Systems and Operations Management: Wal-Mart
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Wal-Mart
Company overview using key concepts from
Managing Business Process Flows
Presented by:
Casey Keller
Rick Buonauro
Aicha Aissaoui
Wal-mart FACTS
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 founded by Sam Walton in 1962
 the largest retailer in the world and the second largest
corporation in the world (behind Exxon Mobil based on
revenue as of 2006)
 the largest private employer in the United States and Mexico
 the largest grocery retailer in the United States
 the largest toy seller in the United States
 For the fiscal year ending January 31, 2006, Wal-Mart
reported net income of $11.2 billion on $313 billion of sales
revenue (3.5% profit margin)
Wal-mart & the COMPETITION
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 To sustain competitive advantage, a firm must ensure that
its competition finds it hard to imitate its chosen position.
COMPANY
SALES (MIL)
FY2006
INDUSTRY AVG.
39,992
Wal-mart
312,427
TARGET
55,363
KOHL’S
14,247
DOLLAR GENERAL
8,941
BIG LOTS
4,534
Wal-mart & the COMPETITION
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Responsiveness
A
B
operations
frontier
C
High
Low
Price
Wal-mart’S PRODUCT ATTRIBUTES
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 What are the 4 key product attributes???
….product cost, product delivery-response time, product
variety, product quality
 Wal-mart’s product cost? Low
 Wal-mart’s product delivery-response time? Low
 Wal-mart’s product variety? High
 Wal-mart’s product quality? Low - Medium
Wal-mart Strategy
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WAL-MART STRATEGY & OPERATIONS STRUCTURE
Enable everyday low prices and above average profitability by procuring, distributing,
and selling products, when and where needed, at lower costs than any competitor.
Operations Strategy
 Short Response Times
 Low Inventory Level




Operations Structure
Fast Transportation System
Cross Docking
Retail Link
RFID
Process Flow Measures: Wal-Mart
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 Process Flow Measures
– Flow Time (T) – total time spent by a flow unit within
process boundaries
– Flow Rate – number of flow units that flow through a
specific point in the process, per unit of time
– Inventory (I)– total number of flow units present within
process boundaries
 Throughput (R) – average flow rate or average number of
flow units that flow through the process, per unit of time
 Little’s Law: Average Inventory (I) = Throughput (R) x
Average Flow Time (T) or I=RxT
 Inventory Turns or Turnover Ratio – number of times
inventory is sold and replaced during a specific period, R/I
Process Flow Measures: Wal-Mart
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 Wal-Mart is extremely efficient with low flow times, high flow
rates, and low inventory.
 As of January 31, 2006:
– Inventory as a percentage of the Balance Sheet was
23.3%, down from 40.1% in 1997
– Inventory Turnover was 7.8, up from 5.3 in 1997
– Days Inventory was 46.8, down from 69.6 in 1997
Flow-Time Analysis: Wal-Mart
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 Wal-Mart’s merchandise replenishment cycle is no more than
48 hrs.
Customer
made a
purchase
Point-of-sale
system
captures data
in real-time
Data is
transmitted to
warehouses
for Inv. Mgmt.
Orders are
generated from
previous-day
sales
Merchandise is
loaded onto
trucks using
cross-docking
Retail Link
transmits
data to
supplier
Merchandise is
manufactured
based on historical
and real-time data
Merchandise
is shipped to
warehouses
Merchandise
is delivered to
the store
 Retail Link – real-time point-of-sales (POS) data
transmission
 Cross Docking
 Fleet of 7,000 trucks in US
The store will restock the shelves
with merchandise
Flow-Time Analysis: Wal-Mart
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Walmart’s Centralized Hub-andSpoke System of Warehouses and
Distribution Centers
250 mile
radius
Flow-Time Analysis: Cross Docking
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Cross docking: take a finished
good from the manufacturing
plant and deliver it directly to
the retail store with little or no
handling in between.
Flow-Time Analysis: Advantages of Cross Docking
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 Reduces operating costs.
 Increases throughput.
 Reduces inventory levels.
 Helps in increase of sales space.
 Eliminates unnecessary handling and storage of product.
 Reduces product damages and product obsolescence.
Supplier Management: Retail Link
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 Retail Link is a decision support system
 It is a bridge between Wal-Mart and its suppliers
 It is an address you can visit via Internet to retrieve the sales
data, inventory data, information on its development
Inventory Management
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Customer
made a
purchase
Point-of-sale
system
captures data
in real-time
Data is
transmitted to
warehouses
for Inv. Mgmt.
Orders are
generated from
previous-day
sales
Merchandise is
loaded onto
trucks using
cross-docking
Retail Link
transmits
data to
supplier
Merchandise is
manufactured
based on historical
and real-time data
Merchandise
is shipped to
warehouses
Merchandise
is delivered to
the store
The store will restock the shelves
with merchandise
 Inventory Management:
»
»
»
»
Reducing critical activity times
Eliminating non-value-adding activities
Moving work from critical to non critical activities
Redesigning the process to replace sequential with parallel processing
Inventory Management: RFID
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Radio Frequency Identification
 Automated Data collection based
on an electronics – not a barcode
 Tag can be imbedded in the
product or stuck on the exterior
case or pallet
 Reader instead of a barcode
scanner
 Allows fully automated data
collection with the use of portals
 Can read many ID tags at a time
Inventory Management: How does an RFID work?
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Inventory Management: RFID
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 Wal-mart is the most famous retailer implementing RFID in its
supply chain management system in January 2005.
 It required its top 100 suppliers to use RFID technology at the
pallet and case level by January 2005, 200 by January 2006,
300 by January 2007, and so on…
Inventory Management: RFID Read Points
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WAL-MART STORE READ POINTS
Inventory Management: Why RFID?
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 Reduce the possibility of inventory shrinkage and out-of-stock situation.
 Improve fulfillment rates.
 Improve the customer service.
 Reduce inventory and labor cost.
 Eliminate many manual process and improve the operation efficiency.
Inventory Management: RFID Study?
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Reducing out of stock?
» 8% of all items are out of stock (at any point of time)
» Estimated potential lost sales:
– Retailers: 3.4%
– Suppliers: 2.6%
» 26% improvement from no RFID to full RFID
Thank you!
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THANK YOU! QUESTIONS???
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