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Wal-Mart: Supply Chain Management

• Background • Business Process Redesign: Process, IT • Implications: Process, IT

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Wal-Mart Is the Largest and Fastest Growing Discount Department Store
 2012 revenues totaled $ 447 billion:
 Increased 35% from previous year, whereas competitors’ growth rates averaged only 10%

 Net income increased 25% to $16 billion  Operations include growing chain of stores, including discount department stores, wholesale clubs, food stores, wholesale distributor of books and pre-recorded music, and grocery distribution services  First discount department store chain to expand internationally  This phenomenal growth of Wal-Mart is attributed to its continued focus on customer needs and reducing cost through efficient supply chain management practices.

Wal-Mart grows through volume and market share gains rather than margin expansions.

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Satisfying Customer Demands Depends on Five Critical Success Factors

Critical Success Factors (CSF)

Customer Demands
• The right products • In stock • Best value • Service and quality

• Quick responsiveness to market changes • Low inventory • Quick replenishment of inventory • Effective human resource system • Efficient distribution system

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors
CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

• Customer demand “pulls” product through the supply chain
• Tracking product movement at individual stores by market traits (e.g., size, color) • Investment in IT ensures timely analysis of sales/customer/market information and trends • Formal and informal cooperation among stores, distribution centers, and suppliers

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)
CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

• Direct high-level and long-term relationship with suppliers enabled by high information sharing:
Some vendors directly manage distribution warehouse inventory of their products

• Efficient transportation system • Investment in IT (e.g., EDI, Quick Response, Radio frequency terminals)

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)
CSF
Quick Responsiveness to Market Changes
Low Inventory

• All employees are considered “associates” • Extensive training and support

Quick Replenishment Effective HR System Efficient Distribution System

• Stock-ownership program • Profit-sharing

“Employees are your biggest capital investment, so it makes sense to maintain them—their skills, their morale, and their participation.”

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WAL-MART: BUSINESS PROCESS

Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.)
CSF
Quick Responsiveness to Market Changes
Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

• Highly automated distribution centers (e.g., laser-guided conveyor belts) • A fleet of 2,000 company-owned trucks • High leverage of supplier relationships:
- Some suppliers ship goods “sales floor ready”

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WAL-MART: BUSINESS PROCESS

The Traditional Supply Chain Includes Inefficient and Unnecessary Steps
Retailer Distribution Warehouse Individual Store
Order

Order Order Receive Select Pack Select Tag/ Label Storage

Sell

Storage

Wholesaler

Order

Receive

Select

Pack

Manufacturer (Supplier)
Make Pack

Shipper
Ship Ship Ship

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WAL-MART: BUSINESS PROCESS

Wal-Mart Simplified Its Supply Chain
Retailer Distribution Center Individual Store
POS Order

Receive

Select

Pack

Ship

Receive

Storage

Sell

<48 hours

<48 hours

Wholesaler

Manufacturer (Supplier)
Make Select Tag/ Label Pack

Deliver within 72 hours of order

Shipper

Ship

Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours.
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WAL-MART: BUSINESS PROCESS

Wal-Mart Invests Heavily in Information Technology
 Inventory Tracking and Management System at distribution centers:
 Identifies every product and its location in the warehouse  Integrated with some 8.5 miles of laser-guided conveyor belts  Lasers read the bar code on every product box and route them to appropriate loading dock

 Electronic Data Interchange (EDI):
 For electronic transmission of POS data, purchase orders, invoices, advance shipment notice, etc. between Wal-Mart headquarters, suppliers, distribution centers, and individual stores

 Merchandising Artificial Intelligence System:
 To adjust vendor merchandise assortments based on the need of each particular store  State-of-the-art satellite communication network which supports data, voice, and video

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WAL-MART: BUSINESS PROCESS

Wal-Mart Invests Heavily in Information Technology (cont.)
• Various Quick-Response (QR) systems (retail-link) to allow direct store-tosupplier ordering: “continuous replenishment”
Vendor-managed QR Wal-Mart-managed QR
Distribution Center Supplier POS Data Store Order
Wal-Mart

Supplier

Store

Warehouse Just-in-Time System
Distribution Center
Wal-Mart

POS Data Supplier Store

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WAL-MART: IMPLICATIONS

Wal-Mart’s Inventory Management Improvements Have Resulted in Efficiencies Unmatched by the Competition
Inventory in System (Days)
14 30 At Vendor At Warehouse In-Store 1:5.94 1:4.58

Inventory-to-Sales Ratio

30

3 2 3 Wal-Mart • KMart

Before New After New System System IT systems have improved Wal-Mart’s in-stock position and increased vendor responsiveness

Wal-Mart stores replenish inventory twice a week vs. industry standard of once every two weeks

Selling and Operating Expenses of Sales
28%

15%

Wal-Mart •

Sears Roebuck & Co.

Wal-Mart has lowest cost of operations in the retail area, aside from wholesale clubs
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Hub and Spoke System

 Wal-Mart -one of the first retailing companies in the world.
 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).

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Wal-Mart’s Procurement

 Reduce purchasing costs and offer the best price to the customer.  The company directly procured from manufacturers, by passing all intermediaries.  Meeting vendors and understanding their cost structure.  Transparent process
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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 Wal-Mart‟s distribution centers.
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Logistics Management

 Fast and responsive transportation system.  More than 3500 company owned trucks.  Experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation.

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Cross-docking

In this system, the finished goods were directly picked up from the manufacturing plant, sorted out and then directly supplied to the customers.

reduced handling and storage of finished goods.

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Inventory Management…  Reduce unproductive inventory  Made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most  Employees at the stores had the “Magic Wand,” a hand-held computer which was linked to in-store terminals through a radio frequency network
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The order management and store replenishment of goods through the Pointof-Sales (POS) system.

Helps to monitor and track the sales and merchandise stock levels on the store shelves.

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Voice-based Order Filling (VOF)

 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.
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Inventory Management… ( quick replenishment)  Floor area of 40,000 to 200,000 square feet,
movement of goods within the store was an important part of logistics operations.
 EDI network with an extranet, accessible to WalMart‟s thousands of suppliers.  Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels.All information was passed on through an advanced satellite communication system 25
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VAN EDI vs. Web-EDI

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RFID Technology
(Radio Frequency Identification) Wal-Mart planned to replace bar-code technology with RFID technology. employees need 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.
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WAL-MART: IMPLICATIONS

Lessons Learned: The Road to Success Is Paved by Technology and Better Use of People

Strong Supplier Relationships

Economies of Sales: “Best Deals” Stable Lower Prices Reduced Cost of Sale Predictable Sale Patterns Decreased Chance of Out-of-Stock

Effective IT Systems

Effective Distribution Systems In-Depth Knowledge of Customer/ Market

Increased Sales and Profits

Empowered Employees

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