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8/12/2019 Wal-Mart Supply Chain - Business Model
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Wal Mart Supply ChainBusiness Model
ByChintham Ashish
Doney M Angilivelil
Nivedita Ravi
Sitanshu Bindra
Chandrapu SiddhanthNeeraj Kannoth Jayaraj
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Corporate Strategy
Sam Walton (The founder of Walmart) gave 3 policy goals to defineWal-Mart's business:
• Respect for the individual
• Service to customers
• Strive for excellence
Walmart’s practices:• Consistently stock the shelves with a wide range of goods at low
prices
• Keep the store open later than most other stores, especially duringthe Christmas season
• Discount merchandising- - Buy wholesale goods from the lowest
priced supplier - Pass on the savings to the customer• Aggressive hospitality
• Using door-greeters
• Patriotic themes and displays in stores
• Compels its staff to engage in morning cheers
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Wal Mart Supply Chain
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Walton’s Business Model was Different…
Located stores in small towns since big retailers suchas Kmart and Sears dominated large towns
Kept overhead low
Offered incentives - Profit-sharing for staff
Partnerships for suppliers
Large investment in IT… To keep inventory low
Customers got friendly service
AND, “Everyday Low Price”
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Wal-Mart gets benefited through Supply Chain
• Lower inventories
• Higher productivity
• Greater agility
• Shorter lead times
• Higher profits
• Greater customer loyalty
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Value Chain
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Inventory Management• 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.
• Wal-Mart was able to reduce unproductive inventory by allowing stores to manage theirown stocks, reducing pack sizes across many product categories, and timely pricemarkdowns.
• Instead of cutting the inventory across the board, Wal-Mart made full use of its ITcapabilities to make more inventories available in the case of items that customers
wanted most , while reducing the overall inventory levels.
• The order management and store replenishment of goods were entirely executed with thehelp of computers through the Point-of-Sales (POS) system.
• Through this system, it was possible to monitor and track the sales and merchandisestock levels on the store shelves.
Voice-based Order Filling (VOF)• 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.
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Inventory ManagementStore Displays
• The company asked its suppliers to ship goods in store-ready displays called pretty darnquick (PDQ) displays.
• Goods were packed in PDQ displays that arrived at the stores ready to be boarded on theracks.
• Wal-Mart‟s employees could directly replace the empty racks at the stores with fully packed
racks, instead of refilling each and every item at the racks.
Retail linked System
• Retail Link connected Wal-Mart‟s EDI network with an extranet, accessible to Wal-Mart‟sthousands of suppliers.
• The suppliers could find out how their product was performing vis-a-vis competitors‟products in a particular product category.
Radio Frequency Identification Technology
• Wal-Mart planned to replace bar-code technology with RFID technology in 2005.
• Because of the implementation of RFID, employees were no longer required to physicallyscan the bar codes of goods entering the stores and distribution centers, saving labor costand time.
• Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.
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A Simple But Powerful Idea:
Minimize the “Bad I” - Inventory
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Walton figured out that most of the costs gets addedafter the product leaves the factory and moves throughthe supply chain:
Mfg. Wholesaler Retailer
• 20% - 30% of retail price spent on keeping inventory in3 warehouses
• Walton eliminated the wholesaler
• He instituted JIT inventory practices using “real-time”flow of information from a store‟s sales floors to thesupplier‟s plants that dictated:
What to produce? When to ship? To which stores?
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Walmart’s Distribution
• In the early 1970s, Wal-Mart became one of the first retailingcompanies 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 „distributioncenter‟ (hub), from where they were dispatched to theindividual stores (spoke).
• The hub and spoke system enabled Wal-Mart to achievesignificant cost advantages by the centralized purchasingof goods in huge quantities..
o and distributing them through its own logisticsinfrastructure to the retail stores spread across theU.S.
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Walmart’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 passing allintermediaries.
• Wal-Mart finalizes a purchase deal only when it is fully confident that theproducts being bought is not available else where at a lower price.
• Wal-Mart spends a significant amount of time meeting vendors andunderstanding their cost structure.
• By making the process transparent, the retailer can be certain that themanufacturers are doing their best to cut down costs.
Using EDI for Procurement• The computer systems of Wal-Mart were connected to those of its suppliers.
• EDI enabled the suppliers to download purchase orders along with store-to-storesales information relating to their products sold.
• On receiving information about the sales of various products, the suppliers
shipped the required goods to Wal-Mart‟s distribution centers.
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Logistics management•
An important feature of Wal-Mart‟s logistics infrastructure was its fastand responsive transportation system.
• The distribution centers were serviced by more than 3500 companyowned 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 than300,000 accident-free miles, with no major traffic violation.
Cross Docking
• To make its distribution process more efficient, Wal-Mart also made useof a logistics technique called “cross-docking.”
• In this system, the finished goods were directly picked up from themanufacturing plant, sorted out and then directly supplied to thecustomers.
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IT is Critical for Wal-Mart’s
“Everyday Low Price” Strategy
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Invested in most of the waves of retail IT systems earlier andmore aggressively than its competitors
- Set industry standards in IT
1969 : Used computers to track store inventory
1980 : Adopted bar codes
1985 : Electronic Data Interchange (EDI) with suppliersLate 80‟s : Wireless scanning guns
2003 : Mandated its 100 largest suppliers to place RFID (Radio Frequency
Identification) tags on the boxes and pallets shipped to Wal-mart
stores by January 2005