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Walmart Supply Chain Controversy

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Walmart Supply Chain Controversy

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Abstract

The paper seeks to reveal the truth behinds some of the critics facing Walmart in the recent past. It is clear that the primary problem is its business model. The model compels the company to seek cheaper sources of goods before selling them at low costs to their respective customers. However, the situation must change sooner or later if the company is keen to revert its negative image in the international market. The supply chain of this company needs a rethink of strategies.

Table of Contents

Abstract 2

Walmart Supply Chain Controversy. 4

Introduction. 4

Social and environmental effect of Walmart’s Business Model 4

Why Walmart is facing criticism for its business practices. 7

What can Walmart do in response to ILRF charges. 8

Meaning of Lee Scott’s response to Hurricane Katrina. 9

Actions as Supply Chain Executive of Walmart 9

Conclusion. 10

Walmart Supply Chain Controversy

Introduction

Walmart has participated in charitable activities since its inception in the year 1962. Its vehicles are always the first to reach the emergency scenes with necessary materials to help the affected victims. As usual, its transportations and employees entered the scene where the Katrina Hurricane caused the most of the damages. However, the critics saw these actions as publicity gimmicks other than the real issues. Terry Collingsworth filed a lawsuit accusing Walmart of violating its code of conduct.

This investigation aims to determine the environmental and social effects of the company’s model, whether the criticisms it receives are warranted, the response of the management to the critics and the best strategies to address the issues raised.

The paper has four parts. The first part is the Social and environmental effect of Walmart’s Business Model. The second part is Walmart criticism. The third part is Walmart’s Response to ILRF charges. The fourth part is the Meaning of Lee Scott’s response to Hurricane Katrina while the fifth part is Actions as Supply Chain Executive of Walmart.

Social and environmental effect of Walmart’s Business Model

Wal-Mart came into existence in the year 1962 and had since developed to become one of the giant corporations in the world, thanks to its well-defined business model. However, when Walton founded in the same year, he did not foresee its substantive success in the global market. When he started this Walmart, he had the required experience to move it to the highest level in the worldwide market. Even though Wharton began this business with the aim of providing the inhabitants of the American south rural areas with goods at a reduced cost, Walton had in mind the idea of expanding his business to other parts of America. He, therefore, developed a business model which would improve the company’s success, especially regarding supply chain. Walmart’s business model comprised of three essential facets. The first element of this business model is Walton’s business formula which champions for the provision of goods and services at a reduced price on a daily basis. The next element of Walmart’s business model is globalization and technology while its third element is the principle of centralization. However, this model has over the time raised several social and environmental issues. Hence, Walmart business models have both negative and positive impacts on the social and economic blocks within its areas of operations (Stankevičiūtė, Grunda & Bartkus, 2012).

Regarding adverse environmental impacts, Walmart has continued to pay less attention to environmental regulations recommended globally. Studies show that Walmart has paid more fines to the relevant authorities compared to other major wholesalers in the global market due to non-adherence to the established environmental regulations. For instance, in the year 2004, Walmart as a single business entity was to pay fines in at least nine states within the United States. It paid penalties for violating environmental laws in Texas, New Jersey, California, Utah, Delaware, South Dakota, Colorado, New Jersey, Tennessee, and Michigan within one year (Carroll & Buchholtz, 2014).

Still, on the contrary impacts of its business model of the environment, it continues to use semi-trucks citing scale of economies. It also sells its customers de-boned salmon fillets and retail mineral products such as gold. In its attempt to provide its customers with goods at a low price, they tend to use these trucks for goods transportation because they are economical and easy to maintain. However, these trucks are some of the significant contributors to air pollution. The company, therefore, does not pay the necessary attention as long as it continues to maximize profits while proving low-cost products to their customers across the world. Currently, there are several claims that Walmart through its business model, has violated the improper storage of hazardous materials, stormwater, and pollution regulations (Morschett, Schramm-Klein & Zentes, 2015).

Positive impacts Walmart’s business model includes contributions towards environmental management affairs. Walmart also participates in projects with financial initiatives aiming at improving the ecological status.

Walmart’s business model has negative impacts on the society. There are several reports that it discriminates against specific groups of people in the community. Since the management of the Walmart wants to provide services to their customers at a cheaper cost, it extensively uses the labor force at its disposal. Women and people with disabilities cannot meet the demands of Walmart imposd on its labor force. Currently, the company is battling with a lawsuit challenging its decision to provide women employees with low remuneration rates compared to that of their male counterparts. In fact, approximately 1.6 million female workers of Walmart have joined the suit as interested persons. Apart from the claim that they receive fewer wages even after completing the same tasks as their male colleagues, they also argue that the company’s management is not keen to deny them equal opportunities for promotions (Morschett, Schramm-Klein & Zentes, 2015).

The management has developed a system that discourages women from rising to the management positions. However, it is not only the women employees who complain of inequality for positions and remuneration at the Walmart, but even the African Americans and other members of the minority groups also have their equal share of lamentation. As a matter of fact, the firms do not provide equal employment opportunities to the African Americans compared to the whites. Approximately 75 percent of senior employees at Walmart are whites. Walmart has on more than one occasion faced charges and paid fines from discriminating against members of the societies with disabilities. The model does not provide for a conducive work environment for people living with disabilities (Morschett, Schramm-Klein & Zentes, 2015).

Still, on the social aspect, Walmart’s business model provides unhealthy competition to its competitors in the market. Mostly, businesses in a similar market set up with Walmart are forced to cut down their profits by approximately 25 percent. In extreme cases, it pushes some business organizations out of the market when they enter a new market.

The company’s business model element of centralization promotes the overseas production of goods before shipping them to the locals for consumption. For the firm to provide its customers with cheaper products, it must lower its cost of production. However, this is not possible if it perceives to continue manufacturing its products in the United States. The company, therefore, has sought for alternative means of production at a reduced cost. Almost 80 percent of the goods, Walmart sells to the American consumers are made at the factories situated in the east. For instance, most of its products come from Chinese factories while some from other countries within the Asian continent. America holds in high esteem the employment standards, hence increasing the cost of production immensely. It is more comfortable and cost-effective to manufacture its products from overseas nations, specifically in the east, where the employers pay little or no attention to the international employment standards. Cheap labor leads to reduced cost of production and consequently low-cost products to the consumers. The firm’s strategy does not only affect the American society negatively but also the communities where it manufactures its products at a lower cost. While it denies the American society’s employment opportunities, it increases the poverty level in the countries of production (Morschett, Schramm-Klein & Zentes, 2015).

The firm’s business model positively affects the society. It provides the American consumers with goods at a low cost compared to its competitors. It also provides employment opportunities to the American citizens. It pays taxes to the American government, hence the enhanced development. The business model also provides employment opportunities to the citizens of the producing nations.

Why Walmart is facing criticism for its business practices

Walmart is facing criticism due to its massive size. It attracts attention from critics who feel that its practices do not commensurate with the profits it gains from its operations.  The company continues to open its branches in various parts of the world such as Latin America, Asia, and Europe. The critics believe that Walmart does not cause positive impacts on the communities of its operation. Secondly, it does not adhere to the international labor practices and standards such as workers’ unions. The company’s policy does not provide employment opportunities to the locals. Hence it exports jobs to its suppliers in the East. Finally, critics believe that Walmart does not offer equal employment opportunities to all members of the societies, it also forces its suppliers to reduce their costs of production (Morschett, Schramm-Klein & Zentes, 2015).

Criticism to Walmart on the basis some of the above-presented grounds are warranted. Statistics speak for themselves. However, there are some reasons which do not sustain the criticisms. For instance, the case of job exportation.  Members of the American societies have even nicknamed Walmart, a Chinese company because it buys most of its products from the Chinese manufactures. However, they fail to understand the urge to provide them with low-cost goods has forced the company to seek goods manufactures outside united states and other European nations which pay considerable attention to the international wage rates. It is highly expensive to produce products in the United States. If the critics want the company’s suppliers to procure goods from the American manufacturers, they should start by demanding they increase the cost of their products. However, if they still want to keep enjoying buying goods from Walmart at low prices, then they have no otherwise, but stop the criticism (Morschett, Schramm-Klein & Zentes, 2015).

Failure of the company to compel its suppliers to practice fair labor standards warrant criticism. It is the responsibility of the firm’s management to ensure that they buy goods from credible manufacturers who adhere to the international labor regulations. For instance, reports indicate that the company continues to outsource its products from global sweatshops which pay poverty wages to their workers, employ children, do not provide their workers with labor rights, do not pay the workers overtime wages and force the workers to work for long hours. It should bear the responsibility for its actions, and the criticism on this ground is warranted.

What can Walmart do in response to ILRF charges

Walmart can address the allegations by ensuring that its suppliers adhere to its established code of conduct. It can also create an alternative dispute resolution system for its workers to present their grievances before they file court cases against the company. Again, it revises its pricing system to provide the suppliers with enough funds to pay their workers according to the standards. It should also ensure that its outsourcing companies offer to enable a working environment fit for its workers.

Walmart can improve its sourcing practices by first of all by taking action to address the issues arising from the sweatshop accusations. The first step towards this is enhancing the activities of its outsourcing partners. Reports indicate that the management of Walmart Company has started to put in place the necessary measures. For instance, it has developed a Factory Certification Report, which, allows it to inspect the processes taking place within the precincts of its manufacturers. Through the factory certification report, Walmart can gauge the performance of the manufacturers by the accusation levelled against them in the ILRF charge suit. It then uses the results of the project to strike out any factory that falls within the high-risk violations while putting the manufacturers with medium-risk breaches on notice. It should also step up the actions of the internal audit teams which evaluate the quality assurances in all its outsourcing factories. Secondly, Walmart can improve the performance of its outsourcing partners by increasing the number of training programs to their representatives. Finally, it should also conduct several training programs to its consumers in helping them understand the issues about issues of compliance (Morschett, Schramm-Klein & Zentes, 2015).

Meaning of Lee Scott’s response to Hurricane Katrina

Lee Scott meant that Walmart was facing all these accusations because of their size in the global market. In fact, he believes that the firm did not violate any of the above-stated standards out of volition but the situation forced into it. According to Lee, the company did not deserve to receive the criticism it has achieved in the recent past. For it to continue providing low-cost goods to its customers in the United States and other parts around the world. The firm engaged in the stated practices could help them give improved services to the children, associates, and customers (Morschett, Schramm-Klein & Zentes, 2015).

However, the management of the Walmart should pay strict attention to its standards for the suppliers. It must ensure that its suppliers strive for excellence, provide sufficient services to the company’s customers, and ensure that it respects all the members of the society including their workers. Its suppliers should adhere to the applicable labor laws and principles. For instance, it should ensure that they compensate workers accordingly, discourage forced and child labor in their respective factories, and give the workers the right to form their separate unions. On the environmental issues, the management should develop a program which can efficiently evaluate the impacts of its activities and those of its outsourcing partners in their respective environments. Upon determining the environmental effects of such actions, it should develop a report indicating areas that need improvements. The firm should then design an action plan with the ability to address issues raised in the environmental impact evaluation plan (Morschett, Schramm-Klein & Zentes, 2015).

Actions as Supply Chain Executive of Walmart

As a supply chain executive of Walmart, I would implement the following strategies to address this situation.  First of all, I would encourage the company’s management and its outsourcing firms to drop their anti-unionization policy. The approach would encourage the laborers to join unions, which would champion for their rights. In as much as this strategy would increase the cost of production of goods sold at Walmart, it would provide the company with the opportunity to redeem its place in the society. It would compel its outsourcing partners to demand reasonable compensation for their products, and the consumers will, in turn, bear the cost of such activities (Stankevičiūtė, Grunda & Bartkus, 2012).

Secondly, I would encourage the management of the company to revert its aggressive corporate strategy in the business practice. Walmart provides its competitors with an unhealthy competition. As stated in the previous parts of this paper, when Walmart moves into a new market, it forces the existing business entities to either bow out or reduce the margin by more than 30 percent. The phenomenon makes other business entities to experience its hostilities. The proposed strategy will address most of the critics discussed in this controversial report (Coyle et al., 2016).

Conclusion

Walmart management must address all the issues discussed in this paper.  For a long time, Walmart has maintained that it complies with its code of conduct in all its activities. However, the criticisms above reflect the exact opposite what the firm wants everyone to believe. Its operations have both environmental and social negative impacts. Studies also show that the company is doing little to address some of the issues raised in the criticisms.

References 

Albert, P. J., Werhane, P., & Rolph, T. (2014). Introduction. In Global Poverty Alleviation: A Case Book (pp. 1-11). Springer, Dordrecht.

Carroll, A., & Buchholtz, A. (2014). Business and Society: Ethics, sustainability, and stakeholder management. Nelson Education.

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2016). Supply chain management: a logistics perspective. Nelson Education.

Morschett, D., Schramm-Klein, H., & Zentes, J. (2015). Strategic international management (pp. 978-3658078836). Springer.

Stankevičiūtė, E., Grunda, R., & Bartkus, E. V. (2012). According to a cost leadership strategy and business sustainability objectives: Walmart case study. Economics and Management, 17(3), 1200-1206.