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Wal-Mart: Supply Chain Management

• Background

• Business Process Redesign: Process, IT

• Implications: Process, IT


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, Mexico’s 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: BACKGROUND

Source: Annual report.

Wal-Mart grows through volume and market share gains rather than margin expansions.

Wal-Mart grows through volume and market share gains rather than margin expansions.


Stronger Competitors and More Powerful Suppliers Are Challenging Wal-Mart in Quickly and Effectively Responding to Customers

WAL-MART: BACKGROUND

Customer Demands:

• The right product

• In stock

• The best value

• Service and quality

• Improved operations

• Foreign competition

• Industry consolidation

• Intense price competition

Competitors:

TargetKMart

• Improved operations

• Powerful brand management

• Industry consolidation

Suppliers:

Wal-Mart


Customer DemandsCustomer Demands

Critical Success Factors (CSF)

Critical Success Factors (CSF)

Satisfying Customer Demands Depends on Five Critical Success Factors

• Quick responsiveness to market changes

• Low inventory

• Quick replenishment of inventory

• Effective human resource system

• Efficient distribution system

• Quick responsiveness to market changes

• Low inventory

• Quick replenishment of inventory

• Effective human resource system

• Efficient distribution system

• The right products

• In stock

• Best value


• The right products

• In stock

• Best value


WAL-MART: BUSINESS PROCESS


Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors

• 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

Quick Responsivenessto Market Changes

Low Inventory

Quick Replenishment

Effective HR System

Efficient Distribution System

CSF



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

• 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)

CSF



Low Inventory

Quick Replenishment

Effective HR System



• All employees are considered “associates”

• Extensive training and support

• Stock-ownership program

• Profit-sharing

“Employees are your biggest capital investment, so it makes sense to maintain them—their skills, their morale, and their participation.”

“Employees are your biggest capital investment, so it makes sense to maintain them—their skills, their morale, and their participation.”

CSF




Low Inventory

Quick Replenishment

Effective HR 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”

CSF




Low Inventory

Quick Replenishment

Effective HR System



The Traditional Supply Chain Includes Inefficient and Unnecessary Steps

Select Tag/Label

Ship

Pack

Ship

Select PackReceive

Ship

Manufacturer (Supplier)

Retailer

Shipper

Wholesaler

Receive PackSelect Storage

Storage

Sell

Order

Individual StoreDistribution Warehouse

OrderOrder

Order

Make



Wal-Mart Simplified Its Supply Chain

Ship Receive

Select

Ship

Manufacturer (Supplier)

Retailer

Shipper

Wholesaler

Receive PackSelect Storage Sell

Individual StoreDistribution Center

Tag/Label PackMake


Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours.

Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours.

Deliver within72 hours of order

POSOrder

<48 hours<48 hours


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



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

• Various Quick-Response (QR) systems (retail-link) to allow direct store-to-supplier ordering: “continuous replenishment”

Wal-Mart

Supplier

POS Data

Store

Vendor-managed QR

Supplier Store

Wal-Mart-managed QR

Order

Wal-Mart

Supplier Store

Warehouse Just-in-Time System

DistributionCenter

DistributionCenter


POS Data


Wal-Mart’s Inventory Management Improvements Have Resulted in Efficiencies Unmatched by the Competition

WAL-MART: IMPLICATIONS

Inventory-to-Sales Ratio

1:4.58

1:5.94

Sears Roebuck & Co.Wal-Mart

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

• Wal-Mart has lowest cost of operations in the retail area, aside from wholesale clubs

Selling and Operating Expenses of Sales

KMartWal-Mart

15%

28%

• IT systems have improved Wal-Mart’s in-stock position and increased vendor responsiveness

Inventory in System (Days)

At Vendor

At Warehouse

In-Store

30

30

14

323

After New System

Before New System


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

Economiesof Sales:

“Best Deals”

Economiesof Sales:

“Best Deals”

StrongSupplier

Relationships

EffectiveIT Systems

EffectiveDistribution

Systems

EmpoweredEmployees

ReducedCost of Sale

ReducedCost of Sale

In-DepthKnowledge

of Customer/Market

In-DepthKnowledge

of Customer/Market

StableLowerPrices

StableLowerPrices

PredictableSale

Patterns

PredictableSale

Patterns

DecreasedChance of

Out-of-Stock

DecreasedChance of

Out-of-Stock

IncreasedSalesand

Profits

WAL-MART: IMPLICATIONS

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