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Published by Nikesh Doshi

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Published by: Nikesh Doshi on Feb 04, 2013
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Wal-Mart’s Supply Chain

A Business Success


Wal-Mart is the World’s Largest Retail Company


Ranked first in the Global Fortune 500 list in 2001-2002 financial year 3 .

  4 .History of Wal-Mart  The company‟s founder is Sam Walton. He was born in 1918 at Oklahoma. In 1940. J C Penney. he worked for the famous retailer.

5 .History of Wal-Mart…  This phenomenal growth of WalMart is attributed to its continued focus on customer needs and reducing cost through efficient supply chain management practices.

pioneering the retail hub-and-spoke system. from where they were dispatched to the individual stores (spoke). Wal-Mart became one of the first retailing companies in the world to centralize its distribution system. 6  .Hub and Spoke System  In the early 1970s. goods were centrally ordered. assembled at a massive warehouse. Under the system. known as „distribution center‟ (hub).

– and distributing them through its own logistics infrastructure to the retail stores spread across the U. 7 .S..Hub and Spoke System…  The hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities.

Wal-Mart’s Procurement  Wal-Mart emphasized the need to reduce purchasing costs and offer the best price to the customer. company directly procured from manufacturers.  The 8 . by passing all intermediaries.

9 .Wal-Mart’s Procurement…  Wal-Mart finalizes a purchase deal only when it is fully confident that the products being bought is not available else where at a lower price.

Wal-Mart’s Procurement…  Wal-Mart spends a significant amount of time meeting vendors and understanding their cost structure. the retailer can be certain that the manufacturers are doing their best to cut down costs. making the process transparent. 10  By .

EDI enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold. the suppliers shipped the required goods to Wal-Mart‟s distribution centers.Using EDI for Procurement  The computer systems of Wal-Mart were connected to those of its suppliers. 11   . On receiving information about the sales of various products.

12  The . distribution centers were serviced by more than 3500 company owned trucks.Logistics Management  An important feature of Wal-Mart‟s logistics infrastructure was its fast and responsive transportation system.

company hired only experienced drivers who had driven more than 300. 13  The .000 accident-free miles. with no major traffic violation.Logistics Management…  Wal-Mart believed that it needed drivers who were committed and dedicated to customer service.

sorted out and then directly supplied to the customers. 14 . Wal-Mart also made use of a logistics technique called “cross-docking. the finished goods were directly picked up from the manufacturing plant.Cross-docking  To make its distribution process more efficient.”  In this system.

With the rapid expansion. Wal-Mart set up its own satellite communication system in 1983. 15 .   Hence.Inventory Management  Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country. it was essential to have a good communication system.

Inventory Management…  Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks. and timely price markdowns. Instead of cutting the inventory across the board. while reducing the overall inventory levels. reducing pack sizes across many product categories. Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most. 16  .

These helped them to keep track of the inventory in stores. deliveries.” a hand-held computer which was linked to in-store terminals through a radio frequency network.Inventory Management…  Employees at the stores had the “Magic Wand. 17  . and backup merchandise in stock at the distribution centers.

Through this system. it was possible to monitor and track the sales and merchandise stock levels on the store shelves.Inventory Management…  The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system. 18  .

connected to the portable (VOF) system that could be worn on waist belt. Each person responsible for order picking was provided with a microphone/speaker headset.Voice-based Order Filling (VOF)  In 1998.   They were guided by the voice to item locations in the distribution centers. 19 . Wal-Mart installed a voice-based order filling (VOF) system in all its grocery distribution centers.

000 to 200.000 square feet. Wal-Mart made significant investments in IT to quickly locate and replenish goods at the stores. 20  . movement of goods within the store was an important part of logistics operations.Inventory Management… (quick replenishment)  Since the floor area of any Wal-Mart store varied between 40.

21 . Wal-Mart had invested approximately $4 billion to build a retail link system.000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories.   Details of daily transactions (~10 million per day) were processed through this system.Inventory Management… (retail link system)  In 1991. More than 10.

suppliers could find out how their product was performing vis-avis competitors‟ products in a particular product category.Inventory Management… (retail link system)  Retail Link connected Wal-Mart‟s EDI network with an extranet. 22  The . accessible to Wal-Mart‟s thousands of suppliers.

All information related to sales and inventories was passed on through an advanced satellite communication system.Inventory Management… (retail link system)  Wal-Mart owned the largest and most sophisticated computer system in the private sector. 23   . The company used Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels.

forecasting and replenishment (CPFR).CPFR  By the mid 1990s. Retail Link had emerged into an Internet-enabled SCM system whose functions were not confined to inventory management alone. 24 . but also covered collaborative planning.

Wal-Mart worked together with its key suppliers on a real-time basis by using the Internet to jointly determine product-wise demand forecast.CPFR  In CPFR. CPFR is defined as a business practice for business partners to share forecasts and results data through the Internet. in order to reduce inventory costs while at the same time. enhancing product availability across the supply chain. 25  .

26  .CPFR: Hard to implement  Though CPFR was a promising supply chain initiative aimed at a mutually beneficial collaboration between Wal-Mart and its suppliers. A few suppliers with whom Wal-Mart tried to implement CPFR complained that a significant amount of time had to be spent on developing forecasts and analyzing sales data. its actual implementation required huge investments in time and money.

  The company believed that this replacement would reduce its supply chain management costs and enhance efficiency. 2005. in July 2003. Wal-Mart planned to replace bar-code technology with RFID technology. Wal-Mart asked its top 100 suppliers to be RFID compliant by January. 27 .RFID Technology (Radio Frequency Identification)  In efforts to implement new technologies to reduce costs and increase the efficiency.

saving labor cost and time. Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.RFID Technology (Radio Frequency Identification)  Because of the implementation of RFID. 28  . employees were no longer required to physically scan the bar codes of goods entering the stores and distribution centers.

analysts felt that it would impose a heavy burden on its suppliers. Of this. 29  . an estimated %50 would be spent on integrating the system and making modifications in the supply chain software. the suppliers needed to incur an estimated $20 Million.  To make themselves RFID compliant.RFID Technology (Radio Frequency Identification)  Although Wal-Mart was optimistic about the benefits of RFID.

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