the workers arc regarded as impersonal hirelings.” (Wallace 2010). More importantly, this bad treatment of the employees is particularly visible in the supply chain countries of China, Bangladesh, Jordan, etc. Although, the suppliers manage these units, Walmart are supposed to have strong influencing role. The local employees in these countries were forced to work overtime, denied the mandatory thirty-minute meal break for the employees within the first five hours of a shift, even denied bathroom access in the factories, were being given pittance as the wages, etc. “Poor labor practices are what Walmart is most notorious for, and the retailer has been accused of all of the following, from Jordan to India to Bangladesh to China” (Cernansky, 2011). Although, Walmart due to negative press, instituted inquiry committees to investigate these charges, it was not taken to the logical end and corrective steps were not taken, with Walmart mainly trying to push these type of issues ‘under the carpet’. “Walmart responded to the story by conducting an investigation into the conditions described in the article. The investigation, conducted by an internal auditor, was "unable to substantiate the allegations.” (Cernansky, 2011). This intention of Walmart to avoid solving the issues and the tag being the non-socially responsible company can also be seen in the way it managed Trade Union activities. In any organizations, including retail organizations employees will face problems or will have grievances and importantly could wish for more facilities, benefits, etc, and that is where Trade unions will come into the picture. These aspects will clearly impact their behavior, motivation or morale, thus positively or negatively impacting the employees’ as well as company’s economic performance and importantly its image. However, the leaders and the management of the organization would feel that Trade Unions would further deteriorate the situation, instead of addressing the employees’ grievances and expectations, which can be carried out by the leader and management itself, without any need for the Unions. This mentality of the leader or management is quite visible among the management of Walmart. Walmart’s management felt Unions including any rise of Unions in its supplier network will affect the cordial working environment and prevented any union activity. Wal-Mart in one of its website, called Wal-Mart Facts has publicized its stand on trade unions and how its leadership and management can manage all the issues of the employees. “There has never been a need for a Wal-Mart union due to the familiar, special relationship between Wal-Mart associates and their managers.” (Cascio, 2006). However, the difference and the socially irresponsible issue here is Walmart is accused of using various illegal or unethical means to prevent employees from indulging in Union-related activities. Use of technology in Walmart’s logistical and value chains, particularly RFID Radio frequency identification or RFID for short is an Information technology and electronics based technology, which is used by organisations in various sectors particularly ones in the retail sectors as part of their logistics and value chain. The adoption of RFID by retail companies including Walmart, Metro, etc., is helping it garner good attention. RFID enables optimally maintaining the inventory without any misses and also track the transhipped product till it reaches the intended customers. Because of such good applications, Walmart introduced RFID tags in its operations in 2005, when it asked its top 100 suppliers to start using RFID in their operations. Although, there were some opposition with not all suppliers agreeing to it because of the cost factor, Walmart built some consensus and implemented it. Importantly, it implemented RFID as part of logistics and value chain in its overseas operations as well. The suppliers were expected to reach the product to the stores and thereby to the customers, without any loss of quality. The need to fulfil the expected quality as well as time and place accuracy during the delivery, Walmart made it mandatory for the suppliers to used RFID, particularly the Chinese suppliers. Although, “China's abundant labor supply means that companies can choose to use manual processes instead of automated processes and still save money”, the need to maintain above mentioned quality and accuracy, made the suppliers also become part of this implementation. (Huffman 2003). So from 2009, all of more than 1000 Chinese suppliers started using RFID tagging as part of the labelling process during the shipments. In addition, the RFID readers were placed at the back door of the supplier’s place or stores, and this reader tracked and stored all the list of products, which arrived at the store or which were sent from the store. Schwartz (2004) points out another application of RFID in Walmart, “In addition, another RFID tag placed at the entrance to the sales floor will tell the supplier, what is on the sales floor and what is left in the backroom.” Although Walmart introduced this technological initiative because of its positive applications, people started focusing on some of its negative attributes. That is, when Walmart placed this RFID technology inside the stores, ethical problems started to arise. RFID technology was viewed as one, which could violate the privacy of the customers and common public, thus leading to Walmart being tagged as a non-socially responsible company for using it. Customers and in particular civil liberties group were of the view that RFID placed inside the stores can secretly track the visiting customers’ behaviour, particularly what products they are buying, what they have inside their personal bags, etc. After tracking this, Walmart could utilize those data for commercial purposes. The civil liberties groups pointed out that the ability to track people would give opportunities for the law enforcement officials as well as other commercial parties including Walmart to track customers’ behavior in a “store or even read the contents of a handbag-perhaps without a person's knowledge-simply by installing RFID readers nearby.” (epic.org). This controversy because of RFID’s intrusion on the customer’s has put Walmart’s adoption of it under ethical scanner. Walmart tried to counter this by releasing many press statements regarding the safe nature of RFIDs. Walmart revealed its plans to implement again in 2011, this time in its apparel section. Even that initiative is viewed critically with several privacy related groups expressing concern because the tags will be used at the item-level (in apparel shirts, trousers, etc), which might give “someone the capability to track what specific consumers buy or even what items they have in their homes.” (scdigest.com). Thus, the privacy violation issues relating to Walmart’s incorporation of RFID have made people view it as a non-socially responsible company. Conclusions and Recommendations From the above analysis, it is clear that Walmart because of its certain operations and actions, is negatively impacting the lives of employees who work for it as well as the customers who buy and depend on it. The key issue, which is creating negative image for Walmart, is its treatment of employees particularly those in supply chain Third World countries. This can also be handled effectively, if Walmart implements optimal standards in those workplaces. Walmart independently or under the guidance of various foundations like Rugmark Foundation can actualize quality benchmarks regarding the working conditions. In addition, Walmart instead of crossing swords with the social groups, which point out the problems and campaign for the employees’ rights, can work with them to find optimal solutions. They can also contribute financial donations to charity groups, which are involved in effective social works. All these initiatives could elevate Walmart’s image particularly its social image. As far as criticism regarding its RFID implementation, Walmart should listen to the concerns of the civil liberties group, and should incorporate protection technologies, which can prevent privacy infringement as well. Walmart can also contribute to future studies and research & development, which can pick the loopholes in the current RFID technology and can come up with technological based solutions. Thus, it is clear that if Walmart is able to focus on these areas and implement key improvements, it can be viewed as a socially responsible company, which will take care of the interests and the concerns of the customers as well as the common public. References Cascio, WF 2006, Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. The Academy of Management Perspectives vol. 20, no. 3, pp.26-37. Cernansky, R 2011, Are Walmart's Eco-Efforts Enough? Balancing Sustainability & Social Responsibility at America's Largest Retailer, viewed on December 12, 2011 http://www.treehugger.com/files/2011/01/walmarts-eco-efforts-enough-balancing-sustainability-social-responsibility.php greenbiz.com 2008, Wal-Mart Ramps Up Standards for Suppliers in China, Around the Globe, viewed on December 10, 2011 http://www.greenbiz.com/news/2008/10/22/wal-mart-ramps-standards- suppliers-china-around-globe Huffman, TP 2003, Wal-Mart in China: Challenges Facing a Foreign Retailer's Supply Chain, viewed on December 10, 2011 https://www.chinabusinessreview.com/public/0309/wal-mart.html Kabel, M 2005, Wal-Mart Nudges Foreign Suppliers, viewed on December 10, 2011 http://www.washingtonpost.com/wp- dyn/content/article/2005/10/20/AR2005102001973.html epic.org, “Radio Frequency Identification (RFID) Systems: What you Can Do to Protect Your Privacy.” Electronic Privacy Information Center, viewed on December 10, 2011 http://epic.org/privacy/rfid/ scdigest.com, “RFID News: Will WalMart get RFID Right this Time?” (2010). 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