Whether in sourcing or retail, the most difficult challenge of operating in a new geography (especially emerging markets) can be changing how consumers, suppliers and partners alike typically operate. As an example, Don Frieson described the prevailing business mode at Massmart before Walmart took ownership as a constant "Hi-Lo" retail mode. There was a constant hustle to come up with the right campaigns around attractive "loss-leaders" that would be available for 4-5 days, with the supply chain role focused on the scramble to line up the products to support the activity. Hi-Lo has been (still is, in other companies) the standard mode of operations in African retail markets. Yet this approach runs completely counter to the Walmart model of "Always Low Prices" and their current "Save Money. Live Better" motto.
As most Spend Matters readers in the USA know, the "Always Low Prices" mindset has been the cornerstone of Walmart's entire marketing and supply chain approach. The ability to stick to a given product/price mix for 60 to 90 days not only brings more sanity into the supply chain, but drives Walmart's model of instilling confidence in customers that they will always get a good deal. This also translates into less need for advertising – which in turn supports lower markups – and so on. In other words, it's one of the ways Walmart has been so successful at becoming the biggest retail operation in the US.
This approach cascades upstream into their supply chain, where suppliers have to come on board with long-term planning around these campaigns – something which obviously necessitates forecasting and demand planning but also has surprises in SA, with the need to develop more sophisticated logistics and warehousing capabilities that weren't leveraged in the previous model. Historically, the standard approach in SA retail has been direct to store shelf, with limited warehousing or similar logistical efficiency activities. In other words, Walmart has not just had to bring a new concept to Massmart and the African retailing climate. They've also had to pack a toolkit for building a new supply chain infrastructure as well.
Interestingly, Don claims that local competitors have yet to awaken to the transformation going on around them. Outside the Massmart sphere, no competitors are adopting this approach at the moment. Don adds that "we are bringing a supply chain to the game" so their competitors need to quickly wake up and smell the Member's Mark coffee if they plan on sticking around. Part of Massmart's effort will undoubtedly involve developing a local supply chain culture and capability on the ground with local talent.
In Spend Matters view, South Africa and other African countries will need to get serious about providing the right university training programs to educate the next generation of procurement and supply chain managers in the region (one might argue the first generation!). This might involve partnering with proven global certification and training groups such as the Institute of Supply Management (ISM) or APICS. An alternative is working with global universities (e.g., Michigan State, Georgia, Arizona) with strong supply chain programs to affect a similar outcome on the ground. Finding adequately supply chain trained employees is a challenge to organizations in the US and other established countries – and undoubtedly in SA as well.
With Walmart's successful entry into the market, many other US firms are getting ready to move in as well. Don has been active with the US Chamber of Commerce in SA and participated in one of their Summit events. He notes that there is considerable interest in the market opportunity among potential organizations keen to explore or re-explore the Sub-Saharan business climate.
Don observes that the local supplier reaction to Walmart has been quite positive as well. The suppliers appreciate the opportunity to work with Walmart for two key reasons. First, they see opportunities with the increased volumes that a Walmart can bring. Second, they are keenly interested in learning from Walmart on how to become more competitive across their operations, including their own supply chains. Walmart is actively investing in knowledge transfer in the region with suppliers in this regard, making Walmart's regional vendor master a coveted spot for those that can handle the volumes and demands.
Up next: Walmart's supplier development activities in the region.