Supply Chain

Management

"People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information."

Sam Walton, Founder of Wal-Mart

History of Wal-MartHistory 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.• Walton gave up the job and decided to set up his own retail

store.• He purchased a store franchise in Arkansas.

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

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

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

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

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

– Open all night, for university students

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

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

• But it continued its growth in the 1990s, focusing on overseas stores.

– 1992, Mexico (joint venture with Cifra)– 1994, Canada (acquired 122 Woolco stores from Woolworth)– 1997, Germany (acquired 21 store of Wertkauf)– Korea, Brazil, and so on.

VIDEO

http://www.youtube.com/watch?v=ojLQ2t6N1EU

Wal-Mart has expanded its business to 10 countries:

U.S., Mexico, Brazil, Argentina, Germany, Puerto Rico,U.K. , South Korea, Canada and China.

Ranked First in the Global Fortune 500 list in2013 financial year

Company Revenues ($b) Profits ($mm)Wal-Mart Stores 469.2 16,999

Exxon Mobil 449.9 44,880

Chevron 233.9 26,179

Phillips 66 169.6 4,124

Berkshire Hathaway 162.5 14,824

Apple 156.5 41,733

General Motors 152.3 6,188

Source:www.fortune.com

Wal-mart Competitors

Wal-martWal-mart Sears Sears HoldingsHoldings

Target CorpTarget Corp CostcoCostco

No. of No. of EmployeesEmployees

1,800,0001,800,000 1,330,0011,330,001 338,000 338,000 60,50060,500

Revenue 05'Revenue 05' 312.65B312.65B 49.12B49.12B 52.62B52.62B 55.68B55.68B

Operating Operating MarginMargin

5.93%5.93% 3.83%3.83% 8.22%8.22% 2.79%2.79%

Profit MarginProfit Margin 3.60%3.60% 1.75%1.75% 4.58%4.58% 1.93%1.93%

Inventory Inventory TurnoverTurnover

7.477.47 3.923.92 5.98 5.98 11.5411.54

Supply Chain: The sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

Sometimes referred to as Sometimes referred to as value chains

Video

WALMART SUPPLY CHAIN

Wal-mart Supply Chain Flow Chat

Manufacturer

Manufacturer

Manufacturer

Retail Store

Retail Store

Retail Store

Point of sale terminal

Satellite system

Bar code, RFID

Radio, headphone

Distribution center

Company Headquarter

• Lower inventories• Higher productivity• Shorter lead times• Higher profits• Greater customer loyalty

Wal-Mart gets benefited through Supply Chain

Wal-Mart Strategy

• “Everyday low price”• Effective use of logistics management• Effective inventory control• Bargaining power over suppliers• Global Expansion for new market opportunity

Supply Chain Management of Wal-Mart

• Procurement and Distribution

• Logistics management

• Inventory management

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 avoiding all intermediaries.

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

Electronic Data Interchange

• Increased productivity

• Reduction of paperwork

• Lead time and inventory reduction

• Facilitation of just-in-time systems

• Electronic transfer of funds

• Improved control of operations

• Reduction in clerical labor

• Increased accuracy

Distribution Management of Wal-Mart

• Bull whip effect

• Vendor managed inventory

Bull Whip Effect

The bullwhip effect (or whiplash effect) is an observed phenomenon in forecast-driven distribution channels.

- Customer demand is rarely perfectly stable.- Businesses must forecast demand in order to properly

position inventory and other resources.

The concept first appeared in Jay Forrester's Industrial Dynamics (1961) and thus it is also known as the Forrester effect

Forecasts are based on statistics, and they are rarely perfectly accurate. 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 stockIn periods of rising demand, down-stream participants will increase their orders.In periods of falling demand, orders will fall or stop in order to reduce inventory.

Bull Whip Effect

Vendor Managed Inventory

• The vendor (supplier) manages the stock levels and availability for the customer based on safety stock levels the as per the agreed Terms & Conditions.

• Vendor Managed Inventory (VMI) is a planning and management system in which the vendor is responsible for maintaining the customer’s inventory levels.

• Manufacturers generate orders, not distributors or retailers Stocking information is accessed using EDI

• A first step towards supply chain collaboration

• Increased speed, reduced errors, and improved service

Logistics Management• An important feature of Wal-Mart’s logistics infrastructure

was its fast and responsive transportation system.

• The distribution centers were serviced by more than 7000 company owned trucks.

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

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

Logistics Management of Wal-Mart

• Cross Docking

• Hub and Spoke

Flow-Time Analysis

Point-of-sale system

captures data in real-time

Data is transmitted to warehouses

for Inv. Mgmt.

Retail Link transmits data to supplier

Orders are generated from previous-day

sales

Merchandise is loaded onto trucks using

cross-docking

Merchandise is delivered to

the store

Merchandise is manufactured

based on historical and real-time data

Merchandise is shipped to warehouses

Customer made a

purchase

The store will re-stock the shelves with merchandise

Cross docking

• Cross-docking means to take a finished good from the Manufacturing plant and deliver it directly to the customer with little or no handling in the process.

• In purest form this is done directly, with minimal or no warehousing.

Hub and Spoke

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).

The hub 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.

Hub and Spoke

Wal -Marts Communication Network

• Cross Docking relies on continuous communication between Wal Mart’s suppliers, distribution centers, and every point of sale system in each store.

• This enables orders to flow in, get packaged and then shipped.

• Wal Mart operates their own satellite network.

• Wal Mart’s satellite network sends the Point Of Sale (POS) data directly to 4000 vendors

Inventory ManagementWal-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.

Inventory Management(cont……)

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.

Inventory Management(cont……)

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.

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).

• 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

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.

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.

• 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.

• 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

Information Technology: A Supply Chain Enabler

• Information links all aspects of supply chain

• E-business

– replacement of physical business processes with electronic ones

• Electronic data interchange (EDI)

– a computer-to-computer exchange of business documents

What we learned so far….

One of the keys to Wal-Mart's effective logistical system is the flexibility that it has when choosing suppliers.

When Wal-Mart negotiates with suppliers and the suppliers know that Wal-Mart will only pay the most competitive prices. This is because it is very easy for them to find another supplier of that particular material with a lower price and very few logistical problems

Another reason that Wal-Mart's prices are so competitiveis because they buy in such large quantities thattransportation from one end of the supply chain to anotheris not as costly for additional units.

This aspect of the logistical system does not come fromskill or expertise it simply comes from the sheer size ofthe company, but this is still a factor.

Wal-Mart buys so many supplies from different places throughout the world, that they have the luxury of using bigger trucks and using less fuel to go back and forth.

Also if by chance they have to use shipping services to transport material from one location to another, Wal-Mart will give them so much business that they will get huge discounts

Thank you!

For your precious time….