PROCUREMENT OF

WALMART
TEAM OF
ALIASGAR SADIKOT
ANKUR KUMAR SINGH
DEBASMIT CHAKRABORTY
NEHA SONKAR
ARSHAD

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Wal-Mart is the World’s Largest
Retail Company

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Ranked first in the Global Fortune
500 list in 2001-2002 financial year

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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…

 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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 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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 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…
(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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 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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