Download - 1 Wal-Marts Supply Chain A Business Success. 2 Wal-Mart is the Worlds Largest Retail Company

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Wal-Mart’s Supply Wal-Mart’s Supply ChainChain

A Business SuccessA Business Success

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Wal-Mart is the World’s Largest Wal-Mart is the World’s Largest Retail CompanyRetail Company

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Ranked first in the Global Fortune Ranked first in the Global Fortune 500 list in 2001-2002 financial year500 list in 2001-2002 financial year

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History of Wal-MartHistory of Wal-Mart

The company’s founder is Sam The company’s founder is Sam Walton.Walton.

He was born in 1918 at Oklahoma.He was born in 1918 at Oklahoma.

In 1940, he worked for the famous In 1940, he worked for the famous retailer, J C Penney.retailer, J C Penney.

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History of Wal-MartHistory of Wal-Mart……

Walton gave up the job and decided Walton gave up the job and decided to set up his own retail store.to set up his own retail store.

He purchased a store franchise in He purchased a store franchise in Arkansas.Arkansas.

Offering significant discounts on Offering significant discounts on prices, he became successful and prices, he became successful and acquired a second store in 3 years.acquired a second store in 3 years.

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By 1969, Walton had established 18 Wal-By 1969, Walton had established 18 Wal-Mart stores.Mart stores.

By late 1970s, the retail chain had By late 1970s, the retail chain had established a pharmacyestablished a pharmacy and an auto service and an auto service center.center.

In 1980s, Wal-Mart continued to grow due to In 1980s, Wal-Mart continued to grow due to huge customer demands in small towns.huge customer demands in small towns.

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Wal-Mart was offering low prices, Wal-Mart was offering low prices, customer satisfaction guaranteed, customer satisfaction guaranteed, and hours that were realistic for the and hours that were realistic for the way people wanted to shop.way people wanted to shop.

– Open all night, for university studentsOpen all night, for university students

By 1984, there were 640 Wal-Mart By 1984, there were 640 Wal-Mart stores in U.S.stores in U.S.

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Wal-Mart suffered a setback in 1992, Wal-Mart suffered a setback in 1992, when Walton died.when Walton died.

But it continued its growth in the 1990s, But it continued its growth in the 1990s, focusing on overseas stores.focusing on overseas stores.– 1992, Mexico (joint venture with Cifra)1992, Mexico (joint venture with Cifra)– 1994, Canada (acquired 122 Woolco stores 1994, Canada (acquired 122 Woolco stores

from Woolworth)from Woolworth)– 1997, Germany (acquired 21 store of Wertkauf)1997, Germany (acquired 21 store of Wertkauf)– Korea, Brazil, and so on.Korea, Brazil, and so on.

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The Diffusion of Wal-MartThe Diffusion of Wal-Mart

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This phenomenal growth of Wal-Mart This phenomenal growth of Wal-Mart is attributed to its continued focus on is attributed to its continued focus on customer needs and reducing cost customer needs and reducing cost through efficient through efficient supply chain supply chain management practicesmanagement practices..

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Hub and Spoke SystemHub and Spoke System

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

Under the system, goods were centrally Under the system, goods were centrally ordered, assembled at a massive ordered, assembled at a massive warehouse, known as ‘distribution center’ warehouse, known as ‘distribution center’ ((hubhub), from where they were dispatched ), from where they were dispatched to the individual stores (to the individual stores (spokespoke).).

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Hub and Spoke SystemHub and Spoke System……

The hub and spoke system enabled The hub and spoke system enabled Wal-Mart to achieve significant cost Wal-Mart to achieve significant cost advantages by the centralized advantages by the centralized purchasing of goods inpurchasing of goods in huge huge quantitiesquantities.... – and distributing them through its and distributing them through its own own

logistics infrastructurelogistics infrastructure to the retail to the retail stores spread across the U.S.stores spread across the U.S.

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Wal-Mart’s ProcurementWal-Mart’s Procurement

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

The company The company directlydirectly procured from procured from manufacturers, by passing all manufacturers, by passing all intermediaries.intermediaries.

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Wal-Mart’s ProcurementWal-Mart’s Procurement……

Wal-Mart finalizes a purchase deal Wal-Mart finalizes a purchase deal only when it is fully confident that only when it is fully confident that the products being bought the products being bought is not is not available else where at a lower available else where at a lower priceprice..

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Wal-Mart’s ProcurementWal-Mart’s Procurement……

Wal-Mart spends a significant Wal-Mart spends a significant amount of time meeting vendors and amount of time meeting vendors and understanding their cost structure.understanding their cost structure.

By making the process transparent, By making the process transparent, the retailer can be certain that the the retailer can be certain that the manufacturers are doing their best to manufacturers are doing their best to cut down costs.cut down costs.

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Using EDI for ProcurementUsing EDI for Procurement The computer systems of Wal-Mart were The computer systems of Wal-Mart were

connected to those of its suppliers.connected to those of its suppliers.

EDIEDI enabled the suppliers to download enabled the suppliers to download purchase orders along with store-to-store purchase orders along with store-to-store sales information relating to their products sales information relating to their products sold.sold.

On receiving information about the sales On receiving information about the sales of various products, the suppliers shipped of various products, the suppliers shipped the required goods to Wal-Mart’s the required goods to Wal-Mart’s distribution centers.distribution centers.

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Wal-Mart and ChinaWal-Mart and China

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Logistics ManagementLogistics Management

An important feature of Wal-Mart’s An important feature of Wal-Mart’s logistics infrastructure was its fast logistics infrastructure was its fast and responsive transportation and responsive transportation system.system.

The distribution centers were The distribution centers were serviced by more than 3500 serviced by more than 3500 company owned trucks.company owned trucks.

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Logistics ManagementLogistics Management……

Wal-Mart believed that it needed Wal-Mart believed that it needed drivers who were committed and drivers who were committed and dedicated to customer service.dedicated to customer service.

The company hired only experienced The company hired only experienced drivers who had driven more than drivers who had driven more than 300,000 accident-free miles, with no 300,000 accident-free miles, with no major traffic violation.major traffic violation.

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Cross-dockingCross-docking

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

In this system, the finished goods were In this system, the finished goods were directly picked up from the manufacturing directly picked up from the manufacturing plant, sorted out and then directly plant, sorted out and then directly supplied to the customers.supplied to the customers.

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Cross-dockingCross-docking The system reduced the handling and The system reduced the handling and

storage of finished goods, virtually storage of finished goods, virtually eliminating the role of the distribution eliminating the role of the distribution centers and stores.centers and stores.

The manufacturer directly forwarded the The manufacturer directly forwarded the goods to a place called the “staging area.”goods to a place called the “staging area.”

The goods were packed here according to The goods were packed here according to the orders received from different stores the orders received from different stores and then directly sent to the respective and then directly sent to the respective customers.customers.

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Inventory ManagementInventory Management

Wal-Mart invested heavily in IT and Wal-Mart invested heavily in IT and communication systems to effectively communication systems to effectively track sales and merchandise inventories in track sales and merchandise inventories in stores across the country.stores across the country.

With the rapid expansion, it was essential With the rapid expansion, it was essential to have a good communication system.to have a good communication system.

Hence, Wal-Mart set up its own satellite Hence, Wal-Mart set up its own satellite communication system in 1983.communication system in 1983.

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Inventory ManagementInventory Management…… Wal-Mart was able to reduce unproductive Wal-Mart was able to reduce unproductive

inventory by allowing stores to manage inventory by allowing stores to manage their own stocks, their own stocks, reducing pack sizesreducing pack sizes across many product categories, and across many product categories, and timely price markdowns.timely price markdowns.

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

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Inventory ManagementInventory Management……

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

These helped them to keep track of the These helped them to keep track of the inventory in stores, deliveries, and backup inventory in stores, deliveries, and backup merchandise in stock at the distribution merchandise in stock at the distribution centers.centers.

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Inventory ManagementInventory Management……

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

Through this system, it was possible to Through this system, it was possible to monitor and track the sales and monitor and track the sales and merchandise stock levels on the store merchandise stock levels on the store shelves.shelves.

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Voice-based Order Filling (VOF)Voice-based Order Filling (VOF) In 1998, Wal-Mart installed a voice-based In 1998, Wal-Mart installed a voice-based

order filling (VOF) system in all its grocery order filling (VOF) system in all its grocery distribution centers.distribution centers.

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

They were guided by the voice to item They were guided by the voice to item locations in the distribution centers. locations in the distribution centers.

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Voice-based Order Filling (VOF)Voice-based Order Filling (VOF)……

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

By installing the VOF system, Wal-Mart By installing the VOF system, Wal-Mart eliminated mispicks and product labeling eliminated mispicks and product labeling costs since the system did not require costs since the system did not require paper lists and labels to be affixed on the paper lists and labels to be affixed on the goods.goods.

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Inventory Management…Inventory Management… ((quick replenishment)quick replenishment)

Since the floor area of any Wal-Mart store Since the floor area of any Wal-Mart store varied between 40,000 to 200,000 square varied between 40,000 to 200,000 square feet, movement of goods within the store feet, movement of goods within the store was an important part of logistics was an important part of logistics operations.operations.

Wal-Mart made significant investments in Wal-Mart made significant investments in IT to IT to quicklyquickly locate and replenish goods locate and replenish goods at the stores.at the stores.

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Inventory Management…Inventory Management… ((pretty darn quick displays)pretty darn quick displays)

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

Goods were packed in PDQ displays that Goods were packed in PDQ displays that arrived at the stores ready to be boarded arrived at the stores ready to be boarded on the racks.on the racks.

Wal-Mart’s employees could directly Wal-Mart’s employees could directly replace the empty racks at the stores with replace the empty racks at the stores with fully packed racks, instead of refilling each fully packed racks, instead of refilling each and every item at the racks.and every item at the racks.

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Inventory ManagementInventory Management…… ((retail link systemretail link system))

In 1991, Wal-Mart had invested In 1991, Wal-Mart had invested approximately $4 billion to build a approximately $4 billion to build a retail retail link systemlink system..

More than 10,000 Wal-Mart retail suppliers More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the used the retail link system to monitor the sales of their goods at stores and replenish sales of their goods at stores and replenish inventories.inventories.

Details of daily transactions (~10 million Details of daily transactions (~10 million per day) were processed through this per day) were processed through this system.system.

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Retail Link connected Wal-Mart’s EDI Retail Link connected Wal-Mart’s EDI network with an extranet, accessible network with an extranet, accessible to Wal-Mart’s thousands of suppliers.to Wal-Mart’s thousands of suppliers.

The suppliers could find out how their The suppliers could find out how their product was performing vis-a-vis product was performing vis-a-vis competitors’ products in a particular competitors’ products in a particular product category.product category.

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Wal-Mart owned the largest and most Wal-Mart owned the largest and most sophisticated computer system in the sophisticated computer system in the private sector.private sector.

The company used Massively Parallel The company used Massively Parallel Processor (MPP) computer system to track Processor (MPP) computer system to track the movement of goods and stock levels.the movement of goods and stock levels.

All information related to sales and All information related to sales and inventories was passed on through an inventories was passed on through an advanced satellite communication system.advanced satellite communication system.

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CPFRCPFR

By the mid 1990s, Retail Link had By the mid 1990s, Retail Link had emerged into an Internet-enabled emerged into an Internet-enabled SCM system whose functions were SCM system whose functions were not confined to inventory not confined to inventory management alone, but also covered management alone, but also covered collaborative planning, forecasting collaborative planning, forecasting and replenishment (CPFR).and replenishment (CPFR).

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CPFRCPFR

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

CPFRCPFR is defined as a business practice for is defined as a business practice for business partners to share forecasts and business partners to share forecasts and results data through the results data through the InternetInternet, in order , in order to reduce inventory costs while at the to reduce inventory costs while at the same time, enhancing product availability same time, enhancing product availability across the supply chain.across the supply chain.

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CPFR: Hard to implementCPFR: Hard to implement Though CPFR was a promising supply Though CPFR was a promising supply

chain initiative aimed at a mutually chain initiative aimed at a mutually beneficial collaboration between Wal-Mart beneficial collaboration between Wal-Mart and its suppliers, its actual and its suppliers, its actual implementation required huge implementation required huge investments in time and money.investments in time and money.

A few suppliers with whom Wal-Mart tried A few suppliers with whom Wal-Mart tried to implement CPFR complained that a to implement CPFR complained that a significant amount of time had to be spent significant amount of time had to be spent on developing forecasts and analyzing on developing forecasts and analyzing sales data.sales data.

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VAN EDI vs Web-EDIVAN EDI vs Web-EDI In October 2002, Wal-Mart asked its In October 2002, Wal-Mart asked its

14,000 suppliers to switch over from the 14,000 suppliers to switch over from the existing Value Added Networks (VAN) EDI existing Value Added Networks (VAN) EDI to web enabled EDI.to web enabled EDI.

VANs route and manage EDI messages for VANs route and manage EDI messages for their customers.their customers.

By implementing web-EDI, Wal-Mart can By implementing web-EDI, Wal-Mart can save millions of dollars in the form of save millions of dollars in the form of license fees to the private VANs.license fees to the private VANs.

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VAN EDI vs. Web-EDIVAN EDI vs. Web-EDI

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RFID TechnologyRFID Technology(Radio Frequency Identification)(Radio Frequency Identification)

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

Wal-Mart planned to replace bar-code Wal-Mart planned to replace bar-code technology with RFID technology.technology with RFID technology.

The company believed that this The company believed that this replacement would reduce its supply chain replacement would reduce its supply chain management costs and enhance management costs and enhance efficiency.efficiency.

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Because of the implementation of RFID, Because of the implementation of RFID, employees were no longer required to employees were no longer required to physically scan the bar codes of goods physically scan the bar codes of goods entering the stores and distribution entering the stores and distribution centers, saving labor cost and time.centers, saving labor cost and time.

Wal-Mart expected that RFID would reduce Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.the instances of stock-outs at the stores.

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Although Wal-Mart was optimistic about Although Wal-Mart was optimistic about the benefits of RFID, analysts felt that it the benefits of RFID, analysts felt that it would impose a heavy burden on its would impose a heavy burden on its suppliers.suppliers.

To make themselves RFID compliant, the To make themselves RFID compliant, the suppliers needed to incur an estimated suppliers needed to incur an estimated $20 Million.$20 Million.

Of this, an estimated %50 would be spent Of this, an estimated %50 would be spent on integrating the system and making on integrating the system and making modifications in the supply chain software.modifications in the supply chain software.

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RFID Applications for Tracking RFID Applications for Tracking InventoryInventory

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