Case Study 4: Supply Chain Management of Wal-Mart

EXECUTIVE SUMMARY

The case discusses in detail the supply chain management practices of Wal-Mart and explains
how the company employed IT/Internet to enhance the efficiency of each function of supply
chain including procurement, warehouse and logistics management, inventory management and
demand forecasting. The case focuses particularly on some of the important technologies used by
the company and their benefits including EDI, voice-based tools and applications and the Retail
Link system.

The case examines the supply chain management practices at Wal-Mart, the leading retailer in
the world. The case explains in detail how Wal-Mart managed various components of the supply
chain including procurement, distribution, logistics and inventory management. It covers how the
use of innovative IT tools has helped the company in improving the efficiency of supply chain.
The case concludes with a discussion on the benefits reaped by Wal-Mart due to its efficient and
effective supply chain management system.

The case also examines the use of Internet-based technologies by Wal-Mart in implementing
collaborative planning, forecasting and replenishment (CPFR), global sourcing and EDI-INT.
Finally, the case describes Wal-Mart's plans to implement Radio Frequency Identification (RFID)
technology, its benefits and the problems being faced by the suppliers to implement it.

The report covers the literature behind Supply chain and Supply chain management. The various
objectives and analysis of Supply chain management are covered in the report. There are many
elements which form a backbone of Supply chain management. Efforts are been made to explore
these dimensions with the help of retail giant “Wal-Mart”. The report also covers the evolution of
Wal-Mart with Supply chain management technology at its behest. Efforts are been made to
understand different processes that Wal-Mart uses in its Supply chain management

COMPANY PROFILE

Total Company Data Sheet - March 2010

Retail Units Worldwide 8,431

U.S. Retail Units

4,363
Wal-Mart discount stores 804
Supercenters 2,766
Neighborhood Market 182
Market side 4
Supermercado 2
Sam’s Club 605
Wal-Mart International Retail Units 4,068

Company History

First Wal-Mart opened in 1962 (Rogers, AR)

First Sam’s Club opened in 1983 (Midwest City, OK)

First Supercenter opened in 1988 (Washington, MO)

First International unit opened in 1991 (Mexico City)

First Neighborhood Market opened in 1998 (Bentonville, AR)

First Market side stores opened in 2008 (Chandler, Gilbert, Mesa and Tempe, AZ)

First Supermercado store opened in 2009 (Houston, Texas)

Company Sales Territory:

Wal-Mart Stores, Inc. (NYSE: WMT) serves customers and members more than 200 million
times per week at 8,400 retail units under 55 different banners in 15 countries.

Total Associates:

United States – more than 1.4 million

Internationally -- 664,000
Total Associates -- more than 2 million worldwide

Net Sales For the fourth quarter FY 2010, $112.8 billion, a 4.6 percent increase over the same
period last year.

FYE 1/31/10: $405.0 billion, a 1 percent increase over the previous year

Community Involvement: In 2009, Wal-Mart Stores, Inc. and its Foundation gave $467 million
in cash and in-kind donations. Internationally, Wal-Mart gave $45 million in cash and in-kind
gifts to charitable organizations, bringing total 2009 giving to $512 million.

International Data Sheet - March 2010

Wal-Mart International Units 4,068 total units

Market Retail Units
Date of Entry
Mexico 1,472 November 1991
Canada 317 November 1994
Brazil 436 May 1995
Argentina 44 August 1995
China (*) 283 August 1996
United Kingdom 371 July 1999
Japan 371 March 2002
Costa Rica 170 September 2005
El Salvador 77 September 2005
Guatemala 164 September 2005
Honduras 55 September 2005
Nicaragua 55 September 2005
Chile 253 January 2009
India 1 May 2009

Sales Territory: Wal-Mart Stores, Inc. or “Wal-Mart” serves customers and members more than
200 million times per week at more than 8,400 retail units under 55 different banners in 15
countries, including the United States. Wal-Mart employs more than 2.1 million associates
worldwide.

Total International Associates: 664,000

Total International Sales:

Fourth quarter International net sales were $29.6 billion, an increase of 19.5 percent from last
year. The increase in International net sales includes our Chilean operations (acquired in January
2009) and a $1.9 billion positive impact from currency exchange rate fluctuations. On a constant
currency basis, International net sales were up 11.9 percent to $27.7 billion from last year’s
fourth quarter results of $24.8 billion.

Reported International operating income for the fourth quarter included a currency exchange rate
benefit of $122 million. Reported International operating income for the year ended Jan. 31,
2010 was reduced by $540 million for the effect of currency exchange rate fluctuations. On a
constant currency basis, International operating income increased 18.7 percent and 12.8 percent,
respectively, for the fourth quarter and full fiscal year 2010, compared to the corresponding
periods in fiscal year 2009.

International net sales for fiscal year 2010 were $100.1 billion, an increase of 1.3 percent from
last year. On a constant currency basis, International net sales increased 11.2 percent to $109.9
billion in fiscal year 2010, compared to $98.8 billion in fiscal year 2009.
Wal-Mart International ended fiscal year 2010 with more than $100 billion in net sales, with
strong double-digit sales growth in the fourth quarter. Many countries delivered strong
comparable sales performance and gained market share. On a constant currency basis, fourth
quarter operating income for Wal-Mart International grew faster than sales

Wal-Mart in India Fact Sheet

Total retail units as of March 31, 2010: 1

Best Price: 1

Associates: 544

About Bharti Walmart Private Limited

Bharti Walmart Private Limited is a joint venture between Bharti Enterprises, one of India's
leading business groups with interests in telecom, agri-business, insurance and retail, and
Walmart, the world’s leading retailer, renowned for its efficiency and expertise in logistics,
supply chain management and sourcing. The joint venture is establishing wholesale cash-and-
carry and back-end supply chain management operations in line with Government of India
guidelines. Under the agreement, Bharti and Walmart hold a 50:50 stake in Bharti Walmart
Private Limited. The first wholesale cash-and-carry facility named “Best Price Modern
Wholesale” opened in Amritsar in May 2009.

Wholesale Cash-and-Carry to Benefit Retailers

Best Price Modern Wholesale store is a one-stop shop that meets the day-to-day needs of
restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store
owners, offices and institutions. The store offers an assortment of approximately 6,000 items,
including food and non-food items, which are available at competitive wholesale prices, allowing
retailers and business owners to lower their cost of operations.

More than 90 percent of these goods and services are being sourced locally; thereby helping
keep costs to a minimum, adding to the growth of the local economy and creating job
opportunities, with the cash and carry store directly employing more than 200 local people.

INTRODUCTION:

The world’s largest retailer Wal-Mart was founded by Sam Walton in the year 1962. He opened
his first store in Rogers, Ark. On 31 st October 1969, the company was incorporated as Wal-Mart
Stores. Key success factor was the guidance of Sam. Presently they are operating in fifteen
countries with more than 8,000 stores with 2.1 million employees (Walmart, 2010). Major
features of Wal-Mart stores are its store area, cleanliness and its shelves which is filled with
varieties of quality items that includes health care products, family apparels, electronic items,
automotive products, hardware items, jewelry etc.

Wal-Mart is giving more emphasis for customer needs and tried to reduce cost through the
effective usage of supply chain management system. In the year 2009, Fortune Magazine ranked
Wal-Mart as first among other retailers in its survey. Sales were about 401 billion U.S dollars in
the FY 2009.

The US-based Wal-Mart ranked first in the global Fortune 500 list in the financial year 2001-02
earning revenues of $219.81 billion. Wal-Mart was the largest retailing company in the world.
The company was much bigger than its competitors in the US - Sears Roebuck, K-Mart, JC
Penney and Nordstrom combined.

In 2002, Wal-Mart operated more than 3,500 discount stores, Sam's Clubs and Supercenters in
the US and more than 1,170 stores in all major countries across the world. The company also
sold products on the Internet through its website, walmart.com.

Wal-Mart was one of the largest private sector employers in the world, with employee strength of
approximately 1.28 million. The company's founder, Sam Walton (Walton) had always focused
on improving sales, constantly reducing costs, adopting efficient distribution and logistics
management systems and using innovative information technology (IT) tools. According to
analysts, Wal-Mart was able to achieve a leadership status in the retail industry because of its
efficient supply chain management practices. Captain Vernon L. Beatty, aide-de-camp to the
commander, Defense Supply Center, Columbus, Ohio said, "Supply chain management is
moving the right items to the right customer at the right time by the most efficient means. No one
does that better than Wal-Mart."

LITERATURE REVIEW

The movement of a product or a service from supplier to customer takes place with the help of
organizations, people, technology and resources. According to Terry. Harrison “a supply chain is
a network of facilities and distribution options that perform the functions of procurement of
materials, transformation of materials into intermediate and finished products and the distribution
of the finished products to customers”. Supply chain finds its place in both services as well and
manufacturing industry. Supply chain can also be explained as the association of the retailers,
distributors, transporters and suppliers who come together and share the process of sale, delivery
and production of a particular product or service.

Supply chain management is an efficient way of managing the above mentioned activities.
According to Jessie Chinami Supply chain management can be defined as “an oversight of
materials, information and finances as they move in a process from supplier to manufacturer to
wholesaler to retailer and finally to the consumer”. The basic aim of supply chain management
is coordinating and integrating the flow which takes place within and among companies.
The basic three types of supply chain management flows are:

 The product flow

 The information flow
 The finances flow

The product flow deals with the goods and services that are subjected to movement from a
supplier to a customer and vice-versa. The information flow manages the upgrading as well as
management relating to the status of the delivery process while the financial flow manages all
the finances related to the delivery process.
A schematic diagram of the Supply chain management process is as shown. The various
processes in Supply chain management are:

 Supply chain strategy

 Logistics
 Product lifecycle management
 Procurement
 Asset management
 Enterprise applications
 Supply chain planning

The decisions associated with supply chain management cover both the long-term and short-
term. Strategic decisions deal with corporate policies, and look at overall design and supply
chain structure. Operational decisions are those dealing with every day activities and problems of
an organization. These decisions must take into account the strategic decisions already in place.
Therefore, an organization must structure the supply chain through long-term analysis and at the
same time focus on the day-to-day activities.

Furthermore, market demands, customer service, transport considerations, and pricing

constraints all must be understood in order to structure the supply chain effectively. These are all
factors, which change constantly and sometimes unexpectedly, and an organization must realize
this fact and be prepared to structure the supply chain accordingly.

Structuring the supply chain requires an understanding of the demand patterns, service level
requirements, distance considerations, cost elements and other related factors. It is easy to see
that these factors are highly variable in nature and this variability needs to be considered during
the supply chain analysis process. Moreover, the interplay of these complex considerations could
have a significant bearing on the outcome of the supply chain analysis process.

Cross Docking:
Cross Docking is a method of handling goods. This happens when vendor and the company work
together. This is the method of supplying the product in the right time and the said quantity. This
cut down a lot of time. This also changed Wal-Mart’s way of looking things. This transitioned
Wal-Mart from being a centralized management to almost decentralized system took a major turn
in focus of pull strategy than a pull strategy.

Cross-docking is one of the techniques used by Wal-Mart. It means there is no unnecessary

storage or little storage in between the loading and unloading of goods so that customer can
enjoy the quality of the goods by first hand. Wal-Mart have logistics infrastructure which is very
fast transportation system wherein the distribution centres are being serviced. Wal-Mart assured
that their drivers are capable of doing their jobs accordingly and do not cause unnecessary delays
that can hamper the efficiency of the distribution operations. To deliver it on time, the
coordinators give information to the driver the expected time of arrival or delivery of the goods.

Point Of Sale:

Information sharing is one of the most important things when it comes to SCM. P&G with its
Pampers requested Wal-Mart to share its point of sale so that it could predict its demand more or
less and work on the information to bring in efficiency. When Wal-Mart shared this information
P&G could plan in advance and it with its efficient supply chain management could supply
pampers to Wal-Mart on time.

Wal-Mart did not want to dedicate lot of space to pamper in its warehouse of shop store either.
Instead the supply was taken care by P& G. This led the initiation of working with the vendors
and coming out with huge efficiency by maintaining lower inventory and satisfying demand
without stock outs. Thus point of sale sharing would be a key element for any company for its
further scope of improvement and also when there is further scope of improvement there is a role
for Supply chain management.

MANAGING THE SUPPLY CHAIN:

PROCUREMENT AND DISTRIBUTION: Wal-Mart always emphasized the need to reduce

its purchasing costs and offer the best price to its customers. The company procured goods
directly from manufacturers, bypassing all intermediaries. Wal-Mart was a tough negotiator on
prices and finalized a purchase deal only when it was fully confident that the products being
bought were not available elsewhere at a lower price. Wal-Mart spent a significant amount of
time meeting vendors and understanding their cost structure. By making the process transparent,
the retailer could be certain that the manufacturers were doing their best to cut down costs. Once
satisfied, Wal-Mart believed in establishing a long-term relationship with the vendor. In its
attempt to drive hard bargains, Wal-Mart did not even spare big manufacturers like Procter &
Gamble (P&G). However, the company, generally, preferred local and regional vendors and
suppliers.

In 1998, Wal-Mart had over 40 distribution centers located at different geographical locations in
the US. Over 80,000 items were stocked in these centers. Wal-Mart’s own warehouses directly
supplied 85 percent of the inventory, as compared to 50-65 percent for competitors. According to
rough estimates, Wal-Mart was able to provide replenishments within two days (on an average)
against at least five days for competitors. Shipping costs for Wal-Mart worked out to be roughly
3 percent as against 5 percent for competitors. Each distribution center was divided into
different sections on the basis of the quantity of goods received and was managed the same way
for both cases and transport goods. The inventory turnover rate was very high, about once every
two weeks for most of the items. Goods meant for distribution within the US usually arrived in
pallets, while imported goods arrived in re-usable boxes or cases. In some cases, suppliers
delivered goods such as automotive and drug products directly to the stores. About 85% of the
goods which were available at the stores passed through the distribution centers. The distribution
centers ensured a steady and consistent flow of products to support the supply function.

As Wal-Mart used sophisticated barcode technology and hand-held computer systems, managing
the center became easier and more economical. Every employee had an access to real time
information regarding the inventory levels of all the products in the center. They had to just make
two scans – one to identify the pallet, and the other to identify the location from where the stock
had to be picked up. Different barcodes were used to label different products, shelves and bins in
a center. The hand-held computer guided an employee with regard to the location of a particular
product from a particular bin or shelf in the center. When the computer verified the bin and
picked up a product, the employee confirmed whether it was the right product or not. The
quantity of the product required from the center was entered into the hand-held computer by the
employee and then the computer updated the information on the main server. The hand-held
computer also enabled the packaging department to get accurate information about the products
to be packed. It displayed all information about the storage, packaging and shipping of a
particular product thus, saving time on unnecessary paperwork. It also enabled the center
supervisors to monitor their employees closely enabling them to give directions and even guide
them even on the move. This enabled the company to satisfy customer needs quickly and
improve the level of efficiency of the distribution center management operations. Each
distribution center had facilities for maintaining personal hygiene such as shower bath and
fitness centers. It also had provision for food, sleep and personal business. The distribution center
could also be used for meetings and paperwork. The truck drivers of Wal-Mart sometimes
availed these facilities.

INVENTORY MANAGEMENT

Wal-Mart had developed an ability to cater to the individual needs of its stores. Stores could
choose from a number of delivery plans. For instance, there was an accelerated delivery system
by which stores located within a certain distance of a geographical center could receive
replenishment within a day. Wal-Mart invested heavily in IT and communications systems to
effectively track sales and merchandise inventories in stores across the country. With the rapid
expansion of Wal-Mart stores in the US, 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 their own
stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead
of cutting inventory across the board, Wal-Mart made full use of its IT capabilities to make more
inventories available in the case of items that customers wanted most, while reducing the overall
inventory levels. Wal-Mart also networked its suppliers through computers. The company
entered into collaboration with P&G for maintaining the inventory in its stores and built an
automated reordering system, which linked all computers between P&G and its stores and other
distribution centers. The computer system at Wal-Mart stores identified an item which was low
in stock and sent a signal to P&G. The system then sent a re-supply order to the nearest P&G
factory through a satellite communication system. P&G then delivered the item either to the Wal-
Mart distribution center or directly to the concerned stores. This collaboration between Wal-Mart
and P&G was a win-win proposition for both because Wal-Mart could monitor its stock levels in
the stores constantly and also identify the items that were moving fast. P&G could also lower its
costs and pass on some of the savings to Wal-Mart due to better coordination.

Employees at the stores had the ‘Magic Wand,’ a hand-held computer which was linked to in-
store terminals through a radio frequency network. These helped them to keep track of the
inventory in stores, deliveries and backup merchandise in stock at the distribution centers. The
order management and store replenishment of goods were entirely executed with the help of
computers through the Point-of-Sales (POS) system. Through this system, it was possible to
monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart also
made use of the sophisticated algorithm system which enabled it to forecast the exact quantities
of each item to be delivered, based on the inventories in each store. Since the data was accurate,
even bulk items could be broken and supplied to the stores.

Wal-Mart also used a centralized inventory data system using which the personnel at the stores
could find out the level of inventories and the location of each product at any given time. It also
showed whether a product was being loaded in the distribution center or was in transit on a truck.
Once the goods were unloaded at the store, the store was furnished with full stocks of inventories
of a particular item and the inventory data system was immediately updated. Wal-Mart also made
use of bar coding and radio frequency technology to manage its inventories. Using bar codes and
fixed optical readers, the goods could be directed to the appropriate dock, from where they were
loaded on to the trucks for shipment. Bar coding devices enabled efficient picking, receiving and
proper inventory control of the appropriate goods. It also enabled easy order packing and
physical counting of the inventories. In 1991, Wal-Mart had invested approximately $4 billion to
build a retail link system.

More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of
their goods at stores and replenish inventories. The details of daily transactions, which
approximately amounted to more than 10 million per day, were processed through this integrated
system and were furnished to every Wal-Mart store by 4 a.m., the next day. In October 2001,
Wal-Mart tied-up with Atlas Commerce for upgrading the system through the Internet enabled
technologies. Wal-Mart owned the largest and most sophisticated computer system in the private
sector. The company used Massively Parallel Processor (MPP) computer system to track the
movement of goods and stock levels. All information related to sales and inventories was passed
on through an advanced satellite communication system. To provide back-up in case of a major
breakdown or service interruption, the company had an extensive contingency plan. By making
effective use of computers in all its company’s operations, Wal-Mart was successful in providing
uninterrupted service to its customers, suppliers, stockholders and trading partners.
LOGISTICS MANAGEMENT

An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive
transportation system. The distribution centers were serviced by more than 3,500 company
owned trucks. These dedicated truck fleets allowed the company to ship goods from the
distribution centers to the stores within two days and replenish the store shelves twice a week.
The truck fleet was the visible link between the stores and distribution centers. 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 than 300,000 accident-free miles,
with no major traffic violation. Wal-Mart truck drivers generally moved the merchandise-loaded
trailers from Wal-Mart distribution centers to the retail stores serviced by each distribution
center.

These retail stores were considered as customers by the distribution centers. The drivers had to
report their hours of service to a coordinator daily. The coordinator scheduled all dispatches
depending on the available driving time and the estimated time for travel between the
distribution centers and the retail stores. The coordinator informed the driver of his dispatches,
either on the driver’s arrival at the distribution center or on his return to the distribution center
from the retail store. The driver was usually expected to take a loaded truck trailer from the
distribution center to the retail store and return back with an empty trailer. He had to dispatch a
loaded truck trailer at the retail store and spend the night there. A driver had to bring the trailer at
the dock of a store only at its scheduled unloading time, no matter when he arrived at the store.
The drivers delivered the trailers in the afternoon and evening hours and they would be unloaded
at the store at nights. There was a gap of two hours between unloading of each trailer. For
instance, if a store received three trailers, the first one would be unloaded at midnight (12 AM),
the second one would be unloaded at 2 AM and the third one at 4 AM. Although, the trailers
were left unattended, they were secured by the drivers, until the store personnel took charge of
them at night. Wal-Mart received more trailers than they had docks, due to their large volume of
business. To make its distribution process more efficient, Wal-Mart also made use of a logistics
technique known as ‘cross-docking.’ In this system, the finished goods were directly picked up
from the manufacturing plant of a supplier, sorted out and then directly supplied to the
customers. The system reduced the handling and storage of finished goods, virtually eliminating
the role of the distribution centers and stores.

In cross docking, requisitions received for different goods from a store were converted into
purchase or procurement orders. These purchase orders were then forwarded to the
manufacturers who conveyed their ability or inability to supply the goods within a particular
period of time. In cases where the manufacturer agreed to supply the required goods within the
specified time, the goods were directly forwarded to a place called the staging area. The goods
were packed here according to the orders received from different stores and then directly sent to
the respective customers.

To gain maximum out of cross-docking, Wal-Mart had to make fundamental changes in its
approach to managerial control. Traditionally, decisions about merchandising, pricing and
promotions had been highly centralized and were generally taken at the corporate level. The
cross docking system, however, changed this practice. The system shifted the focus from “supply
chain” to the “demand chain,” which meant that instead of the retailer ‘pushing’ products into the
system; customers could ‘pull’ products, when and where they needed. This approach placed a
premium on frequent, informal cooperation among stores, distribution centers and suppliers with
far less centralized control than earlier.

Wal-Mart: A Leader in Logistics

Since the early days of our company, the ability to move product from place to place quickly and
efficiently has been a key driver in Wal-Mart’s success. Today, technology, innovation and the
commitment of our associates continue to drive Wal-Mart Logistics’ mission of providing Wal-
Mart customers and Sam’s Club members an outstanding shopping experience that is not only
uniquely tailored to their community, but saves them money so they can live better.

Quick Facts: Wal-Mart Logistics has approximately:

… 85,000 associates
... 147 distribution centers
... 51 transportation offices
... 7,200 tractors
... 53,000 trailers
… 7,950 drivers

Wal-Mart’s distribution network began in a rented garage in the 1960s. We opened our first
distribution center in 1970, as part of Wal-Mart’s current Home Office facility.
Logistics Facts: Wal-Mart’s private fleet is one of America’s safest fleets with 2.2 million miles
per preventable accident. Collectively, Wal-Mart’s fleet drivers log approximately 800 million
miles per year. The average Wal-Mart truck driver logs more than 100,000 miles annually – the
equivalent of about four trips around the world! Wal-Mart distribution centers typically employ
500-1000 associates.

• An average facility will serve 75-100 stores, many with a unique merchandise assortment for
each specific store, within a 250 mile radius.

• A regional distribution center can have twelve miles of conveyor belts, which can move
hundreds of thousands of cases through the center each day. Last year, we moved more than 5.5
billion cases of merchandise.

• A Wal-Mart grocery distribution center is equipped to house up to four million bananas at one
time. Ice cream freezers at a grocery DC are cooled to -20 degrees Fahrenheit.

• By doing thing like reducing the number of “empty miles” our trucks drive and optimizing how
merchandise is stacked in our trailers, Wal-Mart drivers logged 87 million fewer miles last year
while transporting 161,000 more cases. This enabled the company to save 15 million gallons of
diesel fuel.
• Wal-Mart’s truck fleet is working with the trucking industry and truck and trailer manufacturers
to improve the fuel efficiency of our trucks. Since 2005, we’ve improved efficiency by more than
percent, with more improvements to come.

• In 2009, Wal-Mart began testing new innovations designed to save fuel, including the
introduction of hybrid tractors as well as those powered by liquid natural gas and by brown
grease recycled from our in-store deli operations.

• Wal-Mart has nine disaster distribution centers strategically located across the country stocked
with relief supplies needed to assist communities recover in the event of a disaster.

• Wal-Mart Logistics supports communities across the nation. In 2008, more than $60 million in
cash and in-kind contributions were made to local charities on behalf of our distribution centers,
transportation offices and other logistics facilities.

• Logistics associates registered approximately 140,000 volunteer hours in their local

communities last year.

The wisdom of Wal-Mart's supply chain strategies:

What can Wal-Mart teach manufacturing about global supply chains? Perhaps manufacturers
would want to consider a best-in-market supply chain approach rather than best-in-class, to better
meet customers' needs.

Gary Maxwell, senior vice president of international supply chain for Wal-Mart Stores Inc., said
a best-in-market approach requires thinking like a customer; complying with local and
international laws, regulations, and customs; matching the maturity curve to the market; setting
high expectations for low costs; and operating in a sustainable way. When it comes to serving
customers, best-in-market supply chain management trumps world-class supply chains every
time, he said.

Maxwell delivered the advice during the keynote address at the 2009 Annual Global Conference
of the Council of Supply Chain Management Professionals, which took place in late September
in Chicago.

Adaptive growth

Wal-Mart, just shy of $100 billion in revenue last year, does business in 15 countries, with more
than 7,900 stores and 228 distribution centers. These outlets include:

Small, 1,000-square-foot Costa Rican convenience stores; Large, 200,000-square-foot U.S. super
stores; Japanese Seiyu four-level premium-quality grocery/department stores; and United
Kingdom-based ASDA Living, general merchandise stores that expanded from a grocery chain
acquired 10 years ago.
Through such expansions, respect for individuals remains, Maxwell says, with emphasis on
customer service and continuous improvement. There was some question initially if the Wal-
Mart culture would work in other countries, he admitted, but everywhere "people need love and
respect. When they get respect, they can do extraordinary things." Adding sustainability-doing
what's right by the environment-has been a natural extension of original company principles,
Maxwell said.

When Wal-Mart grows by acquisition, management of the acquired company often expresses
excitement about the idea of Wal-Mart building stronger supply chains around their businesses,
Maxwell explained.

Customer-focused structure

Starting with the customer ensures development of systems that won't create an uncompetitive
cost structure. The business needs to serve the customers' needs, education, customs, and tastes.
It's wrong to start with the backend and discuss technology or automation first, he warned.
Instead ask what customers expect, what are their experiences, and where do you want to take
them? Ensure all laws and customs are followed, without bribes. Assess market maturity. Identify
if the market is emerging (India-great education but challenging infrastructure), high-growth
(Brazil), focused on asset-utilization (U.S., with concern for return on investment), or working
on redefinition (Japan, which goes beyond third-party supply chain relationships into fourth and
fifth parties); Learn customer expectations; Develop leaders within the organization, ensuring
appropriate infrastructure, land, and labor costs; Look at asset allocations based on risks, laws,
and regulations. For example, countries with regulations that limit the number of times workers
can put their hands over their heads per day might be a strong candidate for automation; Design
facilities to match customer-cost expectations, with options to upgrade later.
A small warehouse with rack and forklift might be best in class for many places in India. In
Japan, $2 peaches, individually wrapped, two per clamshell package, refrigerated, meet local
expectations. Wal-Mart's Misato, Japan, distribution center, has four floors (land costs are very
expensive and labor equal to or greater than in the U.S.). It uses many technologies including
conveying, automated sorting, and radio frequency identification (RFID).
Automation needs to match what customers can support. Big Hairy Audacious Goals are good,
Maxwell said, in reference to a phrase that recently entered business management vernacular.
Wal-Mart goals, however audacious, are set from the bottom up. Doing so improves participants'
abilities to meet and exceed expectations, Maxwell suggested.

Implementation strategies

Maxwell spoke in favor of what he called the productivity loop: Lower costs, then lower prices,
sell more units, increase profits, and repeat. Wal-Mart is working on accelerating the number of
times it exercises that loop.

Inventory optimization often is overlooked, Maxwell said. In a pyramid design, inventory

policies are on top, achieved with collaboration and integration. Below that are forecasting and
event planning. The pyramid base is made of supply chain fundamentals, such as lead times,
performance metrics, and order constraints.
 Often supply chain implementations begin with an internal sales effort. Educating organizations
about the power of supply chain management is part of what practitioners need to do, Maxwell
said, to ensure capital for upgrades when they're needed. "You need to market the concepts
within your organizations.

Key discussion and analysis:

Supply chain management is now an imperative part of any organizations strategic plans. Supply
chain management’s ability to adapt quickly to customers demands, uncertainty in demands, and
globalization in market place, creating longer supply chains and shorter product life cycle &
advanced technology has created a pool for its success apart from providing a dimension for long
term-relationships. Supply chain management though a new introduction in business is fast
catching up with the evolution of material management and purchasing. Companies have also
overlooked their strategic role which revolved around raw material and finished goods inventory to
working in tandem with suppliers and customers. Better and efficient technological advancements
have reduced the gap between suppliers and customers despite their existence in the global market.
(Ryerson, 2007)

Supply chain management is designed to improve customer service, balance costs and service,
uniform costing and provide a competitive advantage to organizations in supply chain. Suppliers
expect manufacturers to obligate themselves to purchase large quantities so as to imprint long
production runs and lower production runs and lower production costs. On the other hand if
customer demand is fewer manufacturers restores to inventory. Supply chain management brings
on integration between different blocks of process and is displayed as one whole lot. (Guyer, 2001)

The last 20 years have seen considerable improvements in the accounting of Supply chain
management. Wal-Mart as discussed in the literature review reflects how Supply chain
management has catapulted them to the top. Wal-Mart’s key to success is its legendary use of
Supply chain management with technology apart from traditional elements like Inventory,
Logistics management etc.

The benefits reaped by Wal-Mart through Supply chain management are:

 Strengthened relationship with the customers, vendors and employees

 Each and every small opportunity was sensed in pursuit of bringing a efficient SCM
 Helped to capitalize on cost cutting resulting in efficiency
 Saving on cost was passed on to customers that added value
 Saved a huge amount in transportation cost
 Provided higher discounts to customer
 Resulted in higher sales volume and revenues
 Arriving at a rational and Supply chain management

Apart from this Wal-Mart’s ability to order inventory on demand enabled them to meet customer
demand. Wal-Mart observed that today’s fads and fashions were the obsolete inventories for days
to come.
Thus Wal-Mart’s SCM not only increased efficiency but also increased customer service that
resulted in customer satisfaction. This brought in reducing stocks and increased its responsiveness
in distribution through the bar codes and radio frequency technologies. It cut cost by cross docking
which resulted in decreasing space in warehouses and manual labor cost to a huge extent. (Guyer,
2001). The benefits of an efficient supply chain management includes reduction in lead time, faster
inventory turnover, accurate forecasting of inventory levels, increased warehouse space, reduction
in safety stock and better working capital utilization. It also helped reduce the dependency on the
distribution center management personnel resulting in minimization of training costs and errors.
The stock-out of goods and the subsequent loss arising out of it was completely eliminated. Wal-
Mart’s supply chain management practices resulted in increased efficiency in operations and better
customer service. It eliminated old stocks and maintained quality of goods. Bar coding and radio
frequency technologies enabled accurate distribution of goods. Cross-docking also helped Wal-
Mart to reduce inventory storage costs. It also helped to cut down the labor and other handling
costs involved in the loading and unloading of goods.

Conclusion:

Sam Walton claims that Wal-Mart’s vision had always been to increase sales through lowering the
costs through organized distribution system with the help of the Information Technology. It is said
that Wal-Mart’s extreme success could be attributed to its effective supply chain management
(Chandran, 2003). Wal-Mart’s efficiency in supply chain management was due to two key factors
namely automated distribution centre and the computerized inventory system. This brought in
minimizing a lot of time the later not only reduced the checking out time but also recorded the
transaction which is much needed to know envisage demand. Demand forecast is a constant issue
which could be a threat when not handled properly. This is due to the fact that demand prediction
is always inaccurate. Aggregation would be a remedy for this unpredictable demand. Inventory
management is one of the important things that have gained importance these days.

Wal-Mart’s focus has always been to sell goods at a lower price to the customers. They ensured
direct purchase form the companies bypassing the intermediaries. This by passing is one of the
ways to reduce cost. Wal-Mart preferred small vendors to the big players however the vendor who
provides the best price qualifies and gets the deal. This applies to the giants like P& G as well.
Their practice these days had been choosing few vendors and they literally negotiate the best price
the one that comes up with the best price qualifies. This does not blindly mean that they have been
ruthless. Wal-Mart also works with the vendors for improving its supply chain efficiency.

Wal-Mart with its power distribution system made quite innovative changes like reducing paper
work, reduced its lead time drastically, used bar codes to bill which recorded inventory levels and
the access to the stock levels served as the valuable data for management. The movements of
products are systematic and strategically aliened in a way that it reduces the most valuable time
and cost and results in efficiency. Wal-Mart had a very effective rather responsive and flexible
distribution system to transport goods from docks to stores. It educated the drives with the ethics
and code of conduct which pictures their supply chain responsibility. Cross docking is one lethal
weapon that was used by Wal-Mart in their SCM.
Supply chain management is here to stay and we are at the beginning of the spectrum. We still
have a long way to go and miles to conquer before the entire industry, all players and all
participants become supply chain enabled and get necessary tools to make informed decisions.
Companies have a lot to gain from Supply chain management implementations. Individual
companies will definitely gain tremendously but the benefits will move beyond the four walls of
the company and everybody will gain. This will obviously have direct repercussions on the
organization and thus add to their locked-in working capital. Supply chain management principles
primarily focus on three things. Its tells that the company can compress its lead times and raise
quality and accuracy at every stage, service will improve thus getting rid of costs out of business.
Secondly organizations should take a process view rather than a functional view of the operation
Third working across functional boundaries to integrate business processes in the future. Thus
change in the supply chain can be focused on improving the characteristics of supply in the context
of the goals that have been set for changing the service objectives.

Bibliography

Guyer, P. (2001). The future of supply chain management. Logic tools .

Ryerson. (2007). Fundamentals of supply chain management. Mc-graw - Hill pvt Ltd.
Walmart. (2010). Retrieved April 20, 2010, from Wal-Mart Stores Inc. - About Us.:
http://walmartstores.com/AboutUs/
 Chandran, M (2003). Wal-Mart’s supply chain management practices. ICFAI centre of
management research.Wal-Mart India Fact Sheet -
http://walmartstores.com/pressroom/FactSheets/
 Wal-Mart Logistics Fact Sheet- www.walmartstores.com.
 “Cross docking delivers for retail”, www.spscommerce.com
 The wisdom of Wal-Mart's supply chain strategies,
http://walmartstores.com/pressroom/news/9482.aspx
 Company Data Sheets, http://walmartstores.com/pressroom/news/