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Wal-Mart vs. REI 6Ten LtdA comparison of the supply chain strategy of a largeinternational retailer vs. a medium sized domestic retailer
Submitted By:
Bhagat Singh 118
Manjari Lakshmanan 128
Rakesh Das 139
Ratika Kapoor 140
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Table of ContentsSUMMARY ............................................................................................................................................... 3
BACKGROUND ......................................................................................................................................... 3
Introduction To Wal-Mart ....................................................................................................................... 5
Vision & Culture ...................................................................................................................................... 5
Features Of A Supply Chain ..................................................................................................................... 8
Procurement & Distribution ................................................................................................................... 9
Logistics Management .......................................................................................................................... 10
Cross Docking .................................................................................................................................... 10
Inventory Management ........................................................................................................................ 12
Performance Indicators ........................................................................................................................ 15
Efficiency measures that Walmart has incorporated ........................................................................... 17
Bull whip effect .............................................................................................................................. 17
Consequences: .................................................................................................................................. 19
WalMarts response: ....................................................................................................................... 19
Sustainable Supply Chain ...................................................................................................................... 19
Issues that Wal-Mart might will face in India ................................................................................... 20
Recommendations to Wal-Mart ........................................................................................................... 21
REI 6TEN RETAIL LTD ............................................................................................................................. 22
Procurement ......................................................................................................................................... 22
Issues faced in procurement ............................................................................................................. 23
Managing Inventory .............................................................................................................................. 24
Supply Chain .......................................................................................................................................... 24
Forecasting issue ............................................................................................................................... 24
Order and delivery Issues: ................................................................................................................ 25
Recommendations for 6Ten Retail ....................................................................................................... 25
CONCLUSION ......................................................................................................................................... 25
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SUMMARY
Wal-Mart
Saving People money so they can live betterThe Indian retail industry is the fifth largest in the world. Comprising of organized and
unorganized sectors, India retail industry is one of the fastest growing industries in India,especially over the last few years. Though initially, the retail industry in India was mostly
unorganized, however with the change of tastes and preferences of the consumers, the
industry is getting more popular these days and getting organized as well. With growing
market demand, the industry is expected to grow at a pace of 25-30% annually. The India
retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by
the year 2010.
India is witnessing a retail revolution and the sector is seeing a rapid growth. But the food
and grocery segment is still a segmented one. It is also characterized by inefficiencies. It
aspire to create a vibrant and sustainable business model for this segment keeping abreast of
this radical change in the retailing industry. Predominantly, it focuses on the products of daily
needs especially fruits and vegetables.
REI Agro launched its 6Ten chain of retail outlets in the last quarter of the fiscal of 2006-07.
Through this venture, it endeavors to get closer to the customers to fulfill their needs. It is
committed to provide excellent value for money maintaining an innovative and responsive
operating structure that delivers quality products and services to customers.
It is uniquely positioned because of its experience in the food industry as well as relationship
in the supply network.
Wal-Mart strongly believed and constantly emphasized on strengthening its relationships
with its customers, suppliers and employees. The company was very vigilant and sensed thesmallest of changes in store layouts and merchandising techniques to improve performance
and value for customers. The company made efforts to capitalize on every cost saving
opportunity. The savings on cost were always passed on to the customers, therby adding
value at every stage and process.
The report covers the literature behind Supply chain and Supply chain management. The
various objectives and analysis of Supply chain management are covered in the report. There
are many elements which form a backbone of Supply chain management. Efforts are been
made to explore these dimensions with the help of retail giant Wal-mart. The report also
covers the application of RFID in Wal-mart with Supply chain management technology at its
behest. Efforts are been made to understand different processes that Wal-mart uses in its
Supply chain management.
BACKGROUND
In the times of rapid globalization, with a number of foreign players entering different
industries in India, it is interesting to see the effect that FDI will have on retailing in India.
According to the 1991 population census, the total population of India was 846 million. One
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fourth of this population lived in 3768 towns and the remaining in 627000 villages.1 To cater
to such a large population spread over a vast geographic area with different levels of
infrastructure, retailing in India evolved into a complex structure that varied in terms of size,
economics and scope of activities. Unlike developed countries, retailing in India is
fragmented. The structure ordinarily consists of many layers such as stockists, wholesalers,
retailers, carrying and forwarding agents.
Retail in India operates at three parallel levels:
Formal sector: shops with ongoing business registered with government agenciesunder the Shops and Establishment Act ( kirana shops, malls, supermarkets)
Informal Sector: enterprises without any fixed premises ( hawkers) Government Fair Price Shops: ration shops owned by private individuals
Retail is further divided into Inorganised Sector ( Kirana Stores) & Organised Retailing (
Reliance Retail, Subhiksha etc.)
This paper is an effort to understand the supply chain and distribution strategies of A large
international chain like Walmart Vs. the strategy of small organized retailers and whether the
organized retailers will be able to match up to these international chains in the advent of
100% FDI in retail and Walmart entering the Indian Market.
This project is divided into 2 parts
An analysis of the best practices that Walmart follows Issues that Walmart might face in India An analysis of a domestic organized retail chain What it can learn from the Walmart example
We chose Walmart for 2 reasons:
Being one of the largest retail chains in the world it has a lo Its entry into the Indian Market has the potential to beat a lot of indigenous players
1
Paper on Indian retail market by Mr.Amit Roy, and Mr. Sujit Das, director Indian Research and informationservices
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We chose REI 6/10 retail
Its a mid sized organized retail chain in India We wanted to learn about how many of the best practices are followed and can be
followed by Indian Retail Chains-Interviews with staff and CEO of Rei 6/10 Retail
Introduction To Wal-Mart
Wal-Mart was founded in 1962, with the opening of the first Wal-Mart discount store in
Rogers, Ark. By 1969, Walmat had 18 stores, and an annual sale of $44 million. The
company incorporated as Wal-Mart Stores, Inc. on Oct. 31, 1969. The company's shares
began trading on OTC markets in 1970, and were listed on the New York Stock Exchangetwo years later. In mid 1970s Walmart acquired 16 Mohr-Value stores in Michigan and
Illinois & by Late 70s, the retail chain had a pharmacy, an Auto service center and jew ellery
divisions.
In the 1980s, continued to grow due to the large customer demand. Walton said When we
arrived in these small towns offering lower prices everyday, customer satisfaction
guaranteed, we passed right by the old variety store competition, with their 45% mark ups,
limited selection and limited hours.
Walmart stores were located in large warehouse type buildings, away from the main city. It
targeted customers who bought merchandise in bulk.
With the infusion of investor capital, the company grew to 276 stores in 11 states by the end
of the decade. In 1983, the company opened its first Sams Club membership warehouse, and
in 1988 opened the first supercentre -- now the companys dominant format -- featuring a
complete grocery in addition to general merchandise. Wal-Mart became an international
company in 1991 when it opened its first Sam's Club near Mexico City.
Vision & Culture
Wal-Mart is known all over the world as the company that helps their customers save moneyso they can live better. At the core of their rules and customs is the basic value of respect
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for the customer, associates, and suppliers, which is their focus for building relationships.
They are well known for their unique corporate culture which has made them one of the most
admired companies in the world.
Operating divisions
Wal-Mart's operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club,
and Wal-Mart International.
The company does business in nine different retail formats: supercentres, food and
drugs, general merchandise stores, bodegas (small markets), cash and carry
stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.
Wal-Mart Stores US
Wal-Mart Stores U.S. is Wal-Mart's largest division, accounting for 67.2% of net sales for
financial year 2006.It consists of three retail formats that have become commonplace in the
United States: Discount Stores, Supercentres, and Neighbourhood Markets. The retail
department stores sell a variety of mostly non-grocery products, though emphasis has now
shifted towards supercentres, which include more grocery items.
Wal-Mart Discount Stores
Wal-Mart Discount Stores are discount department stores which carry general
merchandise and a selection offood. As of July 2009, there were 883 Wal-Mart Discount
Stores in the United States.
Wal-Mart Supercentre
Wal-Mart Supercentres are hypermarkets which stock everything a Wal-Mart Discount Store
does, and also include a full-service supermarket. Many Wal-Mart Supercentres also have a
garden centre, pet shop, pharmacy, etc
Wal-Mart Neighbourhood Market
http://en.wikipedia.org/wiki/Sam%27s_Clubhttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/Clothinghttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Restauranthttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Wal-Mart_Neighborhood_Markethttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Groceryhttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Pet_shophttp://en.wikipedia.org/wiki/Pharmacyhttp://en.wikipedia.org/wiki/Pharmacyhttp://en.wikipedia.org/wiki/Pet_shophttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Groceryhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Wal-Mart_Neighborhood_Markethttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Restauranthttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Clothinghttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Sam%27s_Club -
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Wal-Mart Neighbourhood Markets are grocery stores that offer a variety of products, which
include full lines ofgroceries, pharmaceuticals, health and beauty aids, photo developing
services, and a limited selection ofgeneral merchandise. Neighbourhood Markets are used to
fill the gap between Discount Stores and Supercentres.
Market side
Market side is a new chain of grocery stores opened in October 2008. The stores are said to
be less than half the size of a conventional supermarket.
Sams Club
Sam's Club is a chain ofwarehouse clubs which sell groceries and general merchandise, often
in large quantities. Sam's Club stores are "membership" stores and most customers buy
annual memberships. However, non-members can make purchases either by buying a one-
day membership or paying a surcharge based on the price of the purchase. Some locations
also sell gasoline.
Sam's has found a niche market in recent years as a supplier to small businesses. All Sam's
Club stores are open early hours exclusively for business members and their slogan is "We're
in Business for Small Business."
Wal-Mart International
Wal-Mart's international operations currently comprise 2,980 stores in 14 countries outside
the United States. According to Wal-Mart's 2006 Annual Report, the International division
accounted for about 20.1% of sales. There are wholly owned operations in Argentina, Brazil,
Canada, Puerto Rico (although PR is part of the US, the company's operations there are
managed through its international division), and the UK. With 1.8 million employees
worldwide, the company is the largest private employer in the US and Mexico, and one of the
largest in Canada
In addition to its wholly-owned international operations, Wal-Mart has joint ventures in
China and several majority-owned subsidiaries. Wal-Mart's majority-owned subsidiary in
Mexico is Walmex. In Japan, Wal-Mart owns about 53% ofSeiyu.Additionally, Wal-Mart
owns 51% of the Central American Retail Holding Company (CARHCO), consisting of more
than 360 supermarkets and other stores in Guatemala, El Salvador, Honduras, Nicaragua, and
Costa Rica.
http://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Walmexhttp://en.wikipedia.org/wiki/Seiyu_Grouphttp://en.wikipedia.org/wiki/Seiyu_Grouphttp://en.wikipedia.org/wiki/Walmexhttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/Supermarket -
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In November 2006, Wal-Mart announced a joint venture with Bharti Enterprises to open
retail stores in India. As foreign corporations are not allowed to directly enter the retail sector
in India, Wal-Mart will operate through franchises and handle the wholesale end. The
partnership will involve two joint ventures; Bharti will manage the front end involving
opening of retail outlets, while Wal-Mart will take care of the back end, such as cold
chains and logistics.
Private label Brands
Almost all retailers dream to introduce and increase the sales of their private labels. This is
where the money is because the margins earned in this case are the biggest.
About 40% of products sold in Wal-Mart are private label store brands, or products offeredby Wal-Mart and produced through contracts with manufacturers. Wal-Mart began offering
private label brands in 1991 with the launch ofSam's Choice, a brand of drinks produced
by Cott Beverages exclusively for Wal-Mart. Other Wal-Mart brands include Great Value
and Equate in the US and Canada, and Smart Price in Britain.
Features Of A Supply Chain
The structure is almost cyclical in the supply chain. Initially the purchase order is generated,which is generated by the buyer of each category. This order is sent to the supplier and the
http://en.wikipedia.org/wiki/Bharti_Enterpriseshttp://en.wikipedia.org/wiki/Wholesalehttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Private_labelhttp://en.wikipedia.org/wiki/Store_brandhttp://en.wikipedia.org/wiki/Sam%27s_Choicehttp://en.wikipedia.org/wiki/Cott_Corporationhttp://en.wikipedia.org/wiki/Asdahttp://en.wikipedia.org/wiki/Asdahttp://en.wikipedia.org/wiki/Cott_Corporationhttp://en.wikipedia.org/wiki/Sam%27s_Choicehttp://en.wikipedia.org/wiki/Store_brandhttp://en.wikipedia.org/wiki/Private_labelhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Wholesalehttp://en.wikipedia.org/wiki/Bharti_Enterprises -
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supplier delivers to the depot, where the goods are received. The goods are picked from the
depot by Walmart and dispatched to the store which placed the order . Here the stocks are
scanned and the numbers are updated directly into the system. The customer buys at the store,
and once the sales scan takes place, the stock amount decreases.
Base Stock and Economic Order Quantity:
Base Stock: Is the minimum level of inventory that a retailer must maintain at the store level.
EOQ: An inventory-related equation that determines the optimum order quantity that a
company should hold in its inventory given a set cost of production, demand rate and other
variables. This is done to minimize variable inventory costs.
When the amount is almost going to reach the base stock, a re purchase is initiated and the
purchase order is sent to the supplier.
Procurement & Distribution
Wal-Mart emphasizes the need to reduce its purchasing costs and offer the best price to its
customers. The company procures goods directly from manufacturers, bypassing all
intermediaries. Wal-Mart is a tough negotiator on prices and finalizes a purchase deal only
when it is fully confident that the products being bought are not available elsewhere at a
lower price.
By 1998, the company had 40 distribution centres located at different geographical towns. Its
warehouses directly supplied 80-85% of inventory as compared to 50-65% in case of the
competitors. According to some estimates, Wal-Mart is able to provide replenishments within
two days against at least five days for competitors. Each distribution centre is further divided
on the basis of the quantity of goods.
Wal-Mart uses sophisticated barcode technology and hand-held computer systems, managing
the centre became easier and more economical. Every employee has an access to real-time
information regarding the inventory levels of all the products in the centre. They have to just
make two scansone to identify the pallet, and the other to identify the location from where
the stock had to be picked up. Different barcodes were used to label different products,
shelves and bins in a centre. The hand-held computer guides an employee with regard to the
location of a particular product from a particular bin or shelf in the centre. When thecomputer verifies the bin and picks up a product, the employee confirms whether it is the
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right product or not. The quantity of the product required from the centre is entered into the
hand- held computer by the employee and then the computer updates the information on the
main server.
The hand-held computer also enabled the packaging department to get accurate information
about the products to be packed. It displays all information about the storage, packaging and
shipping of a particular product thus, saving time on unnecessary paperwork.
Logistics Management
An important feature of Wal-Marts logistics infrastructure is its fast and responsive
transportation system. The distribution centres is serviced by more than 3,500 company
owned trucks. These dedicated truck fleets allows the company to ship goods from the
distribution centres to the stores within two days and replenish the store shelves twice a week.
The truck fleet is the visible link between the stores and distribution centres.
Cross Docking
To make its distribution process more efficient, Wal-Mart also uses a logistics technique
known as cross-docking. In this system the finished goods are directly picked up from the
manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The
system reduces the handling and storage of finished goods, virtually eliminating the role of
the distribution centres. There are 5 types of cross docking:
Opportunistic Cross dockingIn this method of cross docking, exact information about where the required good is to be
shipped and from where it has to be procured and the exact quantity to be shipped, is needed.
This method of cross docking enables the company to directly ship the goods needed by the
retail customers, without storing them in the warehouse bins or shelves.
Flow-through Cross dockingIn this type of cross docking, there is a constant inflow and outflow of goods from the
distribution centre. This type of cross docking is mostly suitable for perishable goods, which
had a very short time span, or goods that were difficult to be stored in the warehouses.
Distributor Cross docking
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In this type of cross docking, the manufacturer delivered the goods directly to the retailer. No
intermediaries were involved in this process. This enabled the retailer to save a major portion
of the costs in the form of storage. As the retailer did not need to maintain a distribution
centre for storing various kinds of goods, it helped him save warehouse costs. The lead time
for the delivery of goods from the manufacturer to the consumer is also drastically reduced.
Manufacturing Cross dockingIn Manufacturing cross docking, these cross docking facilities served the factories and acted
as temporary and mini warehouses. Whenever a manufacturing company requires some
parts or materials for manufacturing a particular product, it is delivered by the supplier in
small lots within a very short span of time, just when it is needed. This helps reduce the
transportation and warehouse costs substantially.
Pre-Allocated Cross DockingPre-allocated cross docking is very much like the usual cross-docking, except that in this type
of cross docking, the goods are already packed and labelled by the manufacturer and it is
ready for shipment to the distribution centre from where it is sent to the store. The goods can
be delivered by the distribution centre directly to the store without opening the pack of the
manufacturer and re-packing the goods. The store can then deliver the goods directly to the
consumer without any further re-packing.
BENEFITS OF CROSS
DOCKING
BARRIERS TO CROSS
DOCKING
Reduces Walmarts cost ofsales
o Reducing excessinventory
o Sales predictiono Everyday low priceso Reducing the
promotion expense
Huge investment
Hard in adopting Management complexity
Continuous contact
between each
department
Operation of privatesatellite system
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Inventory Management
Wal-Mart has invested heavily in IT and communications systems to effectively track sales
and merchandise inventories in stores across the country. With the rapid expansion of Wal-
Mart stores in the US, it was essential to have a good communication system. Hence, Wal-
Mart set up its own satellite communication system in 1983. Wal-Mart is 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 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. Wal-Mart also networked its suppliers through computers. The company
entered into collaboration with P&G for maintaining the inventory in its stores and built an
automated re-ordering system, which linked all computers between P&G and its stores and
other distribution centres.
Walmart connected its stores and the vendor through satellite. P&G was able to check the
sales of its items directly as they were being bought and collated by the system. This was
good because, Walmart could safely move away from the reordering issues. Plus P&G had
information about offers, national promotions, new products etc that Walmart did not have.
The question arises, why wouldnt P&G decide to overstock, but this issue was also taken
care of by Walmart, they paid on a SOR ( sales or return) basis, i.e. they paid for only whatthey sold, excess was returned.
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Employees at the store have the Magic-Wand, a hand held computer which is linked to in-
store terminals through a radio frequency network. These help them to keep track of the
inventory in stores, deliveries and back-up merchandise in stock at the distribution centres.
The order management and store replenishment of goods is entirely executed with the help of
computers through the Point-of-Sales (POS) system. Through this system, it is possible to
monitor and track the sales and merchandise stock levels on the store shelves.
Wal-Mart makes use of an efficient algorithm system which enabled it to forecast the exact
quantities of each item to be delivered, based on the inventories in each store. Wal-Mart also
uses a centralized inventory data system using which the personnel at the stores could find
out the level of inventories and the location of each product at any given time. It also shows
whether a particular product is stored at the distribution centre or is in transit on a truck.
Wal-Mart also makes use of bar coding and radio frequency technology to manage its
inventories. Using bar codes and fixed optical readers, the goods could be directed to the
appropriate dock, from where they were loaded on to the trucks for shipment. Bar coding
devices enable efficient picking, receiving and proper inventory control of the appropriate
goods.
RFID is simply an enabling technology that has the potential of helping retailers provide theright product at the right place at the right time, thus maximising sales and profits. RFID
provides the technology to identify uniquely each container, pallet, case and item being
manufactured, shipped and sold, thus providing the building blocks for increased visibility
throughout the supply chain.
The technology will bring benefits to a wide range of industries, as we shall see, but one of
the main drivers of RFID adoption has been the retail sector, led by Wal-Mart in the US.
Phillip J. Windley, an Associate Professor of Computer Science at Brigham Young
University, estimates that US retail giant Wal-Mart alone could save $8.35 billion annually
with RFID - that's more than the total revenue of half the companies in the Fortune 500.
His massive total is made up as follows: $600 million through avoiding stock-outs; $575
million by avoiding theft, error and vendor fraud; $300 million through better tracking of a
billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by
eliminating the need to have people scan barcodes in the supply chain and in-store. Small
wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of
the leading proponents of RFID implementation.
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RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that
transmit data via a radio signal to RFID readers and related hardware and software
infrastructure. The transmitters can be placed anywhere that tracking the movement of goods
adds value to the commercial process: on containers, pallets, materials handling equipment,
cases or even on individual products.
The information on tags is read when they pass by an RFID reader, and that movement is
captured and managed by the infrastructure. In this way, organisations are able to link the
physical world to the digital world without any human interaction. Whatever actions are then
triggered depends on the individual application, from basic stock replenishment at one end of
the spectrum to facilitating the ultimate lean supply chain at the other.
RFID promises to revolutionise supply chains and usher in a new era of cost savings,
efficiency and business intelligence. The potential applications are vast as it is relevant to any
organisation engaged in the production, movement or sale of physical goods. This includes
retailers, distributors, logistics service providers, manufacturers and their entire supplier base,
hospitals and pharmaceuticals companies, and the entire food chain.
It has the potential to improve efficiency and visibility, cut costs, deliver better asset
utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase
sales by reducing out-of-stocks.
The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for
the technology. One Canadian consumer products manufacturer has established that RFID
becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a
replacement for barcode labels becomes very real indeed.
Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and
that is being regarded as a breakthrough level. Yet even that is still too expensive for, say, an
individual can of Coke, which is why packaging companies and other researchers are looking
at innovative ways to apply this technology. In the coming years, at least, we are likely to see
RFID tags and barcodes existing side by side.
The path to RFID nirvana is not without its obstacles: tag costs are still high; readers can't
always read all the cases on a pallet; one frequency and one tag design does not fit all;
standards are in a state of flux; end-users lack real RFID knowledge; and radio interference
can upset the best-laid plans. Wal-Mart laid down its marker as an RFID pioneer by issuing
mandates to its suppliers throughout the entire supply chain. Wal-Mart, Metro Group, Tesco,
Target and the US Department of Defense all told their top suppliers to incorporate RFID
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tags in all pallet shipments by 2005. Wal-Mart then relented a little, having found that not
only would its suppliers find the deadline hard to meet, but so would Wal-Mart itself.
Wal-Mart has also invested heavily in a retail link system through which it can collaborate
with its suppliers in a much more effective manner. Also, the company owns the largest and
the most sophisticated computer system in the private sector (Massively Parallel Processor)
to track the movement of goods and stock levels.
Performance Indicators
Wal-Mart strongly believed and constantly emphasized on strengthening its relationships
with its customers, suppliers and employees. The company was very vigilant and sensed the
smallest of changes in store layouts and merchandising techniques to improve performance
and value for customers. The company made efforts to capitalize on every cost saving
opportunity. The savings on cost were always passed on to the consumers, thereby adding
value at every stage and process.
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Efficiency measures that Walmart has incorporated:
1. Its warehouses directly supplied 80-85% of inventory as compared to 50-65% in caseof the competitors.
2. Wal-Mart able to provide replenishments within two days against at least five days forcompetitors.
3. Its transportation costs are 3% on an average as compared to 5% for the competitors.4. Better Working Capital Management as compared to the competitors.
a. Decreased lead time , safety stockb. Accurate inventory forecasting , faster turnoverc. Increased warehouse spaced. Reduced inventory storage cost
5. Inventory turnover rate lass than two weeks.6. All the discounts provided to the customer are an indicator of the cost savings done in
its Supply Chain Management
Bull whip effect
The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels and
refers to the oscillating demand magnification further upstream a supply chain.
Because customer demand is rarely perfectly stable, businesses must forecast demand to
properly position inventory and other resources. Forecasts are based on statistics, and they are
rarely perfectly accurate. Since forecast errors are a given, companies often carry
an inventory buffer called "safety stock". Moving up the supply chain from end-consumer
to raw materials supplier, each supply chain participant has greater observed variation in
demand and thus greater need for safety stock.
http://en.wikipedia.org/wiki/Distribution_channelhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Safety_stockhttp://en.wikipedia.org/wiki/Safety_stockhttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Distribution_channel -
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The causes can further be divided into behavioural and operational causes:
Behavioural causes:
Misperceptions of feedback and time delays Panic ordering reactions after unmet demand Perceived risk of other players' bounded rationality
Operational causes
Dependent demand processing Forecast Errors Adjustment of inventory control parameters with each demand observation
Lead Time Variability (forecast error during replenishment lead time) Lot-sizing/order synchronization
Consolidation of demands Transaction motive Quantity discount
Trade promotion and forward buying Anticipation of shortages
http://en.wikipedia.org/wiki/Behavioralhttp://en.wikipedia.org/wiki/Operationalhttp://en.wikipedia.org/wiki/Calculating_Demand_Forecast_Accuracyhttp://en.wikipedia.org/wiki/Lead_Timehttp://en.wikipedia.org/wiki/Lead_Timehttp://en.wikipedia.org/wiki/Calculating_Demand_Forecast_Accuracyhttp://en.wikipedia.org/wiki/Operationalhttp://en.wikipedia.org/wiki/Behavioral -
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Consequences:
In addition to greater safety stocks the described effect can lead to either inefficient
production or excessive inventory as the producer needs to fulfil the demand of its successor
in the supply chain. This also leads to a low utilization of the distribution channel. Despite of
having safety stocks there is still the hazard of stock-outs which result in poor customer
service. Furthermore, theBullwhip effectleads to a row of financial costs. Next to the
intangible consequences of poor customer services and the damage of public image and
loyalty, an organization has to cope with the ramifications of failed fulfilment which can lead
to contract penalties. Moreover the hiring and dismissals of employees to manage the demand
variability induce further costs due to training and possible pay-offs.
WalMarts response:Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of
each period. One way to achieve this is to establish a demand-driven supply chain which
reacts to actual customer orders. In manufacturing, this concept is calledKanban. This
model has been most successfully implemented in Wal-Mart's distribution system. Individual
Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate
headquarters several times a day. This demand information is used to queue shipments from
the Wal-Mart distribution centre to the store and from the supplier to the Wal-Mart
distribution centre. The result is near-perfect visibility of customer demand and inventory
movement throughout the supply chain. Better information leads to better inventory
positioning and lower costs throughout the supply chain.
Sustainable Supply Chain
Wal-Mart is spearheading collaboration among supply-chain companies to measure and
reduce the environmental footprint of its product shipping process and logistics network.
The new rules for supply chain sustainability cover everything from fuel use, to facilities and
equipment standards, to the overall environmental commitment demonstrated by the
companies they hire to ship and store their products.
Wal-Mart insists that once suppliers evaluate the environmental costs of their products, they
will be able to improve production efficiencies and provide the items at a lower cost.
With the introduction of the Supply Chain Sustainability Scorecard, Wal-Mart Canada plans
to assess the businesses it hires to ship and store its products based on four categories:
http://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Wal-Marthttp://en.wikipedia.org/wiki/Point-of-salehttp://en.wikipedia.org/wiki/Cash_registerhttp://en.wikipedia.org/wiki/Cash_registerhttp://en.wikipedia.org/wiki/Point-of-salehttp://en.wikipedia.org/wiki/Wal-Marthttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Manufacturing -
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Equipment - e.g. use of sustainable alternatives, efficient engines and tires, etc. Operations - e.g. enforcement of programs for recycling, vehicle idling, oil collection Facilities - e.g. responsible energy use (including green power), efficient buildings Corporate commitment - e.g. a vision or culture of sustainability throughout the
business
Wal-Mart has committed to three long-term sustainability goals, globally and in Canada:
To produce zero waste To be powered 100 per cent by renewable energy To make more environmentally preferable products available to customers
It plans to introduce a "sustainability label" similar to the nutritional information required on
U.S. food packaging - can capture the full costs of producing a product or substantially shift
consumer behaviour, perhaps persuading the more informed consumer to purchase less
damaging products.
By moving goods more efficiently, Wal-Mart Canada and its supply-chain service providers
expect to directly contribute to the companys everyday-low-cost approach - lowering coststo ensure the lowest prices for customers, a key to Wal-Marts business model. At the same
time, by reducing materials, increasing efficiency, and eliminating unnecessary shipping, the
company and its suppliers will meet rising environmental standards.
Issues that Wal-Mart might will face in India
The Kirana store: High level of CRM. Shopkeeper knows about families andpurchase history. Familiarity runs from generation to generation. Open long hours,
home delivery, credit options, proximity to home, make the kirana store a preferreddestination for shopping.
High Costs: Small retailers have practically nil real estate and labour costs and littleor no taxes to pay. On the other hand, players in the organized sector have high
expenses and have to keep price low enough to compete with the traditional sector
Correct Merchandise Mix: Right product mix is essential for retailing. All retailerslike to have high value, high margin, fast moving products. This is however not
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possible. Organised retailers have a number of SKUs many of which do not sell, and a
large inventory needs to be kept.
Poor infrastructure: Efficient supply chain strategies like those of Walmart workbest in countries that have the infrastructure to facilitate easy movement. In India,
infrastructure like cold storage is primitive. Little access to electricity , poor rail and
road network act as an impediment to efficient supply chain.
Walmart Model: Walmart is traditionally based in areas outside the city, mostcustomers come in cars and buy large quantities on a monthly basis. Spending
patterns and lifestyle is not the same for Indians. Indians mostly donot have cars and
thus cannot afford to go outside the city to buy provisions. Even Big Bazaar has a
number of stores within the city limits. Secondly, the Indian customer never buys in
bulk, they usually buy on a weekly or biweekly basis. Some items are bought daily.
This is probably also due to the less incomes, coupled with electricity issues,
refrigeration issues that domestic households are plagued with.
Recommendations to Wal-Mart
One allegation made against Wal-Mart is that it places unrealistic cost and timepressures upon its supply chain. Suppliers must be provided with the opportunity to
make improvements in operating practices without compromising the viability of their
operations.
Moreover, responsibility for improvement cannot be simply transferred to suppliers.Wal-Mart itself has a responsibility to adopt proactive supply chain management
initiatives, including the training of suppliers in terms of best practice operating
procedures.
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Once we have understood in depth how Walmart Functions, It would be interesting to know
how an organised retail chain would function, and whether the theories we learn apply to
these companies or not. Through detailed interviews with the owner of REI 6/10 Retail: Mr.
Ambuj Jhunjhunwala, we understood the functioning of the retail chains in India and the
issues they face.
REI 6TEN RETAIL LTD
6 TEN is a organized retail format, similar to Reliance Fresh, Spencers Hyper etc. With a
presence in Ludhiana, Mohali, Ghaziabad, Delhi, Faridabad, Rajasthan, Ahmedabad, Mumbai
and Nagpur, 6TEN has 315 shops.
Procurement
What to order: Unlike Walmart that stocks every kind of item, smaller retailer cater to a
particular segment, segmentation that is done on Income. It identifies fast and slow moving
SKUs and orders accordingly. Again it identifies, seasonal and flow items. Flow items are
those items that have a demand throughout the year, and seasonal items are those whose
demand differs at different times of the year.
INPUT
Large product categories and product mix
Follow FIFO: First in First out
Good vendor relationships, negotiations for margins
Lead time and fill rate
Transformation
Placement of products, display and visual merchandising Packaging of products
Billing
Promotions and discounts: bundling, markdowns
Output
More footfalls
Higher conversion rate and bill value
Satisfied customer and repeat purchases
Value for money
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When to order: Similar to Walmart, smaller retail chains, also buy according to the
ecomomic order quantity and base stock. Like larger retail chains, these also consider the lead
time i.e. the time between the placing of the order and delivery to the store. 6/10 maintains an
average of 15 days sales and orders according to lead time and fill rate. i.e. how much of a
quantity demanded is delivered.
Walmart has a number of vendors supplying the same product, so that a mistake or delay at
the end of the vendor doesnt upset the business. However, unlike Walmart, smaller retailers
like 6/10 usually order from one vendor or a few. Therefore fill rate is a major concern for
these retailers.
How much to order: Unlike Walmart which works on a just in time model, accepting
requests from customers and updating it in the system immediately to reduce warehousing
costs, smaller retail chains work differently.
Ordering takes according to historical sales data. Previous month sales data is used to forecast
sales in a particular month. 10 days min stock 17 days max stock then reordering happens
within 7 days.
Linearity of Sales method is followed. Ordering depends on the MBU and what is on hand.
Walmart is routed through the satellite and vendors like P&G, etc monitor stock details at
their end and replenish stock as and when they believe its reaching its base stock, keeping
their lead times in mind.
Smaller retailers, mostly have store staff to maintain these records and then these records are
sent to the buyer and finally the purchase orders are created. This can be inaccurate and time
consuming. Which is why, more and more retailers are going for ERP systems like SAP,
which centralize the buying process. Buyers can monitor the stock across all stores and place
orders accordingly. This information can also be viewed the the vendors end.
Issues faced in procurement
1. Linearity: Some products dont work on linearity, their sales happen in twos or threes.
Reordering needs to keep this aspect in time.
E.g sugar sales are 60 kilos a month at a store. Which amounts to 2kgs a day, however this
sale doesnt take place everyday and customers might buy 4 kilos a day, h ence reordering
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needs to keep this aspect in mind. For a commodity like this it would always be better to have
a large base stock.
2. Productivity improvement: Benchmark month sales forecast to previous years sale in
the same month to accommodate seasonal changes. Some products like fruits and vegetables
show seasonal variations in terms of demand and supply.
Some companies and distributors sell on an Outright or a Sales or Return (SOR)/
consignmentbasis. Outright buying needs to be very conservative, since a lack of demand
and unsold stock adds to the retailers loss whereas SOR can be less conservative as stock
will be returned to the distributor and company. 6Ten buys some of their private labels on a
consignment basis, e.g Masala Category is bought on consignment as it has a longer shelf
life.
Since smaller retails have less bargaining power, they usually adhere to outright basis, unlike
Walmart which had an SOR basis with almost all its vendors.
Managing Inventory
REI 6ten does not have store level DCs as this increases their costs, and reduces theshelf and display space. Located in prime locations they pay a large price per sqft area
Has a Distribution centers that cater to stores in a particular location and in kilometerradius. E.g there are 4 distribution centers to cater to their Stores in Delhi NCR
Has a mother warehouse that caters to all the distribution centers. Distributors send 30% to the DCs and 70% to the mother DC
On the other hand, Walmart would collect supplies from the vendor directly, just in time, soas to reduce the need for large distribution centers.
Supply Chain
Issues in supply chain were due to Forecasting and due to inefficient order of inefficient
delivery.
Forecasting issue: Price of sugar depends on government prices, and as price fluctuates,
demand fluctuates. E.g. The price of sugar is Rs. 30 a kilogram, there is a forecasted increase
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in prices by Rs 8. Customers would flock to buy sugar at the current price. The forecasting
and subsequent stocking did not keep this increase in account so the chain faced a stock out.
Sometimes forecasting doesnt take into account defected, spoiled items.
Order and delivery Issues: E.g. HUL has a filling rate of 80% and a lead time of 6
days. However once the order is placed. 6Ten notices that the filling rate is only 60%. Again
a stock out. This can be curtailed by analyzing the vendors and ordering accordingly.
Walmart has a number of vendors that reduces their chance of a mistake, delay and hence a
stock out.
Recommendations for 6Ten Retail
Manage its forecasting issues to reduce excess stock, since most of the stock is on anOutright basis, a loss in sales means a loss to Rei 6Ten
Increase the number of suppliers in order to reduce the risk of delay and default Integrate the suppliers with the stores directly so as to reduce the costs of warehousing Softwares like SAP Retail and Oracle, that manage stock & sales information and
reduce the need for manual entry, thus limiting mistakes
CONCLUSION
Only a small portion of the retailing market in India is organized. It is estimated that in the
supply chain for fruits and vegetables in India a substantial part of the products ends up as
wastage. 6Ten stores will strive to organize the retail market in India and to improve
efficiencies in the supply chain in order to offer quality products at attractive prices.
The mission is to be the trendsetter in the retail space in India with professional services
making the lives of ordinary Indians easier and more convenient.
Through an efficient business model in the retailing sector, 6Ten will be a household namethrough out the nation. By enhancing efficiency and reducing wastage it will ensure
substantial savings in the food and vegetable retailing sector which will be passed on to the
customers. It envisages an ideal retailing business model that can cater to the daily needs of
the Indian consumers.
True to the basic principle of business, the minimization of cost, high production leads to the
maximization of profit. The practice of core principles on constantly improving sales is
brought about by the service they have been offering at no extra cost. At Wal-Mart, they
have been very successful in finding means in which to capitalize on every cost saving
opportunities and the adoption of efficient logistics system enable Wal-Mart to earn unrivaled
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intangible competitive advantage and edge to the rest of the business world which is made
possible also in the use innovative technology.
Information technology has the potential to improve many business processes. Anything that
is able to decrease costs and increase efficiency is welcome to companies that are constantly
seeking ways to decrease cost and increase the quality of products and services. Wal-Mart,
for example, is able to offer consumers an every-day-low-price largely in part because it is
able to control its costs. The cost of its products, however, is not only a function of its
efficiency or lack of it but also the efficiency/inefficiency of its suppliers. Because of the
volume of products sold by Wal-Mart, it has a great influence over its suppliers and often
pressures its suppliers to find ways to lower costs. Though it has a large influence over these
suppliers, it is impossible for Wal-Mart to operate without their assistance, and thus it is
important for Wal-Mart to maintain mutually beneficial relationships with those suppliers.
Sharing benefits and costs in, instead of mandating the use of, technology implementations is
an effective way for Wal-Mart to cultivate a mutually beneficial relationship with itssuppliers. The novelty and frailty of certain technologies like RFID, however, sometimes
preclude a timely and effective implementation of them. A technologys benefits are felt the
more its use is standardized throughout the marketplace. Once unit cost has decreased and
privacy issues have been resolved, many more companies will be able to implement RFID as
an effective means to improve supply chain management efficiency.