Wal-Mart: Supply Chain
Management
• Background
• Business Process Redesign:
Process, IT
• Implications: Process, IT
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WAL-MART: BACKGROUND
Wal-Mart Is the Largest and Fastest Growing Discount
Department Store
• 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, Mexico’s 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.
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WAL-MART: BACKGROUND
Stronger Competitors and More Powerful Suppliers Are Challenging
Wal-Mart in Quickly and Effectively Responding to Customers
Competitors:
KMart
Suppliers:
Target
• Improved operations
• Improved operations
• Foreign competition
• Powerful brand
management
• Industry consolidation
Wal-Mart
• Intense price competition
• Industry consolidation
Customer Demands:
• The right product
• In stock
• The best value
• Service and quality
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WAL-MART: BUSINESS PROCESS
Satisfying Customer Demands Depends on Five Critical
Success Factors
Critical Success Factors
(CSF)
Customer Demands
• Quick responsiveness
to market changes
• The right products
• Low inventory
• In stock
• Quick replenishment of
inventory
• Best value
• Service and quality
• Effective human
resource system
• Efficient distribution
system
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WAL-MART: BUSINESS PROCESS
Wal-Mart Fulfills the Customer-Satisfaction Critical
Success Factors
CSF
Quick Responsiveness
to Market Changes
Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution
System
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• 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
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WAL-MART: BUSINESS PROCESS
Wal-Mart Fulfills the Customer-Satisfaction Critical
Success Factors (cont.)
CSF
Quick Responsiveness
to Market Changes
Low Inventory
• Direct high-level and long-term relationship
with suppliers enabled by high information
sharing:
-
Quick Replenishment
Effective HR System
Efficient Distribution
System
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Some vendors directly manage distribution warehouse
inventory of their products
• Efficient transportation system
• Investment in IT (e.g., EDI, Quick Response,
Radio frequency terminals)
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WAL-MART: BUSINESS PROCESS
Wal-Mart Fulfills the Customer-Satisfaction Critical
Success Factors (cont.)
CSF
Quick Responsiveness
to Market Changes
• All employees are considered
“associates”
Low Inventory
• Extensive training and support
Quick Replenishment
Effective HR System
Efficient Distribution
System
• Stock-ownership program
• Profit-sharing
“Employees are your biggest capital investment, so it makes sense to
maintain them—their skills, their morale, and their participation.”
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WAL-MART: BUSINESS PROCESS
Wal-Mart Fulfills the Customer-Satisfaction Critical
Success Factors (cont.)
CSF
Quick Responsiveness
to Market Changes
• Highly automated distribution centers
(e.g., laser-guided conveyor belts)
Low Inventory
Quick Replenishment
Effective HR System
Efficient Distribution
System
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• A fleet of 2,000 company-owned trucks
• High leverage of supplier relationships:
- Some suppliers ship goods “sales floor
ready”
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WAL-MART: BUSINESS PROCESS
The Traditional Supply Chain Includes Inefficient and
Unnecessary Steps
Distribution Warehouse
Retailer
Individual Store
Order
Order
Order
Receive
Select
Pack
Select
Tag/
Label
Storage
Sell
Storage
Wholesaler
Order
Receive
Select
Pack
Manufacturer
(Supplier)
Make
Pack
Shipper
Ship
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Ship
Ship
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WAL-MART: BUSINESS PROCESS
Wal-Mart Simplified Its Supply Chain
Distribution Center
Retailer
Individual Store
POS
Order
Receive
Select
Pack
<48 hours
Ship
Receive
Storage
Sell
<48 hours
Wholesaler
Deliver
within
72 hours
of order
Manufacturer
(Supplier)
Make
Shipper
Select
Tag/
Label
Pack
Ship
Cross-docking in distribution centers results in product flow from
inbound to outbound shipping docks within 48 hours.
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WAL-MART: BUSINESS PROCESS
Wal-Mart Invests Heavily in Information Technology
• 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
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WAL-MART: BUSINESS PROCESS
Wal-Mart Invests Heavily in Information Technology (cont.)
• Various Quick-Response (QR) systems (retail-link) to allow direct store-tosupplier ordering: “continuous replenishment”
Vendor-managed QR
Wal-Mart-managed QR
Distribution
Center
Supplier
POS Data
Store
Wal-Mart
Order
Supplier
Store
Warehouse Just-in-Time System
Distribution
Center
Wal-Mart
POS Data
Supplier
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Store
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WAL-MART: IMPLICATIONS
Wal-Mart’s Inventory Management Improvements Have
Resulted in Efficiencies Unmatched by the Competition
Inventory in System (Days)
14
30
At Vendor
1:5.94
At Warehouse
In-Store
30
•
Inventory-to-Sales Ratio
1:4.58
3
2
3
Before New
After New
System
System
IT systems have improved Wal-Mart’s
in-stock position and increased vendor
responsiveness
Wal-Mart
•
KMart
Wal-Mart stores replenish inventory
twice a week vs. industry standard of
once every two weeks
Selling and Operating Expenses of Sales
28%
15%
Wal-Mart
•
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Sears Roebuck & Co.
Wal-Mart has lowest cost of operations in the
retail area, aside from wholesale clubs
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WAL-MART: IMPLICATIONS
Lessons Learned: The Road to Success Is Paved by
Technology and Better Use of People
Strong
Supplier
Relationships
Economies
of Sales:
“Best Deals”
Stable
Lower
Prices
Effective
IT Systems
Reduced
Cost of Sale
Effective
Distribution
Systems
Empowered
Employees
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Predictable
Sale
Patterns
Decreased
Chance of
Out-of-Stock
Increased
Sales
and
Profits
In-Depth
Knowledge
of Customer/
Market
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