Wal-Mart’s Supply

Chain
A Business Success

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Wal-Mart is the World’s Largest
Retail Company

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 History of Wal-Mart
 The company’s founder is Sam
Walton.

 He was born in 1918 at Oklahoma.

 In 1940, he worked for the famous

retailer, J C Penney.

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 History of Wal-Mart…
 Walton gave up the job and decided
to set up his own retail store.

 He purchased a store franchise in

Arkansas.

 Offering significant discounts on

prices, he became successful and
acquired a second store in 3 years.
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 History of Wal-Mart…
 By 1969, Walton had established 18 Wal-
Mart stores.

 By late 1970s, the retail chain had

established a pharmacy and an auto service
center.

 In 1980s, Wal-Mart continued to grow due

to huge customer demands in small towns.

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 History of Wal-Mart…
 Wal-Mart was offering low prices,
customer satisfaction guaranteed,
and hours that were realistic for the
way people wanted to shop.
– Open all night, for university students

 By 1984, there were 640 Wal-Mart

stores in U.S.
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 History of Wal-Mart…
 Wal-Mart suffered a setback in 1992,
when Walton died.

 But it continued its growth in the 1990s,

focusing on overseas stores.
– 1992, Mexico (joint venture with Cifra)
– 1994, Canada (acquired 122 Woolco stores
from Woolworth)
– 1997, Germany (acquired 21 store of
Wertkauf)
– Korea, Brazil, and so on.

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 History of Wal-Mart…

 This phenomenal growth of Wal-

Mart is attributed to its continued
focus on customer needs and
reducing cost through efficient
supply chain management
practices.

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 Hub and Spoke System
 In the early 1970s, Wal-Mart became one
of the first retailing companies in the
world to centralize its distribution system,
pioneering the retail hub-and-spoke
system.

 Under the system, goods were centrally

ordered, assembled at a massive
warehouse, known as ‘distribution center’
(hub), from where they were dispatched
to the individual stores (spoke).
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 Hub and Spoke System…
 Thehub and spoke system enabled
Wal-Mart to achieve significant cost
advantages by the centralized
purchasing of goods in huge
quantities..
– and distributing them through its own
logistics infrastructure to the retail
stores spread across the U.S.

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 Wal-Mart’s Procurement
 Wal-Mart emphasized the need to
reduce purchasing costs and offer
the best price to the customer.

 The company directly procured from

manufacturers, by passing all
intermediaries.

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 Wal-Mart’s Procurement…
 Wal-Martfinalizes a purchase deal
only when it is fully confident that
the products being bought is not
available else where at a lower
price.

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 Wal-Mart’s Procurement…
 Wal-Martspends a significant
amount of time meeting vendors and
understanding their cost structure.

 Bymaking the process transparent,

the retailer can be certain that the
manufacturers are doing their best to
cut down costs.

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 Using EDI for Procurement
 The computer systems of Wal-Mart were
connected to those of its suppliers.

 EDI enabled the suppliers to download

purchase orders along with store-to-store
sales information relating to their products
sold.

 On receiving information about the sales of

various products, the suppliers shipped the
required goods to Wal-Mart’s distribution
centers.
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 Logistics Management
 An important feature of Wal-Mart’s
logistics infrastructure was its fast
and responsive transportation
system.

 Thedistribution centers were

serviced by more than 3500
company owned trucks.

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 Logistics Management…
 Wal-Martbelieved that it needed
drivers who were committed and
dedicated to customer service.

 Thecompany hired only experienced

drivers who had driven more than
300,000 accident-free miles, with no
major traffic violation.

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 Cross-docking
 To make its distribution process more
efficient, Wal-Mart also made use of a
logistics technique called “cross-docking.”

 In this system, the finished goods were

directly picked up from the manufacturing
plant, sorted out and then directly
supplied to the customers.

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 Cross-docking
 The system reduced the handling and
storage of finished goods, virtually
eliminating the role of the distribution
centers and stores.

 The manufacturer directly forwarded the

goods to a place called the “staging area.”

 The goods were packed here according to

the orders received from different stores
and then directly sent to the respective
customers.
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 Inventory Management
 Wal-Mart invested heavily in IT and
communication systems to effectively
track sales and merchandise inventories in
stores across the country.

 With the rapid expansion, it was essential

to have a good communication system.

 Hence, Wal-Mart set up its own satellite

communication system in 1983.

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 Inventory Management…
 Wal-Mart was able to reduce unproductive
inventory by allowing stores to manage
their own stocks, reducing pack sizes
across many product categories, and
timely price markdowns.

 Instead of cutting the inventory across the

board, Wal-Mart made full use of its IT
capabilities to make more inventories
available in the case of items that
customers wanted most, while reducing
the overall inventory levels.

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 Inventory Management…
 Employees at the stores had the “Magic
Wand,” a hand-held computer which
was linked to in-store terminals through a
radio frequency network.

 These helped them to keep track of the

inventory in stores, deliveries, and backup
merchandise in stock at the distribution
centers.

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 Inventory Management…
 The order management and store
replenishment of goods were entirely
executed with the help of computers
through the Point-of-Sales (POS) system.

 Through this system, it was possible to

monitor and track the sales and
merchandise stock levels on the store
shelves.

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Voice-based Order Filling (VOF)
 In 1998, Wal-Mart installed a voice-based
order filling (VOF) system in all its grocery
distribution centers.

 Each person responsible for order picking

was provided with a microphone/speaker
headset, connected to the portable (VOF)
system that could be worn on waist belt.

 They were guided by the voice to item

locations in the distribution centers.

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Voice-based Order Filling (VOF)…
 The VOF system also verified quantities
picked, and could respond to a variety of
requests such as providing product detail
(type, price, barcode number, etc.)

 By installing the VOF system, Wal-Mart

eliminated mispicks and product labeling
costs since the system did not require
paper lists and labels to be affixed on the
goods.

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 Inventory Management…
(quick replenishment)
 Since the floor area of any Wal-Mart store
varied between 40,000 to 200,000 square
feet, movement of goods within the store
was an important part of logistics
operations.

 Wal-Mart made significant investments in

IT to quickly locate and replenish goods
at the stores.

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 Inventory Management…
(pretty darn quick displays)
 The company asked its suppliers to ship
goods in store-ready displays called pretty
darn quick (PDQ) displays.

 Goods were packed in PDQ displays that

arrived at the stores ready to be boarded
on the racks.

 Wal-Mart’s employees could directly

replace the empty racks at the stores with
fully packed racks, instead of refilling each
and every item at the racks.
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 Inventory Management…
(retail link system)
 In 1991, Wal-Mart had invested
approximately $4 billion to build a retail
link system.

 More than 10,000 Wal-Mart retail suppliers

used the retail link system to monitor the
sales of their goods at stores and replenish
inventories.

 Details of daily transactions (~10 million

per day) were processed through this
system.
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 Inventory Management…
(retail link system)
 Retail
Link connected Wal-Mart’s EDI
network with an extranet, accessible
to Wal-Mart’s thousands of suppliers.

 The suppliers could find out how

their product was performing vis-a-
vis competitors’ products in a
particular product category.

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 Inventory Management…
(retail link system)
 Wal-Mart owned the largest and most
sophisticated computer system in the
private sector.

 The company used Massively Parallel

Processor (MPP) computer system to track
the movement of goods and stock levels.

 All information related to sales and

inventories was passed on through an
advanced satellite communication system.

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 CPFR

 By the mid 1990s, Retail Link had

emerged into an Internet-enabled
SCM system whose functions were
not confined to inventory
management alone, but also covered
collaborative planning, forecasting
and replenishment (CPFR).

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 CPFR
 In CPFR, Wal-Mart worked together with
its key suppliers on a real-time basis by
using the Internet to jointly determine
product-wise demand forecast.

 CPFR is defined as a business practice for

business partners to share forecasts and
results data through the Internet, in
order to reduce inventory costs while at
the same time, enhancing product
availability across the supply chain.
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 CPFR: Hard to implement
 Though CPFR was a promising supply
chain initiative aimed at a mutually
beneficial collaboration between Wal-Mart
and its suppliers, its actual
implementation required huge
investments in time and money.

 A few suppliers with whom Wal-Mart tried

to implement CPFR complained that a
significant amount of time had to be spent
on developing forecasts and analyzing
sales data.

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 VAN EDI vs Web-EDI
 In October 2002, Wal-Mart asked its
14,000 suppliers to switch over from the
existing Value Added Networks (VAN) EDI
to web enabled EDI.

 VANs route and manage EDI messages for

their customers.

 By implementing web-EDI, Wal-Mart can

save millions of dollars in the form of
license fees to the private VANs.

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VAN EDI vs. Web-EDI

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 RFID Technology
(Radio Frequency Identification)
 In efforts to implement new technologies
to reduce costs and increase the
efficiency, in July 2003, Wal-Mart asked its
top 100 suppliers to be RFID compliant by
January, 2005.

 Wal-Mart planned to replace bar-code

technology with RFID technology.

 The company believed that this

replacement would reduce its supply chain
management costs and enhance
efficiency.
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 RFID Technology
(Radio Frequency Identification)
 Because of the implementation of RFID,
employees were no longer required to
physically scan the bar codes of goods
entering the stores and distribution
centers, saving labor cost and time.

 Wal-Mart expected that RFID would

reduce the instances of stock-outs at the
stores.

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 RFID Technology
(Radio Frequency Identification)
 Although Wal-Mart was optimistic about
the benefits of RFID, analysts felt that it
would impose a heavy burden on its
suppliers.

 To make themselves RFID compliant, the

suppliers needed to incur an estimated $20
Million.

 Of this, an estimated %50 would be spent

on integrating the system and making
modifications in the supply chain software.
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