Wal-Mart: Supply Chain Management

1
Wal-Mart Supply Chain Management

• Background
• Business Process Redesign Process, IT
• Implications Process, IT

2
Wal-Mart Is the Largest and Fastest Growing
Discount Department Store
WAL-MART BACKGROUND

• 1992 revenues totaled 43.9 billion
• Increased 35 from previous year, whereas
  competitors growth rates averaged only 10
• Net income increased 25 to 1.6 billion
• Operations include growing chain of stores,
  including discount department stores, wholesale
  clubs, food stores, wholesale distributor of
  books and pre-recorded music, and grocery
  distribution services
• First discount department store chain to expand
  internationally
• Joint venture with CIFRA, Mexicos largest
  retailer
• 18 market share of 250 billion discount
  department store industry
• KMart, the next largest competitor, has 13.8
• Analysts estimate that by the year 1995, Wal-Mart
  will drive all competitors, aside from KMart and
  Target, out of business

Wal-Mart grows through volume and market share
gains rather than margin expansions.
Source Annual report.
3
Stronger Competitors and More Powerful Suppliers
Are Challenging Wal-Mart in Quickly and
Effectively Responding to Customers
WAL-MART BACKGROUND
Competitors
Suppliers
Target
KMart

• Improved operations
• Foreign competition
• Industry consolidation
• Intense price competition

• Improved operations
• Powerful brand management
• Industry consolidation

Customer Demands The right product In
stock The best value Service and quality
4
Satisfying Customer Demands Depends on Five
Critical Success Factors
WAL-MART BUSINESS PROCESS
Critical Success Factors (CSF)

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

Customer Demands

• The right products
• In stock
• Best value
• Service and quality

5
Wal-Mart Fulfills the Customer-Satisfaction
Critical Success Factors
WAL-MART BUSINESS PROCESS
CSF
Quick Responsiveness to Market Changes

• 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

Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution System
6
Wal-Mart Fulfills the Customer-Satisfaction
Critical Success Factors (cont.)
WAL-MART BUSINESS PROCESS
CSF
Quick Responsiveness to Market Changes

• 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)

Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution System
7
Wal-Mart Fulfills the Customer-Satisfaction
Critical Success Factors (cont.)
WAL-MART BUSINESS PROCESS
CSF
Quick Responsiveness to Market Changes

• All employees are considered associates
• Extensive training and support
• Stock-ownership program
• Profit-sharing

Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution System
Employees are your biggest capital investment,
so it makes sense to maintain themtheir skills,
their morale, and their participation.
8
Wal-Mart Fulfills the Customer-Satisfaction
Critical Success Factors (cont.)
WAL-MART BUSINESS PROCESS
CSF
Quick Responsiveness to Market Changes

• 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

Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution System
9
The Traditional Supply Chain Includes Inefficient
and Unnecessary Steps
WAL-MART BUSINESS PROCESS
Distribution Warehouse
Individual Store
Retailer
Order
Order
Order
Select
Tag/ Label
Receive
Pack
Select
Storage
Sell
Storage
Wholesaler
Order
Select
Pack
Receive
Manufacturer (Supplier)
Pack
Make
Shipper
Ship
Ship
Ship
10
Wal-Mart Simplified Its Supply Chain
WAL-MART BUSINESS PROCESS
Distribution Center
Individual Store
Retailer
POS Order
Ship
Receive
Receive
Pack
Select
Storage
Sell
lt48 hours
lt48 hours
Wholesaler
Deliver within 72 hours of order
Manufacturer (Supplier)
Select
Tag/ Label
Pack
Make
Shipper
Ship
Cross-docking in distribution centers results in
product flow from inbound to outbound shipping
docks within 48 hours.
11
Wal-Mart Invests Heavily in Information
Technology
WAL-MART BUSINESS PROCESS

• 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

12
Wal-Mart Invests Heavily in Information
Technology (cont.)
WAL-MART BUSINESS PROCESS

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

Vendor-managed QR
Wal-Mart-managed QR
Distribution Center
Supplier
Store
Order
POS Data
Supplier
Store
Warehouse Just-in-Time System
Distribution Center
POS Data
Supplier
Store
13
Wal-Marts Inventory Management Improvements Have
Resulted in Efficiencies Unmatched by the
Competition
WAL-MART IMPLICATIONS
Inventory-to-Sales Ratio
Inventory in System (Days)
At Vendor At Warehouse In-Store
14
15.94
30
14.58
30
3
2
3
KMart
Wal-Mart
After New System
Before New System
Wal-Mart stores replenish inventory twice a
week vs. industry standard of once every two
weeks
IT systems have improved Wal-Marts in-stock
position and increased vendor responsiveness
Selling and Operating Expenses of Sales
28
15
Sears Roebuck Co.
Wal-Mart
Wal-Mart has lowest cost of operations in the
retail area, aside from wholesale clubs
14
Lessons Learned The Road to Success Is Paved by
Technology and Better Use of People
WAL-MART IMPLICATIONS
Strong Supplier Relationships
Economies of Sales Best Deals
Stable LowerPrices
Predictable Sale Patterns
Decreased Chance of Out-of-Stock
Effective IT Systems
Reduced Cost of Sale
Increased Sales and Profits
Effective Distribution Systems
In-Depth Knowledge of Customer/ Market
Empowered Employees
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