Supply Chain Risk Management of Walmart -Economics Assignment Sample






Table of Contents

1.0. Introduction

LO1: Analyze and understand the dynamics of supply chains and relationships involved

1.0. Brief introduction of the selected company

1.1. Summary of the risk event

1.2. Dynamic of internal and external supply chain

1.3. Explain in which ways the supply chain of the company supports or does not support the vision and mission statement of the company

L02: Propose supply chain planning and control methods and lean and agile strategies to improve supply chains

2.1. Vulnerability audit on the supply chain and Organization (Walmart)

2.2. Assessment of the severity level of the identified risk of Walmart

LO3: Understandthe main techniques for supplier development to improve supply chains

3.1. To mitigate risk, the business organization can use the following models

3.2. Recommendations to solve the Wal-Mart issue (Supplier’s development techniques)

LO4: Evaluate the management of contracts and suppliers using best practice techniques

4.1. Contractual provisions to manage supply chain risks

4.1.1. By publicly disclosing and regularly monitoring strong anti-bribery and anti-corruption systems

4.1.2. Grievance procedure

4.1.2. A good due diligence program

4.1.4. Technological advancement

Reference list

  1. Introduction

Between company and suppliers, the supply chain is a network that used to distribute product to the final buyer. In terms of the views of Zhu, Sarkis and Lai, (2013), marketing, distribution, finance, and customer service and product development are important functions that included. People, resources, information and entities play a very crucial role in the supply chain network. Basically, business organizations are developing this network for reaming competitive as well as reducing the cost of business. There are two types of risk associated with the supply chain process, external risk and internal risk. By identifying the risks within the supply chain, a business organization can limit the risk by developing a risk management plan. In other words, for identifying, mitigating and assessing the risk related to supply chain management, supply chain risk management is a strategic step (Hervani, Helms and Sarkis, 2005).

This assignment first will analyze and understand the relationships involved in the Wal-Mart supply chains. After that, it will discuss in which ways the supply chain of the company supports the mission, vision and competitive strategy of the company. Finally, it will recommend some contractual provisions that business organizations can use to manage the identified risk within the business domain.

LO1: Analyze and understand the dynamics of supply chains and relationships involved

1.0. Brief introduction of the selected company

In global retail management, Walmart is a popular American retail corporation founded by Sam Walton in 1962. In different countries, Walmart has a range of stores in the UK, Canada, India. This retail company offers a variety of clothing, groceries, and appliances. “To save people money so they can live better is the mission statement of the company as well as a brand slogan. On the other hand, the vision statement of the company ‘Be THE destination for customers to save money, no matter how they want to shop’. The mission and vision statement of the Wal-Mart explains the fundamental guiding principles of the business. In this regard, Formentini and Taticchi, (2016) stated that the success of the Walmart is connected to the effectiveness in fulfilling its mission and vision statement of the organization.

1.1. Summary of the risk event

In 2005, Sergio cicero Zapata, a former executive of Walmart de Mexico complained that one of the giant suppliers of Walmart in the Mexicana domain routinely dished outs large payouts and oiled the skids (Formentini and Taticchi, 2016). The reason behind this was aiding its huge growth. In the mail, complainer was giving information like how much and when the bribes were given. In 2004, Cicero had resigned from the Walmart de Mexico by taking the responsibility of the corruption. Recently in 2016, the higher authorities of Walmart refused to settle the corruption problem. However, to resolve the enquiry the Mexican giant offered $300 million. In this connection, it should be noted that in some markets the justice department of the US has been conducting a long running enquiry.

1.2. Dynamic of internal and external supply chain

Within the Walmart organization, the internal supply chain has a huge impact on the success of the organization. As per views of Monczka, et al., (2015), in order to create an efficient workflow and a harmonized working environment, the internal supply chain is required. Production, sales, distribution and purchasing are the crucial activities included in the internal supply chain of Wal-Mart. Furthermore, in order to provide good customer service, the higher authorities of Walmart are integrated internal functions. In Mexico, Walmart is also following the same principle (Fredendall, and Hill, 2016). To deal with unforeseen issues, Wal-Mart is always trying to optimize the internal supply chain. On the other hand, Walmart also depends on external factors like transportation, political situation, as it has a huge impact on the internal operation (Noroozi and Wikner, 2017).

To find products at the best prices from suppliers, Walmart has long been practiced strategic sourcing. For that reason, in Mexico domain, the country head of the Mexican Walmart decided to select local firm, which have the capability to meet huge demand. The Mexican Wal-Mart developed a strategic partnership with a Mexican firm and has promised to purchase a huge amount of product from them (Fredendall, and Hill, 2016).

1.3. Explain in which ways the supply chain of the company supports or does not support the vision and mission statement of the company

To critically analyze in which ways the supply chain framework of the Company support or does not support the mission and vision statement of the company Bensaou’s relationship Model and Kraljic’s preference Model will be used.

To analyse the external condition of Walmart, Bensaou’s relationship Model as well as Pestel model can be used.

Political Factors

Local government have the potential to affect business

Regulations differ between states

Tax rates vary widely

Economic Factors

Upper middle income country in terms of world bank data

Wide spread poverty

Social Factors

In Latin America, second most populous country

Socio cultural components have the potentiality to affect the firm to obtain resources (Binder, 2016)

Technological Factors

Recent advancement has dramatically increase innumerable opportunities for business organizations as well as increased potential consumer base.

Environmental factors

On natural and environmental resources issues, Mexico has a history of corruption, especially in the boundary areas of the Mexico.

Legal Factors

The legal environment is affecting the business direct way. The legal environment of Mexico is making the situation more complex.

It mainly focuses on the markets, products and external conditions of the organization. To segment the relationship with suppliers, Bensaou used the level of specific investment factor. It basically helps to know the level of investment for knowing the contribution of east partners (Tang and Musa, 2011).

Fig: Bensaou’s relationship Model

Source: (Christopher and Lee, 2004)

Bensaou focused on four types of relationship and the reason behind selecting relationship to analyze the right balance of relationships between supplier and organization (Jüttner, Peck and Christopher, 2003). Based on the bribery issue, it is cleared that Walmart developed strategic partnership was unable to develop the right balance between the supplier and the firm. In terms of the model, it can be stated that if the organization focuses on longer-term collaborative relationship rather than arm’s length relationship organization could solve the bribery issue. In addition to that, with the help of the Bensaou model, it can be derived that Wal-Mart failed in Mexico because higher authorities were not focused on the following factors such as satisfaction, reputation, social bonds, adaptation, and trust as they played a very significant role in the domain (Jüttner, Peck and Christopher, 2003).

L02: Propose supply chain planning and control methods and lean and agile strategies to improve supply chains

2.1. Vulnerability audit on the supply chain and Organization (Wal-Mart)

To identify potential crises of Walmart, a vulnerability audit is a systematic self-inspection process which helps a business organization to plan. By using the plan, Walmart can minimize or avoid the negative impact of such a crisis (Jüttner, Peck and Christopher, 2003). In supply chain management, relationship covers a lot of opinion and views including members of the supply chain community. Tactical relationships, transactional relationships, internal relationships and strategic relationships are examples of relationships.

Analysis of the buyer and supplier relationship

To respond to dynamic and unpredictable change, in an organization buyer and supplier relationship play a very crucial role. Now, the fact is that if the relationship is too restrictive, it will be difficult for management to achieve flexibility in their relationship. The Wal-Mart management can increase the buyer supply relationship by using agreements to collaborate based on trust and information sharing procedure. If the buyers decide to delist any products of the suppliers, the relationship between suppliers and retailer is threatened.

Impact of financial risk on the organization and supply chain

The financial condition of suppliers is a primary risk, and in this context, it should be noted that performance issues of suppliers are connected to finances. Therefore, procurement needs to be managed for reducing the impact of risk on the o ranization. Inflation risk, business risk, legal risk, reputational risk, foreign exchange risk, volatility risk is part of the financial risk. In general, to manage the financial risk to the Walmart, the management of the company should identify and implement strategies to manage the risk (Jüttner, Peck and Christopher, 2003).

Impact of Strategic risk on the organization and supply chain

In supply chain management, Strategic risk is another risk (Gaudenzi and Borghesi, 2006). To stay competitive in the long run and reduce the impact of risk, the management of Walmart should understand the competitive dynamics of the market. The strategic risk of business organization is not only profitability or production but also about the risk related to reputation.

Impact of brand risk on the organization and supply chain

In 2005, Walmart Mexico lawyer blew that under the direction of the then country general counsel and country chief executive officer (CEO) bribed officials to get clearance for new stores. In addition, they also falsified record of these transactions. After bribery allegations concerning the Mexican retail operation, stock price of Wal-Mart dropped. This situation can be considered as Brand risk or reputational risk. As stated by Gaudenzi and Borghesi,(2006), reputation is part of brand and well developed brand in times of crisis and business interruptions, helped to protect reputation. To solve the impact of brand risk on the organization and supply chain, management should improve the compliance capability.

Impact of operational risk on the organization and supply chain

Even with a mature and robust supply chain process, operational risk can occur. The core business function of an organization is part of operational processes. In this case, operational risk is the prospect of loss resulting from bribery operation where senior managers of Wal-Mart personally involved. Therefore, operational risk can affect the organization by increasing protection related threat issue (Jüttner, Peck and Christopher, 2003).

Impact of Legal risk on the organization and supply chain

Contract risk, Compliance risk, patent infringement or trademark risk and corruption and Bribery are the examples of legal risk that have a hugely adverse effect on a business organization. The bribery issue of the Mexican Wal-Mart is a crucial legal risk and to solve such issue, the management should improve compliance capability of the organization (Norrman and Lindroth, 2004).

Impact of market risk on the organization and supply chain

Financial, market exposure, compliance and brand all are part of market risk and may happens when the company completely depends on suppliers for outsourcing product. Many investors experience losses due to Wal-Mart Mexican scandal which reduced stock price. In Mexican domain, such change happened because of the incapability of the management to maintain compliance.

2.2. Assessment of the severity level of the identified risk of Walmart

In a business domain, risks are an unavoidable part. However, the fact is that the success of Walmart dependent on the respond and ability to manage the risk properly. By using the following tools, Wal-Mart can assess the identified bribery risk (Hervani, Helms and Sarkis, 2005).

Risk assessment matrix tool

This tool is basically focused on two aspects, the first one is likelihood and the second one is severity (Rao and Goldsby, 2009). In terms of the severity aspect, the Mexican risk (identifies risk) of Wal-Mart can be considered as a critical risk. In terms of definition, the identified risk of Wal-Mart had a substantial impact on the success of the organization (Jüttner and Maklan, 2011). Furthermore, it also affects the daily operation of the organization. In terms of likelihood, the probability to occur the identified risk is likely. It means that the Mexican situation can occur anytime, and the chance of occurrence is very high (Norrman and Lindroth, 2004).

Risk assessment Grid

Fishbone tool for root cause analysis

To recognize the possible causes of a problem, the fishbone tool is used here and this tool is popular as a cause and effect diagram. In terms of the tool, the cause of the Mexican risk event is over dependence and trust on senior management. The effect of the problem was loss of a brand value of the company, which Walmart achieved by investing a huge amount of hard work (Rao and Goldsby, 2009).

Fig: Fish bone diagram

Source: (Hervani, Helms and Sarkis, 2005)

Step 1:

To get clearance and permits for new stores, the higher management under the guidance of the country chief executive officer (CEO) bribed officials as well as falsified records of these transactions.

Step 2: Recognize the Main Causes of the Problem.

The Walmartde Mexican Bribery problem is the effect of some causes and the causes can be analysised by using 4 whys. The first cause was trust on country head and senior management, the second cause was poor leadership, the third cause was Mexican external environment factor and its impact on the organization and the fourth cause was poor contractual conditions.

Step 3: identify all Possible Sub-causes in Each Main Cause

The possible sub causes behind the main causes were poor political and legal environment that mainly encouraged bribery in the organization and degraded culture of the organization, poor compliance rules and regulations, poor organizational culture and poor training to the employees

Step 4: Analyze stage

 In this model, the first cause was over dependence on senior management and the reason behind the cause was old reputation of the manger and ability that helped him to achieve the higher position in the Mexican domain. In the international market, it is normal to depend on the higher authorities. The second cause was poor leadership and it indirectly responsible to create the scandal. On the other hand, Mexican external environment factor was also responsible because of its poor legal, political elements. The fourth cause was Poor contractual conditions of the Wal-Mart.

The above diagram can also be explained with the help of 5ms such as manpower, material, money, method, machines.

Fig: Cause and effect diagram

Source: (created by authors)

The Mexican bribery issue can be easily explained with the help of 5Ms method where M stands for machine, money, material, manpower and method. The fact is that in this case manpower has a huge role due to the language problem and training issue. The material issue can be explained with the help of poor quality linkand responsible person for the issue is Mexico country partner of Walmart and Government. The main reason behind the bribery cause is huge availability of paper money and less dependence on cheque.

LO3: Understand the main techniques for supplier development to Improve supply chains

3.1. to mitigate risk, the business organization can use the following models

Four Ts process to control Financial risk

Transferring Risk:

The financial risk can be transferred through the use of various forms insurance. In other words, on behalf of the organization, transferring risk can be transferred to the third parties who are ready to take risk.

Tolerating Risk

Initially, Walmart head, Sergio cicero Zapata was not able to understand the problem. For him, the solution was to tolerate the risk as the impact was so low on the business (Rao and Goldsby, 2009).

Treating risk

The financial risk of Walmart can be controlled by developing contingency measures for reducing the impact of an event.

Terminating Risk

It is ignored method for controlling risk, but it can be easily done by changing an essentially risky practice or process of the Wal-Mart. In other words, the head of the Walmart before terminating the financial risk should review all aspects of the business (Norrman and Lindroth, 2004).

Contingency planning

By using the contingency planning process, Wal-Mart can minimize the impact of a foreseeable event by including the risk factors that might upset operations. (Rao and Goldsby, 2009). Besides ensuring, a supplier and an internal anti-corruption setup, the management of Wal-Mart should set up the following policies such as plan and conduct training for employees, strengthen internal actions, continued development on sufficient anti-corruption policies, processes and procedures.

3.2. Recommendations to solve the Wal-Mart issue (Supplier’s development techniques)

To improve the end to end supply chain techniques in the Mexico, the management Wal-Mart can use the following techniques.

Recommendations 1:

Creating culture of integrity


For ensuring senior management involved in creating culture of integrity, the Wal-Mart management should set compliance objectives. On behave of the board; audit committee should evaluate that whether senior managers have met those objectives. However, the main focus will pay on the performance of senior managers to know their involvement in the any corruption process such as bribery issue and so on.

Recommendations 2:

Lean Culture


The problem happened in the Wal-Mart Mexican domain because of the mentality of the people and the management culture of the organization. In lean culture leadership is one of the crucial tools. Similarly, the issue happened in the Wal-Mart Mexican domain because of the poor leaders who failed to develop ethical culture in the business. To address the issue, management should build ethical culture on the basis of appropriate ethical behavior otherwise it will be difficult to stay competitive in a long run.

Recommendations 3: Build Strong corporate culture


In this case, malign culture of the organization has allowed corporate leadership of Wal-Mart to keep the board in the dark and ignore the evidence of wrongdoing. Therefore, the management of Wal-Mart should focus on corporate culture as strong corporate culture can curb bribery and corruption and can also assist in enhancing financial performance and improving reputation and brand and strengthening competitive position of the organization. The organizational structure of Wal-Mart is ideal for the global scope operations and company. However, in the global context Wal-mart is mainly criticized for its organizational structure.

Recommendations 4: A good due diligence program

By using the programme, Walmart should map all types of third parties with whom they are going to interact for their day to day activities such as venture partners, service providers, consumers, acquisition targets and so on. After those higher authorities should analyze what level of risk orr what type of risk they can enforce to the company. To actualize it, Walmart should hire some higher official persons in high risk jurisdictions like chief economic officer, chief financial officer and so on. Higher authorities of Wal-Mart, before hiring must do some quite detailed due diligence on them and give some training to the successful candidate.

Recommendations 5: Technological advancement

Wal-Mart should understand that corruption and bribery is not the result of static environment. Criminals will continue to come up with ways for tackling the system Therefore, to solve the supply chain risk, management should set up a program which has the capacity to resolve the evolving issues. Technological advancement is directly and indirectly helped both organization and crimeless. So, organization before using any technology should learn all types of loopholes and process to mitigate all those issues.

LO4: Evaluate the management of contracts and suppliers using best practice techniques

To manage the risks identified in Walmart Mexico domain, the following contractual provisions can be used.

4.1. Contractual provisions to manage supply chain risks

4.1.1. By publicly disclosing and regularly monitoring strong anti-bribery and anti-corruption systems

To manage the identified risk event, Wal-Mart should introduce publicly disclosing and regularly monitoring strong anti-bribery and anti-corruption systems. In business domain, the consequence of corruption is mainly examined in terms of the economic costs which they directly and indirectly impose on society. Wal-Mart is a big organization and its impact on society is much bigger than other business organizations. Therefore, to solve such issue and to motivate practical anti corruption programme, business organization should effectively implement anti corruption program by using a powerful cost benefit analysis.

4.1.2. Anti corruption clause employment contract

To take a tougher stance against bribery and corruption, Wal-Mart should introduce anti bribery clause contract. As an international organization, Wal-Mart should susceptible to this clause and need to work hard to evade prosecution. Basically, this clause has the potentiality to allow all parities to prove themselves like they will not receive bribes or they have not give bribes or conduct other corrupt practices like the situation happened in the Wal-Mart scandal. The interesting fact regarding the clause is that if any party will terminate the contract, suspending the contract or breach the Clause, management can take proper steps. In every significant contract, the Walmart should include anti corruption clause in the international business. This will not only help to reduce the probability of prosecution over corruption and bribery law but will also assist to comply with best practices.

4.1.3. Variation in contract and changes in Law

In commercial contract, ‘variation in contract and change in Law’ is common but Wal-Mart should include a provision that if any changes made to a contract is fruitless unless made in signed by both the parties. In this case, walmart scandal happened due to the illegal mutual agreement and to solve such issue, higher authorities should be strict with the law. In this context it should be noted that, it is legal to change or modify a contract after the contract is formally agreed by the both parties.

4.1.4. Insurance at remedies for non disclosure

This contractual provision is remedy for fraudulent claims by policy holders and should include in the contract. In the event of fraud, presently an insurers could avoid the whole contract as well as insured party would surrender the whole claim. Therefore, it is crucial to include the clause in the contract to protect the insured and policy holders. Generally this act will apply to new contract and this act will help to solve the selected issue. During the negotiation, both the insurer and insured are under positive duty to make full disclosure of all material facts.

4.1.5. Liquidated damage

In the contract, Wal-Mart should include this clause as if a breach of a contract were to occur the amount of damages would need to be paid to the injured party. In the Wal-Mart scandal, higher management including some senior managers bribed parties to renew contracts and such losses are intangible and hard to define. Therefore, liquidated damage will allow for the payment of the parties who are directly involved in the breach of contract. In legal terms, ascertained  damages is known as liquidated damages whose amount are designed for the injured party to collect as reimbursement.

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