1 Wal-Mart Company overview using key concepts from Managing Business Process Flows Presented by:...

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Wal-MartCompany overview using key concepts from

Managing Business Process Flows

Presented by:

Casey KellerRick BuonauroAicha Aissaoui

Systems and Operations Management: Wal-Mart

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Wal-mart FACTS

founded by Sam Walton in 1962

the largest retailer in the world and the second largest corporation in the world (behind Exxon Mobil based on revenue as of 2006)

the largest private employer in the United States and Mexico

the largest grocery retailer in the United States

the largest toy seller in the United States

For the fiscal year ending January 31, 2006, Wal-Mart reported net income of $11.2 billion on $313 billion of sales revenue (3.5% profit margin)

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Wal-mart & the COMPETITION

To sustain competitive advantage, a firm must ensure that its competition finds it hard to imitate its chosen position.

COMPANY SALES (MIL) FY2006

INDUSTRY AVG. 39,992

Wal-mart 312,427

TARGET 55,363

KOHL’S 14,247

DOLLAR GENERAL 8,941

BIG LOTS 4,534

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Responsiveness

operations frontier

A

B

C

PriceHigh Low

Wal-mart & the COMPETITION

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Wal-mart’S PRODUCT ATTRIBUTES

What are the 4 key product attributes??? ….product cost, product delivery-response time, product

variety, product quality

Wal-mart’s product cost? Low

Wal-mart’s product delivery-response time? Low

Wal-mart’s product variety? High

Wal-mart’s product quality? Low - Medium

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Wal-mart Strategy

WAL-MART STRATEGY & OPERATIONS STRUCTUREEnable everyday low prices and above average profitability by procuring, distributing,

and selling products, when and where needed, at lower costs than any competitor.

Operations Strategy Short Response Times Low Inventory Level

Operations Structure Fast Transportation System Cross Docking Retail Link RFID

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Process Flow Measures: Wal-Mart

Process Flow Measures

– Flow Time (T) – total time spent by a flow unit within process boundaries

– Flow Rate – number of flow units that flow through a specific point in the process, per unit of time

– Inventory (I)– total number of flow units present within process boundaries

Throughput (R) – average flow rate or average number of flow units that flow through the process, per unit of time

Little’s Law: Average Inventory (I) = Throughput (R) x Average Flow Time (T) or I=RxT

Inventory Turns or Turnover Ratio – number of times inventory is sold and replaced during a specific period, R/I

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Process Flow Measures: Wal-Mart

Wal-Mart is extremely efficient with low flow times, high flow rates, and low inventory.

As of January 31, 2006:

– Inventory as a percentage of the Balance Sheet was 23.3%, down from 40.1% in 1997

– Inventory Turnover was 7.8, up from 5.3 in 1997

– Days Inventory was 46.8, down from 69.6 in 1997

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Flow-Time Analysis: Wal-Mart

Wal-Mart’s merchandise replenishment cycle is no more than 48 hrs.

Retail Link – real-time point-of-sales (POS) data transmission

Cross Docking

Fleet of 7,000 trucks in US

Point-of-sale system

captures data in real-time

Data is transmitted to warehouses

for Inv. Mgmt.

Retail Link transmits data to supplier

Orders are generated from previous-day

sales

Merchandise is loaded onto trucks using

cross-docking

Merchandise is delivered to

the store

Merchandise is manufactured

based on historical and real-time data

Merchandise is shipped to warehouses

Customer made a

purchase

The store will re-stock the shelves with merchandise

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Flow-Time Analysis: Wal-Mart

250 mile radius

Walmart’s Centralized Hub-and-Spoke System of Warehouses and

Distribution Centers

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Flow-Time Analysis: Cross Docking

Cross docking: take a finished good from the manufacturing plant and deliver it directly to the retail store with little or no handling in between.

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Flow-Time Analysis: Advantages of Cross Docking

Reduces operating costs.

Increases throughput.

Reduces inventory levels.

Helps in increase of sales space.

Eliminates unnecessary handling and storage of product.

Reduces product damages and product obsolescence.

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Supplier Management: Retail Link

Retail Link is a decision support system

It is a bridge between Wal-Mart and its suppliers

It is an address you can visit via Internet to retrieve the sales data, inventory data, information on its development

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Inventory Management

Inventory Management:» Reducing critical activity times

» Eliminating non-value-adding activities

» Moving work from critical to non critical activities

» Redesigning the process to replace sequential with parallel processing

Point-of-sale system

captures data in real-time

Data is transmitted to warehouses

for Inv. Mgmt.

Retail Link transmits data to supplier

Orders are generated from previous-day

sales

Merchandise is loaded onto trucks using

cross-docking

Merchandise is delivered to

the store

Merchandise is manufactured

based on historical and real-time data

Merchandise is shipped to warehouses

Customer made a

purchase

The store will re-stock the shelves with merchandise

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Inventory Management: RFID

Radio Frequency Identification Automated Data collection based

on an electronics – not a barcode Tag can be imbedded in the

product or stuck on the exterior case or pallet

Reader instead of a barcode scanner

Allows fully automated data collection with the use of portals

Can read many ID tags at a time

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Inventory Management: How does an RFID work?

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Inventory Management: RFID

Wal-mart is the most famous retailer implementing RFID in its supply chain management system in January 2005.

It required its top 100 suppliers to use RFID technology at the pallet and case level by January 2005, 200 by January 2006, 300 by January 2007, and so on…

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Inventory Management: RFID Read Points

WAL-MART STORE READ POINTS

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Inventory Management: Why RFID?

Reduce the possibility of inventory shrinkage and out-of-stock situation.

Improve fulfillment rates.

Improve the customer service.

Reduce inventory and labor cost.

Eliminate many manual process and improve the operation efficiency.

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Inventory Management: RFID Study?

Reducing out of stock?

» 8% of all items are out of stock (at any point of time)

» Estimated potential lost sales:– Retailers: 3.4%

– Suppliers: 2.6%

» 26% improvement from no RFID to full RFID

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Thank you!

THANK YOU! QUESTIONS???

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