Cover Page, Table of Contents (to be added by Mayank)

Introduction – (to be added by Neha/Nishit)

Company Overview: Wal-mart – (to be added by Neha/Nishit)

Wal-mart’s Supply Chain –

Wal-mart has been able to differentiate itself from its competitors in cost efficiency due to its

supply chain strategy. It’s through their world class supply chain practices that they are able

to meet their customer demands and provide them goods are prices cheaper than any of their

competitors. We will take a look at their supply chain through various dimensions like their

procurement and distribution strategy, their inventory strategy, their logistic and

transportation practices. Pictorially, the Wal-mart supply chain can be shown as follows-

A) Procurement and Distribution Strategy

Wal-mart aims at low cost purchasing from their vendors. In tis regard, they purchase goods

at lowest possible cost directly from the manufacturers, thus eliminating the intermediaries.

They negotiate on their prices with these suppliers. They first study their cost structure and

find the possible opportunities where the manufacturer can work on to reduce cost. Frills such

as advertising and fancy delivery programs are avoided. Wal-mart itself picks up the goods

from the suppliers in lowest possible cost. When they are convinced that the supplier can be

relied on to make cost reduction in all possible areas, they enter into a long term relation with

the supplier. To save on transportation cost and lead times, Wal-mart usually prefers local or

regional suppliers. Wal-mart also focuses on bulk orders and efficient utilisation of the

transportation to achieve economies of scale which further help in bringing down their

procurement costs.

Some key aspects of their Procurement and Distribution practices are-

1) Distribution Centres (DC) –

Wal-mart has around 80 distribution centres all over US and manages its own replenishment

process through these, which provide around 85% of their inventory directly. These centres

steady flow of goods to support the stores. The DC handles two types of materials, Staple

Stock and Direct Freights. Staple stocks are items like shampoo or toothpaste which are

available at the same location in the store. Direct Freight items usually arriving on pallets are

those which are picked by workers as per the store requirement from the flow racks in the

DC. These goods usually do not stay in the DC for more than 48 hours. Flow racks are used

for handling purposes and FIFO practice is used to handle movements.

These DCs work on pull strategy for supplying materials to stores. Wal-mart has excellent

infrastructure in IT and communication (taken up later in this section). With this, the

information of any smallest of sale is recorded in the system and transferred to the rest of the

linkages in the chain. This sales record is then compensated with the replenishment of that

item right from manufacturer to the Wal-mart store within 2 days. This time for

replenishment is 5 days for Wal-mart’s competitors.

Distribution centres also act as central point for cross docking. This cross docking practice of

Wal-mart is explained in the Logistics Strategy of the company.

A Wal-mart Distribution Centre

2) Use of technology

Wal-mart uses a robust and extensive communication network for its procurement. All its

retail stores, DCs and manufacturers are connected through a common network. Any sales

data from store can be received directly at the manufacturer’s end and thus he can plan its

production schedule to meet the replenishment and order fulfilment requirement. By that

time, the store is replenished with that item from the nearest DC, and in case of non-

availability, it is supplied from different DC in minimum possible delay.

Within a store or a distribution centre, items are tagged with barcodes and RFID tags. With

the help of these tags, it becomes easy to workers to locate the pallet or rack where the

material is stored. They use hand held computers and find the storage location of the material

in no time. All material movements, be loading, unloading, sale, transport etc are

electronically recorded in the system through the barcodes/RFID tags. Thus, at any moment,

any information about inventory, goods in transit, supply schedules is known and shared with

all the supply chain members through the network.

3) Vendor Managed Inventory (VMI)

Wal-mart ahs entered into collaboration with its suppliers for maintaining their inventory in

Wal-mart source and also to streamline the replenishment process. One such example is the

strategic collaboration with P&G. Under this practice, the information at the POS is shared

over a common network with P&G directly. Thus, P&G is directly informed of the inventory

levels and sales data of their product across all Wal-mart stores. Thus, they can replenish the

item to the store directly or to the distribution centre that supplies the store. Through this

practice, Wal-mart has been able to monitor its stock levels continuously ad identify the fast

moving items in that store. For P&G, it coordinated its supply operation with Wal-mart and

was able to achieve significant cost savings due to availability of the information.

VMI is just a part of the CPFR (Collaborative Planning, Forecasting and Replenishment)

practice that Wal-mart follows. Within this, all planning, demand management, forecasting

and order fulfilment activities are coordinated with all linkages of the supply chain to bring

down overall costs.

4) Global sourcing

Wal-mart has over the years expanded into different countries across Europe, Asia and the

Americas. They have stores located in Mexico, Puerto Rico, Canada, Argentina, Brazil,

China, Korea, United Kingdom, Japan and Germany. They are planning to expand into

Australia and India. Wal-mart uses tactics like cross docking, use of technology in their

global sourcing too.

Wal-mart has announced a new global structure for sourcing which will be centred around

their Global Merchandising Centres. These will create alignment between sourcing and

merchandising and drive efficiencies across different merchandising categories. The company

will continue its direct-sourcing strategy globally too. Wal-mart has also entered into a

strategic alliance with Li & Fung, a global sourcing organisation. It will help Wal-mart to

realise benefits of consolidating a part of its sourcing portfolio.

Wal-mart is also targeting India in its global operations expansion. Some challenges that

Wal-mart will face in its India expansion is the government regulation, lack of existence of

organised retail in the country, lack of cold storage and infrastructure, and presence of

middlemen and intermediaries in the supply chain within the Indian scenario. In spite of this,

India is rich in terms of resources and will have paramount importance in Wal-mart’s scheme

of Procurement and Distribution practices.

B) Inventory Strategy (to be added by Rajat)

What sets Wal-Mart apart from the other retail stores is its ability to cater to the

individual needs of the stores. A number of delivery plans are available for the stores

and it is upto the stores to choose the best delivery plan that suits its need. No matter

how remotely a store is located, goods are delivered to it within 24-48 hrs from the

time the store places order.

Wal-Mart has been a pioneer when it comes to application of Information

Technology. It invested heavily on IT infrastructure and solution as early as 1975,

when its competitors had no idea about the IT systems. Here is a chronological flow

of its IT investments.

Wal-Mart effectively tracked sales and merchandise inventories in stores across the

countries. As Wal-Mart expanded rapidly it became difficult to track all the stores by

the available communication network. So it set up its own satellite communication

system in 1987. The satellite system was very vital in in analyzing problems in the

system and rectifying it easily. The daily sales pattern was available real time and any

important communication to the stores could be communicated instantly and with

minimum effort.

Wal-Mart reduced the unproductive inventory by allowing the 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 used IT to make more inventories

available in case of items that customers wanted most while reducing the overall inventory

levels. The backward integration with the supplier and with supplier’s supplier was initiated

by Wal-Mart. The notable collaboration of Wal-Mart with P&G has been one of the greatest

strategies followed by Wal-Mart. Wal-Mart allowed P&G to maintain the inventory of its

stores and built an automated reordering system which linked all computers between P&G

1975 - IBM computer systems to track inventory

1979 - Started using barcodes

1987 – Set up its own private satellite network

1992 – 125,000 square foot data center

2000s - Usage of RFID

Walmart’s e-business venture ‘walmart.com’ similar to Amazon.com

and its stores. The system sends an automated signal to P&G in case the stocks went low for

a particular product. It then sends a re-supply order to the nearest P&G factory through its

satellite communication system. P&G then delivered the item either to the Wal-Mart

distribution center or directly to the concerned stores. This was a win-win proposition for

both of them. In this tie-up Wal-Mart could monitor its stock levels in its stores and identify

fast moving items where as P&G could lower its costs on those items and pass on some of the

savings to Wal-Mart for the better coordination.

Inventory management on Wal-Mart is fully managed by IT. It employed Point of Sales

(POS) system which helped it to track the sales and merchandise stock levels on the store

shelves. The forecasting method used by Wal-Mart is the best in the retail industry. It uses

complex algorithm systems which enables it to forecast the exact quantities of each item to be

delivered, based on the inventories in each store. Wal-Mart also used bar coding and radio

frequency technology to manage its inventories. Through these technologies, the goods could

be directed to the appropriate dock, from where they were loaded on to the trucks for

shipment. Bar coding also enabled easy picking, receiving and proper inventory control of the

goods apart from enabling easy order packing and physical counting of the inventories.

The inventory management solution developed by Wal-Mart was completely in-house and it

was its core competency as it was better than most of the traditional softwares developed by

the IT companies. The below figure shows the functionalities done by the inventory

management software developed by Wal-Mart.

In 1991, Wal-Mart had invested $4 billion in retail link systems which linked 10000 Wal-

Mart retail suppliers together. The retail suppliers used the retail link to monitor the sales of

their goods at stores and replenish inventories. All of these were possible because Wal-Mart

owned the largest and most sophisticated computer system in the private sector tracking the

movement of goods and stock levels and passing this information through its advanced

satellite communication system to its retail suppliers.

In 1998, Wal-Mart installed a voice-based order filling (VOF) system in all its grocery

distribution centers. Each person responsible for order picking was provided with a

microphone/speaker headset, connected to the portable (VOF) system that could be worn on

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

VOF system also verified quantities picked, and could respond to a variety of requests such

as providing product detail (type, price, barcode number, etc.). By installing the VOF system,

Wal-Mart eliminated mis-picks and product labeling costs since the system did not require

paper lists and labels to be affixed on the goods.

Hence by making effective use of information technology in all its company’s operations,

Wal-Mart was successful in providing uninterrupted service to its customers and suppliers

alike.

C) Logistics Strategy (Include Cross-docking too) : (to be added by Nishit/Neha)

Benefits/Advantages gained by Wal-mart through its Supply Chain

Strategy – (to be added by Neha/Nishit)

References

http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-

newsArticle&ID=1380021&highlight=

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4305

http://money.howstuffworks.com/wal-mart.htm

http://www.marketingteacher.com/swot/walmart-swot.html

http://www.echeat.com/essay.php?t=26824

http://www.scdigest.com/assets/firstthoughts/10-07-30.php?cid=3614