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A Business Success


1962 Location

Sam Walton launched his first store Bentonville, a backwater in Arkansas, a state where chickens outnumber people Today : Worlds Largest Retailer Four times as big as #2 Retailer, Carrefour 5,482 stores in 14 countries as of Oct 31, 2005 Revenues: 285B vs GE: $152B Second-largest Company after ExxonMobil ($298B) Workforce: 1.3 M Biggest private sector employer in the world

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Hub and Spoke System

In the early 1970s, Wal-Mart became one of the first retailing companies in the world to centralize its distribution system, pioneering the retail hub-and-spoke system Under the system, goods were centrally ordered, assembled at a massive warehouse, known as distribution center (hub), from where they were dispatched to the individual stores (spoke) The hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities.. and distributing them through its own logistics infrastructure to the retail stores spread across the U.S.

Wal-Marts Procurement

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

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

Using EDI for Procurement

The computer systems of Wal-Mart were connected to those of its suppliers. EDI enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold.

On receiving information about the sales of various products, the suppliers shipped the required goods to WalMarts distribution centers.

Logistics Management

An important feature of Wal-Marts logistics infrastructure was its fast and responsive transportation system. The distribution centers were serviced by more than 3500 company owned trucks. 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.


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

Inventory Management

Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country.

With the rapid expansion, 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 the 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.

Inventory Management

Employees at the stores had the Magic Wand, a handheld 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.


Voice-based Order Filling (VOF)

In 1998, Wal-Mart installed a voice-based order filling (VOF) system in all its grocery distribution centers. Each person responsible for order picking was provided with a microphone/speaker headset, connected to the portable (VOF) system that could be worn on waist belt.

They were guided by the voice to item locations in the distribution centers.

Inventory Management (quick replenishment)

Since the floor area of any Wal-Mart store varied between 40,000 to 200,000 square feet, movement of goods within the store was an important part of logistics operations. Wal-Mart made significant investments in IT to quickly locate and replenish goods at the stores.


Inventory Management (retail link system)

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.

Details of daily transactions (~10 million per day) were processed through this system.
Retail Link connected Wal-Marts EDI network with an extranet, accessible to Wal-Marts thousands of suppliers. The suppliers could find out how their product was performing vis-a-vis competitors products in a particular product category.

Inventory Management (retail link system)

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.



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

CPFR: Hard to implement

Though CPFR was a promising supply chain initiative aimed at a mutually beneficial collaboration between Wal-Mart and its suppliers, its actual implementation required huge investments in time and money. 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.


RFID Technology
(Radio Frequency Identification)

In efforts to implement new technologies to reduce costs and increase the efficiency, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005. Wal-Mart planned to replace bar-code technology with RFID technology. The company believed that this replacement would reduce its supply chain management costs and enhance efficiency. Because of the implementation of RFID, employees were no longer required to physically scan the bar codes of goods entering the stores and distribution centers, saving labor cost and time. Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores. 17

RFID Technology
(Radio Frequency Identification)

Although Wal-Mart was optimistic about the benefits of RFID, analysts felt that it would impose a heavy burden on its suppliers. To make themselves RFID compliant, the suppliers needed to incur an estimated $20 Million.

Of this, an estimated %50 would be spent on integrating the system and making modifications in the supply chain software.