Wal-Mart: Supply Chain Management

Background Business Process Redesign: Process, IT Implications: Process, IT

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WAL-MART: BACKGROUND

Wal-Mart Is the Largest and Fastest Growing Discount Department Store

1992 revenues totaled $43.9 billion:
Increased 35% from previous year, whereas competitors growth rates averaged only 10%

Net income increased 25% to $1.6 billion Operations include growing chain of stores, including discount department stores, wholesale clubs, food stores, wholesale distributor of books and pre-recorded music, and grocery distribution services First discount department store chain to expand internationally:
Joint venture with CIFRA, Mexicos largest retailer

18% market share of $250 billion discount department store industry:

KMart, the next largest competitor, has 13.8% Analysts estimate that by the year 1995, Wal-Mart will drive all competitors, aside from KMart and Target, out of business

Wal-Mart grows through volume and market share gains rather than margin expansions.
Source: Annual report.
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WAL-MART: BACKGROUND

Stronger Competitors and More Powerful Suppliers Are Challenging Wal-Mart in Quickly and Effectively Responding to Customers
Competitors: KMart Target
Improved operations Powerful brand management
Wal-Mart

Suppliers:

Improved operations Foreign competition Industry consolidation Intense price competition

Industry consolidation

Customer Demands: The right product In stock The best value Service and quality
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WAL-MART: BUSINESS PROCESS

Satisfying Customer Demands Depends on Five Critical Success Factors

Critical Success Factors (CSF)

Customer Demands
The right products In stock Best value Service and quality

Quick responsiveness to market changes Low inventory Quick replenishment of inventory Effective human resource system Efficient distribution system

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors

CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

Customer demand pulls product through the supply chain

Tracking product movement at individual stores by market traits (e.g., size, color) Investment in IT ensures timely analysis of sales/customer/market information and trends Formal and informal cooperation among stores, distribution centers, and suppliers

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)

CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

Direct high-level and long-term relationship with suppliers enabled by high information sharing:
Some vendors directly manage distribution warehouse inventory of their products

Efficient transportation system Investment in IT (e.g., EDI, Quick Response, Radio frequency terminals)

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)

CSF
Quick Responsiveness to Market Changes
Low Inventory

All employees are considered associates Extensive training and support

Quick Replenishment Effective HR System Efficient Distribution System

Stock-ownership program Profit-sharing

Employees are your biggest capital investment, so it makes sense to maintain themtheir skills, their morale, and their participation.

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)

CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

Highly automated distribution centers (e.g., laser-guided conveyor belts) A fleet of 2,000 company-owned trucks High leverage of supplier relationships:
- Some suppliers ship goods sales floor ready

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WAL-MART: BUSINESS PROCESS

The Traditional Supply Chain Includes Inefficient and Unnecessary Steps

Retailer Distribution Warehouse Individual Store
Order

Order Order Receive Select Pack Select Tag/ Label Storage

Sell

Storage

Wholesaler

Order

Receive

Select

Pack

Manufacturer (Supplier)
Make Pack

Shipper
Ship Ship Ship

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WAL-MART: BUSINESS PROCESS

Wal-Mart Simplified Its Supply Chain

Retailer Distribution Center Individual Store
POS Order

Receive

Select

Pack

Ship

Receive

Storage

Sell

<48 hours

<48 hours

Wholesaler

Manufacturer (Supplier)
Make Select Tag/ Label Pack

Deliver within 72 hours of order

Shipper

Ship

Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours.
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WAL-MART: BUSINESS PROCESS

Wal-Mart Invests Heavily in Information Technology

Inventory Tracking and Management System at distribution centers:
- Identifies every product and its location in the warehouse - Integrated with some 8.5 miles of laser-guided conveyor belts - Lasers read the bar code on every product box and route them to appropriate loading dock

Electronic Data Interchange (EDI):

- For electronic transmission of POS data, purchase orders, invoices, advance shipment notice, etc. between Wal-Mart headquarters, suppliers, distribution centers, and individual stores

Merchandising Artificial Intelligence System:

- To adjust vendor merchandise assortments based on the need of each particular store - State-of-the-art satellite communication network which supports data, voice, and video

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WAL-MART: BUSINESS PROCESS

Wal-Mart Invests Heavily in Information Technology (cont.)

Various Quick-Response (QR) systems (retail-link) to allow direct store-tosupplier ordering: continuous replenishment
Vendor-managed QR Wal-Mart-managed QR
Distribution Center Supplier POS Data Store Order
Wal-Mart

Supplier

Store

Warehouse Just-in-Time System

Distribution Center
Wal-Mart

POS Data Supplier Store

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WAL-MART: IMPLICATIONS

Wal-Marts Inventory Management Improvements Have Resulted in Efficiencies Unmatched by the Competition
Inventory in System (Days)
14 30 At Vendor At Warehouse In-Store 1:5.94 1:4.58

Inventory-to-Sales Ratio

30

3 2 3 Wal-Mart KMart

Before New After New System System IT systems have improved Wal-Marts in-stock position and increased vendor responsiveness

Wal-Mart stores replenish inventory twice a week vs. industry standard of once every two weeks

Selling and Operating Expenses of Sales

28%

15%

Wal-Mart

Sears Roebuck & Co.

Wal-Mart has lowest cost of operations in the retail area, aside from wholesale clubs
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WAL-MART: IMPLICATIONS

Lessons Learned: The Road to Success Is Paved by Technology and Better Use of People

Strong Supplier Relationships

Economies of Sales: Best Deals Stable Lower Prices Reduced Cost of Sale Predictable Sale Patterns Decreased Chance of Out-of-Stock

Effective IT Systems

Effective Distribution Systems In-Depth Knowledge of Customer/ Market

Increased Sales and Profits

Empowered Employees

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