CASE STUDY:

HALF A CENTURY OF SUPPLY CHAIN

MANAGEMENT AT WAL-MART
GNG5310/EMP5109 Operations Management

Submitted by Group 3:

Achyuth Krishna Chepuri (300150660)

Govinda Kumar (300147553)
Sarmiga Murugupillai (300047477)
Divyeshkumar Patel (300201933)
Vaibhav Patel (300142721)
Bhairvi Sharma (300191092)
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Group 3

Question 1
As James Neuhausen, what is your overall analysis of Wal-Mart’s supply chain?
Are the company’s supply chain capabilities still a source of competitive
advantage? Why or why not?

Wal-Mart’s strategy utilizes an integrated supply chain. The integrated supply chain is managed
through accurate pull data, single stage control of replenishment, vendor managed inventory and
collaborative planning, forecasting and replenishment (CPFR). Its supply chain consists of a low-
cost strategy and strategic relationships with its suppliers.

The following SWOT Analysis was performed for Wal-Mart:

Strengths
• Everyday low price (EDLP) strategy allows for low prices from week to week to generate
high consumer foot traffic. Due to this EDLP policy, no need to advertise as much as
competitors.
• One of the first firms to use data to make operational decisions, using bar codes (UPC),
sharing sales data with suppliers, controlling its own trucking fleet, and installing
computerized point-of-sale systems that collected item level data in real time.
• Procurement is done by senior management which cuts out middleman (wholesalers and
distributors). It bought in bulk which passed savings on to consumers.
• Global product sourcing for private label merchandise which was sold a t a discount to
brand name merchandise.
• Distribution strategy was “hub-and-spoke” design of high-volume distribution centers
serving a cluster of stores. Stores were in low-rent, suburban areas close to major highways.
• High turning items such as fresh food or other perishable merchandise were cross docked
or directly transferred from inbound to outbound trailers without extra storage.
• Backhaul revenue generation by transporting unsold merchandise on trucks that would
otherwise be empty. Trucks were used as for-hire carriers when not used for transporting
merchandise.
• Trucking employees are non-unionized and in-house which allows for easy implementation
of standard delivery procedures, coordinating and deploying the entire fleet as needed.
• Each store was designed as “store of the community” to tailor the product mix to appeal
the distinct tastes of the community.
• Each distribution center had close to real-time information on stores’ in-stock levels so the
merchandise could be pushed to stores automatically. RFID tags allows for increased stock
visibility to reduce out-of-stock losses and overstock expenses.
• Supplier analysts worked closely with Wal-Mart’s supply chain personnel to coordinate
flow of products from suppliers’ factories.
• Fast-moving merchandise such as paper towels, toilet paper, toothpaste and seasonal items
were shipped from high velocity food distribution centers to reduce restocking time.

Weakness
• Wal-Mart’s distribution system including cross-docking product to eliminate storage time
in warehouses, positioning stores around distribution centers and use of electronic data

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interchange to manage ordering and shipping from suppliers is easily copied by

competitors.
• Wal-Mart’s strategy is a house of brands, so its private label merchandise only accounted
for 16% of sales in the 1980s whereas the competitors Safeway and Kroger’s private label
sales were 25%.

Opportunities
• International operations expansion since the international sales in 2011 was more than a
quarter of its business
• Increasing Online retail since online retail sales are rising in importance

Threats
• Competitors rolling out small store formats and online spaces that are eating into Wal-
Mart’s shares.
• Unionized grocers are aggressive in their anti-Wal-Mart publicity campaigns and
undermine Wal-Mart’s expansion.
• Target for politicians

Based on the SWOT analysis, Wal-Mart has a lot of strengths due to it being the first to implement
operational strategies such as using computerized point of sale systems. These strengths
demonstrates that Wal-Mart’s supply chain capabilities are still a source of competitive advantage.
However, since its business model is easily copied by competitors, Wal-Mart needs to implement
new strategies to constantly stay ahead of its competitors.

Question 2
Based on the financial data provided in the case (not today’s financial), how is
Wal-Mart doing as compared with its rivals/competitors?

Table 1: Indexed financial KPIs to 2011 Sales data

Company COGS Operating expenses Net income Inventories Total assets
Wal-Mart 75.26% 19.34% 4.06% 8.67% 43.12%
Target Corp 69.90% 20.60% 4.28% 11.56% 68.11%
Kroger Co 79.11% 16.98% 0.66% 6.81% 25.98%
Costco 89.31% 9.97% 1.77% 7.63% 30.74%
Safeway 72.97% 24.43% 1.19% 5.66% 34.55%
Amazon.com 77.56% 20.33% 1.79% 10.38% 52.58%
Dollar General 68.27% 21.66% 5.18% 13.57% 65.44%
Dollar Tree 64.12% 24.07% 7.36% 13.07% 35.12%
Big Lots 60.21% 31.43% 3.98% 15.86% 31.55%
Fred's Inc. 71.39% 24.48% 1.63% 16.99% 32.36%
Sears 74.50% 25.65% -7.57% 20.23% 51.44%
Walgreen 71.61% 22.94% 3.76% 11.14% 38.03%
CVS 80.80% 13.29% 3.23% 9.38% 60.26%
Carrefour 79.87% 17.19% -2.71% 8.43% 58.98%
Tesco plc 91.70% 2.75% 4.38% 5.19% 77.47%

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Wal-Mart’s sales in 2011 is much higher than its competitors. Over the past decade, it can be seen
that Wal-Mart’s sales have nearly doubled, with the sales increasing each year. Seeing as its prices
are generally 8-26% lower than its competitors, it shows that consumers are attracted to its EDLP
policy which is why its sales are much higher.

Based on the data from Table 1, when indexed to the 2011 sales data, Walmart’s cost of goods
sold is slightly higher to majority of its competitors. This is due to its lower prices and large sales
value, so a higher quantity of goods is sold compared to its competitors. Its operating expenses are
slightly lower than most of its competitors due to its EDLP policy to cut operating costs to ensure
product is sold at lower prices. Its net income and total assets are comparable to that of its
competitors with its inventory slightly lower than most of its competitors. Kroger Co, Costco,
Safeway, and Tesco plc have lower inventory to Sales which can be used as a benchmark to
improve the inventory and restocking system.

The gross profit margin demonstrates the percentage of each revenue dollar that is retained as
profit. The higher the gross profit margin, the more efficient the company is at generating profit
for every dollar of cost involved. The gross profit margin for Wal-Mart in 2011 was 24.74% (see
Table 2 in Appendix). Fourteen (14) competitors were listed for Walmart and compared to them;
Wal-Mart’s gross profit margin is lower. The net profit margin demonstrates a company’s ability
to turn income into profit. A higher net profit margin is desirable since it shows that the company
generates more profit from tis sales. The net profit margin for Wal-Mart in 2011 was 4.06% (see
Table 2 in Appendix) which is higher than 70% of its competitors. This shows that for every dollar
Wal-Mart generated in sales, it kept $0.406 as profit.

To measure the supply chain performance, percentage invested in inventory, inventory turnover
and weeks of supply are measured. The lower the percentage invested in inventory, the better since
it measures the company’s inventory efficiency. The higher the inventory turnover, the better since
it means that a company is selling goods quickly. The lower the weeks of supply, the better since
it indicates that the stock is being moved at a good rate. Fourteen (14) competitors were listed for
Walmart and compared to them, the percentage invested in inventory for Wal-Mart is lower than
at least half of its competitors, the inventory turnover is higher than at least 60% its competitors
and the weeks supply is lower than at least 60% its competitors.

Question 3
As Johnnie Dobbs, Wal-Mart’s EVP of logistics, where would you spend your
money or focus your energy?

Johnnie Dobbs, Wal-Mart’s EVP of logistics should spend the money and focus energy on the new
initiatives and reorganization.

Global Sourcing
• Wal-Mart’s private label business entered a partnership to assist with product sourcing in
a range of categories and markets where it did not have the scale or competencies and
skills to leverage. Wal-Mart was targeting 5 to 15% savings through this initiative.

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• Owning 8,500 stores, in 15 different countries and procurement, Wal-Mart has a

challenging task to serve customer’s needs with a variety of tastes, globally. Therefore,
keeping their focus to finding more key partners to widen their private label merchandise
would be a suitable investment as it provides them the opportunity to save through
partnerships and avoid non-direct purchases to achieve the ultimate goal of customer
satisfaction.
• This initiative provides Wal-Mart the opportunity to expand into international markets
especially developing markets such as Asia, South America, and Africa. It allows Wal-
Mart to leverage the international expertise from these partnerships.

Project One-Touch
• The improvements to the distribution centers, the transportation operations and stores
allows for easy access of products to get them onto the shelf. This initiative allowed Wal-
Mart to reinvest US $2 billion in cost savings into reducing product prices in stores in 10
months.
• More improvements can be made to increase on-shelf availability to 95% on key items at
every store by working with its distribution centers and store operations.
• The lean layout of distribution centers reduces movement of people and material to reduce
waste.

Multi-Channel Strategy
• The multi-channel strategy allows for sales increases both in store and online.
• Online and in-store sales data needs to be collected to manage sales force.
• The sales credit for the store teams is an incentive to increase store sales and online sales.
• The comprehensive fulfillment program with 3 compelling free-shipping programs
encourages online sales.
• The online store carries a broader selection of items that are not available in-store which
allows customers to purchase a variety of products in one place, providing convenience.

Question 4
As Johnnie Dobbs, what recommendations would you make to the CEO? Where
do you see the opportunities for Wal-Mart in its global supply chain?

Here are the recommendations to the CEO and the opportunities for Wal-Mart in its global supply
chain:

1. Online Retail

The retail industry has demonstrated that online retail sales are rising in importance. The trend
clearly shows that the consumer market is moving towards online retailing as Amazon.com, which
is a leading online retail company and has shown tremendous growth in a very little amount of
time and stands as a tough competitor to Wal-Mart and it seems that this trend will keep seeing
growth in the coming years. Therefore, focusing on investing time and money in online retailing
will be worth it with setups like in-store pick-up, free home delivery or same-day delivery. The
Wal-Mart stores can be reorganized to have a section for online retail pick-up to allow for easy

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access for products that are already available in-store. This would help in capturing the market
from Amazon.com and give them a tough fight in the market.

2. ERP System

Wal-Mart’s Retail Link database contains data on every sale made at the store level. It gives access
to real-time sales data and individual stock keeping items at the store level. Retail Link should be
upgraded to include sales data from online sales to manage the sales force and target the most
profitable customers.

3. Global expansion

Wal-Mart can expand into international markets especially developing markets such as Asia, South
America, and Africa. By establishing partnerships with suppliers in the international market, it can
help Wal-Mart identify consumer patterns and tailor their product selection accordingly.

4. Inventory Reduction

The inventory can be analyzed using ABC Analysis to divide the on-hand inventory into 3
classifications based on the sales revenue. This will help to prioritize the stock items and ensuring
availability for the most important stock items. This analysis would allow for better forecasting,
physical control, and reduction in inventory.

Order cycles and order quantities can be reduced to improve inventory turnover. Smaller, more
frequent orderings can help with meeting customer demand while reducing the weeks in supply.
The economic order quantity model can be used for inventory control to minimize ordering costs
and hold costs.

5. Small store format

Small store formats allow Wal-Mart to open in space-constrained urban areas. The small store
formats allow product to be easily accessible to customers since it reduces the distance between
each section. It is also convenient for customers who live in the urban areas to go to a store that is
closer to their home. Stores are tailored to the distinct tastes and cultures of the community should
prioritize these product mixes to appeal to its customers to maximize profit.

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Appendix
Question 2
Inventories
Percentage invested in inventory = x 100%
Total Assets
COGS
Inventory Turnover =
Inventories
Inventories
Weeks of supply =
COGS�
52 weeks
Sales − COGS
Gross Profit Margin = x 100%
Sales
Net Income
Net Profit Margin = x 100%
Sales

Table 2: Gross Profit Margin and Net Profit Margin for 2011
Company Gross Profit Margin Net Profit Margin
Wal-Mart 24.74% 4.06%
Target Corp 30.10% 4.28%
Kroger Co 20.89% 0.66%
Costco 10.69% 1.77%
Safeway 27.03% 1.19%
Amazon.com 22.44% 1.19%
Dollar General 31.73% 5.18%
Dollar Tree 35.88% 7.36%
Big Lots 39.79% 3.98%
Fred's Inc. 28.61% 1.63%
Sears 25.50% -7.57%
Walgreen 28.39% 3.76%
CVS 19.20% 3.23%
Carrefour 20.13% -2.71%
Tesco plc 8.30% 4.38%

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Table 3: Percentage invested in inventory
Target Kroger Dollar Dollar Big Fred's Tesco
Year Walmart Costco Safeway Amazon Sears Walgreen CVS Carrefour
Corp Co General Tree Lots Inc. plc
2011 20.10 16.98 26.23 24.80 16.39 19.75 20.73 37.23 50.27 52.52 39.32 29.30 15.56 14.29 6.70
2010 19.43 17.38 24.65 23.67 17.32 17.03 18.49 33.73 47.04 51.49 37.59 28.08 17.20 13.04 5.93
2009 21.12 16.12 24.70 24.59 16.77 15.72 17.15 29.69 43.80 55.41 35.09 27.00 16.78 12.94 5.80
2008 21.51 15.20 24.38 24.36 14.82 16.83 15.92 33.20 51.47 58.08 34.71 32.35 15.01 13.23 8.06
2007 22.28 15.22 24.48 24.88 15.85 18.50 14.89 35.85 51.80 59.11 36.37 35.16 14.63 13.22 7.79
2006 23.30 16.74 23.85 26.12 16.24 20.10 47.09 32.30 44.04 61.04 32.95 35.32 34.56 12.73 6.49
2005 24.49 16.68 23.86 24.31 17.55 15.31 49.26 32.09 51.45 59.14 29.66 38.28 37.43 13.21 6.49
2004 25.37 16.67 23.08 24.14 17.83 14.77 48.47 34.30 51.61 57.97 37.93 35.52 37.49 13.29 6.44
2003 26.29 17.02 22.26 25.31 17.50 13.60 43.61 35.54 46.50 56.07 53.22 36.85 38.10 14.57 6.80
2002 27.10 16.64 20.77 26.91 15.54 10.15 48.14 33.59 47.26 57.75 66.53 36.90 41.62 14.70 6.70

Table 4: Inventory Turnover

Target Kroger Dollar Dollar Big Fred's Tesco
Year Walmart Costco Safeway Amazon Sears Walgreen CVS Carrefour
Corp Co General Tree Lots Inc. plc
2011 8.68 6.04 11.61 11.71 12.89 7.47 5.03 4.90 3.80 4.20 3.68 6.43 8.61 9.48 17.67
2010 9.19 6.02 11.04 12.06 11.22 8.30 5.02 4.69 3.86 4.38 3.45 6.57 7.12 9.15 19.17
2009 8.87 6.14 10.33 11.53 11.62 8.74 5.33 4.96 3.84 4.29 3.66 6.73 7.58 10.21 18.77
2008 8.14 6.59 10.35 12.60 12.19 10.65 5.23 4.52 3.78 4.03 3.88 5.85 7.56 9.97 17.97
2007 7.84 6.18 9.85 11.57 10.77 9.57 3.10 4.34 3.76 4.17 3.68 5.67 7.52 9.41 20.40
2006 7.47 6.30 9.91 11.54 10.82 9.41 4.75 4.32 3.76 3.75 3.82 5.66 4.48 10.12 24.88
2005 7.46 5.98 9.33 11.54 9.87 11.40 4.15 3.85 3.23 3.77 3.92 5.44 4.74 9.59 23.86
2004 7.47 5.84 8.91 11.55 9.20 11.08 3.92 3.27 2.90 3.90 4.47 5.76 4.14 10.15 24.19
2003 7.71 5.95 8.82 11.15 9.47 13.63 4.20 3.40 2.93 4.11 4.04 5.64 4.91 9.60 22.08
2002 7.59 6.15 9.06 10.87 8.95 14.55 3.90 0.26 2.88 4.03 1.07 5.78 4.51 9.29 24.52

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Table 5: Weeks Supply

Target Kroger Dollar Dollar Big Fred's Tesco
Year Walmart Costco Safeway Amazon Sears Walgreen CVS Carrefour
Corp Co General Tree Lots Inc. plc
2011 5.99 8.60 4.48 4.44 4.03 6.96 10.33 10.60 13.70 12.38 14.12 8.09 6.04 5.49 2.94
2010 5.66 8.64 4.71 4.31 4.63 6.27 10.36 11.08 13.48 11.86 15.09 7.92 7.30 5.69 2.71
2009 5.86 8.47 5.03 4.51 4.47 5.95 9.75 10.48 13.54 12.12 14.22 7.72 6.86 5.09 2.77
2008 6.38 7.90 5.02 4.13 4.27 4.88 9.95 11.51 13.75 12.89 13.40 8.89 6.88 5.22 2.89
2007 6.63 8.42 5.28 4.49 4.83 5.43 16.76 11.98 13.81 12.47 14.14 9.17 6.91 5.53 2.55
2006 6.96 8.25 5.25 4.50 4.80 5.52 10.95 12.04 13.82 13.85 13.62 9.19 11.60 5.14 2.09
2005 6.97 8.69 5.58 4.50 5.27 4.56 12.53 13.50 16.11 13.80 13.28 9.56 10.97 5.42 2.18
2004 6.96 8.90 5.84 4.50 5.65 4.69 13.26 15.89 17.91 13.35 11.63 9.02 12.57 5.12 2.15
2003 6.75 8.74 5.89 4.66 5.49 3.82 12.39 15.31 17.78 12.64 12.87 9.22 10.59 5.42 2.35
2002 6.85 8.46 5.74 4.78 5.81 3.57 13.34 199.79 18.04 12.90 48.39 8.99 11.52 5.60 2.12

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