You are on page 1of 19

WAL-MARTS

SUPPLY CHAIN
A business success in cost effective supply chain

WAL-MART IS THE WORLDS


LARGEST RETAIL COMPANY

HISTORY OF WAL-MART
The companys founder is Sam Walton.

He was born in 1918 at Oklahoma.

In 1940, he worked for the famous retailer, J C Penney.

HISTORY OF WAL-MART
This phenomenal growth of Wal-Mart is attributed to its

continued focus on customer needs and reducing cost


through efficient supply chain management practices.

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).
5

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

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-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.
7

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.

OVERVIEW

DISTRIBUTION
Wal-Marts store openings were driven directly by

its distribution strategy, hub-and-spoke (design


of high volume distribution centers serving a
cluster of stores)
Stores are within a days driving distance of the

distribution centers in order to gain economies of


scale (average distance from distribution center to
stores was approximately 130 miles)
Stores were located in low-rent, suburban areas,

close to major highways.


On the way back from stores, Wal-Marts trucks

generated back-haul revenue by transporting 10


unsold merchandise on trucks that would be

RETAIL STRATEGY
Wal-Marts retail strategy is base on discounting

merchandise off the suggested retail price


Wal-Mart implemented an everyday low prices

(EDLP) policy, which meant that products were


displayed at a steady price and not discounted
on a regular basis
Because of its EDLP policy, Wal-Mart did not

need to advertise as frequently as its


competitors and was able to channel the
savings back into price reductions
11

RETAIL STRATEGY
The

stores were simply furnished and


constructed using standard materials. Efforts
were made to continually reduce operating
costs. For example, light and temperature
settings for all U.S. stores were controlled
centrally from Bentonville.

Each Wal-Mart store aimed to be the store of

the community, tailoring its product mix to


appeal to the distinct tastes of that
community.
12

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.

13

CROSS-DOCKING
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.
14

INVENTORY MANAGEMENT
Wal-Mart invested heavily in IT and communication systems to

effectively track sales and merchandise inventories in stores


across the country.

Wal-Mart invested in a central database, store-level point-of-

sale systems, and a satellite network combined with one of the


retail industrys first implementation of bar codes

A hand-held computer was used to keep track of the

inventory in stores, deliveries, and backup merchandise in


stock at the distribution centers. It provided store-level
information which could be collected instantaneously and
analysed.

By combining sales data with external information such as

weather forecasts, Wal-Mart was able to provide additional


support to buyers, improving the accuracy of its purchasing
forecasts.

In the early 1990s, Wal-Mart developed Retail Link it

contained data on every sale made at the company during a


two-decade period. Wal-Mart gave its suppliers access to realtime sales data on the products they supplied, down to
individual stock-keeping items at the store level.

In 1990, Wal-Mart became one of the early adopters of

collaborative planning, forecasting and replenishment (CPRF),


an integrated approach to planning and forecasting by sharing
critical supply chain information, such data on promotions,
inventory levels and daily sales.

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.

Wal-Marts vendor-managed inventory (VMI) program (also

known as continuous replenishment) required suppliers to


manage inventory levels at the companys distribution
centers, based on agreed-upon service levels.

Wal-Mart planned to replace bar-code technology with RFID

technology

Mandated RFID tags on merchandise shipped by Wal-Marts

top 100 suppliers. It was an attempt to increase the ability


to track inventory, with the goal of increasing in-stock rates
at store level.

Wal-Mart would be able to track promotion effectiveness

within the stores while cutting out-of-stock sales losses and


overstock expenses

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

According to researchers, about 25 per cent of out-of-stock

inventory in the United States was not really out-of-stock:


the items could be misplaced on the floor or mis-shelved in
the backroom.

The company placed RFID tag readers in several parts of

the store. With those readers in place, store managers


would know what stock was in the backroom and what was
on the sales floor.

17

ROAD AHEAD: KEEPING


INVENTORY GROWTH
SLOWER THAN SALES
GROWTH
Wal-Marts internal goal had called for cutting its inventory
growth rate to half of its sales growth rate.

Wal-Mart had committed itself in 2006 in eliminating as

much as $6 billion in excess inventory in 15 years

18

TRACKING PROGRESS
In its 2006 fiscal year ended January 31, the company posted

a sales increase of 9.5 per cent from the previous year while
its inventory grew 8.2 per cent

Wal-Marts performance in international markets was mixed.

This strategy was successfully executed in market likes


Mexico but failed in markets like South Korea

19