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OM in the News: Wal-Mart Decides to Challenge Amazon

May 16, 2016
Wal-Mart is building a regional delivery network and will also tap carriers to deliver more of its packages.

Wal-Mart is building a regional delivery network and will also tap carriers to deliver more of its packages.

Wal-Mart is testing a 2-day shipping subscription service and building a regional delivery network, in the boldest attempt yet by a major traditional retailer to compete head-on with Amazon Prime. As part of the project, Wal-Mart will shift more inventory to 8 massive e-commerce warehouses around the U.S., the last of which will be built by year’s end. It is part of a $2 billion investment the company is making in technology and logistics to boost e-commerce sales, reports The Wall Street Journal (May 13, 2016).

The company will also put its major transportation fleet and logistics know-how up against Amazon as it makes a play to meet Amazon on its own turf. Wal-Mart will tap regional carriers to deliver more of its packages. But it will also use its 6,000 tractor-trailers, one of the 5 largest private trucking fleets in the country, along with its 4,600 U.S. stores, to take on what has become one of its biggest rivals.That could make Wal-Mart less reliant on FedEx, which handles the bulk of Wal-Mart’s parcels.Trucking more of its own packages closer to the shipping destinations for what’s known as last-mile delivery would allow the company to save on one of the higher-cost elements of shipping a package across the country.

A large part of Wal-Mart’s success is its ability to move all those products cheaply and efficiently around the country. Since 2014, Wal-Mart’s online sales increased 12% to $13.7 billion. But Amazon still sends out about 7 times the number of packages Wal-Mart does in North America.

Classroom discussion questions:

  1. What OM advantages does Amazon have over Wal-Mart in this battle for e-commerce sales?
  2. What advantages does Wal-Mart have?
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