Inventory Management and Logistics: RFID, 3PL and 4PL

Wal-Mart maintains a strong competitive edge through unmatchable consumer prices and a wide variety of products and services in a single location. This pursuit of maintaining the lowest prices possible on such a diverse selection of consumer products requires strict supply chain and inventory management systems. Through the use of technology, Wal-Mart has managed to reach astounding efficiency in the way that its inventory is managed in stores around the world. Their innovation has revolutionized the way that retail inventory is tracked and restocked, leading to unbelievably low costs which translates to direct customer savings. As explained by Army Col. Vernon Beatty, “supply chain management is moving the right items to the right customer at the right time by the most efficient means, and no one does that better than Wal-Mart".




One very important practice that allows Wal-Mart to maintain such a competitive edge is the use of radio frequency identification (RFID) technology. Through the use of RFID and point-of-sales data, the company is able to track their inventory all throughout the supply chain to locate and remotely control inventory in locations even outside of its own facilities. The RFID system consists of three primary components: tags, readers, and a computer system. The tags contain radio antennas with a microchip and can generally store about two kilobytes of data. These tags are attached to products and may contain such data as the manufacture date, unique product identification, price, expiration, etc. The readers are used to detect and decode the data that is stored on each tag. Finally, the computer system is used to collect and store the data to be used for a variety of purposes including identification of bottlenecks and the generation of information to support decisions.

The use of RFID technology saves a great deal of time and greatly improves the efficiency of supply chain and inventory management systems. Additionally, RFID implementation reduces costs that are associated with the flow of goods and demand information. Mal-Mart is able to see their supply in real time to compare to demand forecasts for accurate and timely ordering. This total supply chain visibility from production to consumption offers remarkable insight that allows companies to continuously refine their processes towards maximum efficiency and minimal costs. Finally, the data collected from RFID technology facilitates highly accurate financial reports and improves managerial decisions throughout the organization.

An extremely important aspect of inventory and supply chain management is logistics. While Wal-Mart has its own private fleet, many companies outsource transportation to third-party logistics (3PL) providers. Some of the advantages of a private fleet include guaranteed capacity, enhanced customer service, scheduling flexibility, free advertising on company vehicles, and the ability to design the fleet to meet specific needs. While these advantages are significant, some companies outsource to 3PL providers for various reasons including the large amount of capital needed to establish a private fleet and the difficulty or inability to maximize efficiency through hauling freight on return trips.

While 3PL is concerned primarily with the outsourcing of shipping and distribution, fourth-party logistics (4PL) offers complete supply chain solutions through the accumulation of resources, capabilities, and technologies. This includes procurement, storage, distribution, processes, and IT solutions. Some advantages of 4PL include access to more potential suppliers, reduced procurement costs and order cycle time, automation and standardization of order placement, back-end system integration, and more. 4PL solutions are becoming increasingly popular due to the capability to improve efficiency and increase a company’s bottom line. Experienced 4PL providers have the capability to bring value to an organization’s logistics process through a reengineered approach to managing people, processes, and technology.

For a local company looking to expand its presence globally, the implementation of RFID technology and 3PL/4PL providers could be of great benefit. Early adoption of RFID technology could streamline the supply chain and inventory management systems to offer greater control and insight; lowering the costs of expansion while maintaining outstanding efficiency. The data generated during this expansion would allow the growing company to closely monitor its processes and refine problem areas during developmental stages which could save the company millions of dollars over time. The data collected during the expansion would also be useful for generating valuable information to support managerial decisions in the future.

Considering the vast capital requirements of establishing in-house logistics such as a transportation fleet, distribution centers, IT infrastructure, etc, the outsourcing of logistics to 3PL and 4PL providers could allow the global expansion to happen smoothly with lower costs and less trial and error. An experienced 4PL provider would already have the capital resources in place and its processes refined; eliminating much of the risk that is involved in the establishment of these services and infrastructures. While well-established global retailers such as Wal-Mart greatly benefit from in-house logistics, developing companies with limited resources could improve and expedite their growth process by implementing these outsourced services early on. This decision should be considered in great detail, as each industry and individual company has specific business requirements that may or may not benefit from these services as much as others. 

References

Russell, R., & Taylor, B. (2011). Operations Management (7th ed.). Hoboken, NJ : John Wiley and Sons, Inc.

Millsap, D. (2012, January 1). Wal-Mart's Use of RFID in Global Supply Chain Management.Daniel Millsap > Research > MBA School Research > WAL-MART'S USE OF RFID IN GLOBAL SUPPLY CHAIN MANAGEMENT. Retrieved June 7, 2014, from http://www.danielmillsap.com/research/rfid-in-wal-mart-global-supply-chain-management.html

Traub, T. (2012, July 2). Wal-Mart Used Technology to Become Supply Chain Leader.Arkansas Business. Retrieved June 7, 2014, from http://www.arkansasbusiness.com/article/85508/wal-mart-used-technology-to-become-supply-chain-leader?page=all

Snapp, S. (2012, April 7). The Overestimation of Outsourced Logistics. Fourth Party Logistics RSS. Retrieved June 7, 2014, from http://www.scmfocus.com/fourthpartylogistics/2012/04/the-overestimation-of-outsourced-logistics/

Third Party Logistics (3PL) and Fourth Party Logistics (4PL). (n.d.). Cquential. Retrieved June 7, 2014, from http://www.cquential.co.za/industries/3pl-4pl/

Jordan, D. (2010, September 7). Fourth Party Logistics (4PLP); what this means for your Supply Chain. Fourth Party Logistics (4PLP); what this means for your Supply Chain. Retrieved June 7, 2014, from http://supplychain.enchange.com/bid/24156/Fourth-Party-Logistics-4PLP-what-this-means-for-your-Supply-Chain