Walmart has certainly met a number of both expected and unexpected supply chain challenges in bringing its business model and efficiencies to the South African market. As Don observes, infrastructure is something even Walmart can't impact alone, clarifying with "no amount of technology substitutes for good roads and other infrastructure." Their (and South Africa's) supply chain journey will certainly be a long one – it will take decades for SA to build similar infrastructure to that of the US and other parts of the world.
As mentioned earlier in this series, distribution facilities are not as sophisticated in South Africa. Walmart has had to either build or improve them with partners, and also introduce the rationale and thinking behind a supply chain structure with the goal of attaining efficiencies akin to those already achieved in the USA. Clearly, with Massmart now well ahead of the market curve in supply chain sophistication, they have to also take the lead in educating partners around their effective use. Don observes that some of Walmart's priorities in the region include shifting to a supply chain model where centralized distribution and truckload utilization are priorities – as opposed to the traditional SA model of direct-to-store delivery.
As part of Don's experience in helping Walmart build a logistical infrastructure, he has had discussions with Transnet, a SA government-owned freight logistics organization, with rail, seaports, and pipelines under their management. Don says that they are moving in the right direction. For example, Transnet is digging out ports to permit larger vessels, and extending their services deeper into central and sub-central SA. That said, he says that the infrastructure to support an end-to-end supply chain isn't there yet.
Examples of impact on local suppliers:
- Owing to more efficient production scheduling (after they switched away from the Hi-Lo model), Trento Laminate Flooring experienced an increase of 206% in sales, compared with last year's figures.
- The CEO of a leading SA brand of appliances says there are early signs that the paybacks, of extended price cut promotions, outweigh those of traditional Hi-Lo promotional activity. "We have participated in three extended price cut promotions with Massmart-Walmart, and the benefits are compelling. For our locally manufactured products, specifically, we have more flexibility. If volumes end up outstripping our forecasts, as they did in the previous three promotions, we' re able to manufacture more products locally, if raw materials are available. The lead time on locally manufactured products is about 6 weeks and on imported products, 4 months."
- Adrian Boland, Merchandising Executive for Massmart's Game unit, explains that as part of the (Walmart-influenced) process, suppliers receive a firm two month commitment enabling better planning and helping the supplier to gear up their production capability, to cater for increased volumes. This has led, in some cases, to significant increases in sales. In support of this, Boland cites a 107% year-on-year increase in the sales of the previously mentioned appliances manufacturer.
Despite the less mature state of supply chain and procurement affairs compared with Walmart's US operations, Don suggests that he has been exceedingly impressed with the way their Makro division has handled their most recent Cape Gate rollout. The Makro unit's efficient "new store express" team, their crowd control during opening, the logistical support to distribute one week of turnover in a single day, and other capabilities are being studied and can be transferred to their US team. Necessity (the mother of invention) is not just driving supply chain effectiveness for Massmart. It is driving innovation that global supply chains can learn from as well.
Looking ahead, Walmart is looking to leverage Massmart as a broader base of operations in the region to expand elsewhere on the continent. Actually, Massmart already has a presence in the broader region through its divisions (see Part 1) and Walmart intends to leverage this retail base and infrastructure and expand throughout Africa as conditions permit.
Don likens the broader challenge in Africa to a marathon race. He says there is little that can be accomplished in a mere year or even two; you build a strategy and implement with patience for the long haul. Perhaps this far broader retail footprint (and long view) in SA might encourage Walmart to also broaden their scope elsewhere. Time will tell.
Spend Matters would like to thank Walmart's (and Massmart's) Don Frieson for sharing his observations of the South African and Sub-Saharan supply chain, procurement and retail climate.