Case Study: WalMart Stores “Every Day Low Prices” In China

1

Webster University

Case Study: Wal-Mart Stores “Every Day Low Prices”

In China

INTB 5000

2

Webster University

3

Webster University

Wal-Mart Stores “Every Day Low Prices” In China

FACTS:

First opened in Shenzhen on August 12, 1996

As of December 2007

94 stores in 51 cities

Employs 43,000+ associates

Serves around 5 million customers per week

Transition from rural US to metro/urban in China

Competitive analysis a core value of the company

Shopping 1,500 items and price matching them through “Special Buy” Analysis

Major pressure from the Chinese regional governments to centralize in high growth

regions

About-face by Chinese govt. on Shanghai is of interest

Has major implications on Wal-Mart’s ability to provide infrastructure for stores

Supply Chain Challenges Abound

Tier 1 cities include Beijing – Tianjin, Shanghai, Guangzhou

Tier 2 cities include Chengdu, Nanjing, Chongqing, & Wuhan

Tier 3 cities include Changzho, Jinhua, Mianyang

4

Webster University

Mexico

943 Units

Central America

433 Units

Canada

292 Units

7,058 Units

1.9 Million Associates

23 offices sourcing from 70 countries


Puerto Rico

54 Units

Argentina

16 Units

Brazil

297 Units

Japan

393 Units

UK

340 Units

US

4,103 Units China

86 Units

India

JV –Aug 2007

Trust-Mart

101 Units

5

Webster University


6

Webster University


$230

$256

$285

$312

$344

$0

$50

$100

$150

$200

$250

$300

$350

$400

FY03 FY04 FY05 FY06 FY07

China Sales

In billion US dollars

7

Webster University


8

Webster University


9

Webster University


10

Webster University


11

Webster University

Opinions

Customer focus is critical even in new markets

Price leadership will work in other nations besides the US

Supplier partnership deserves heavy investment

Supply chain management is what this country needs

Technology enablement is key

EDI = Electronic Data Interchange

VMI = Vendor Managed Inventory

Satellite Links = For Real-time Updates

Corporate Social Responsibility Environmental Sustainability

Food & Product Safety

Community Involvement


Competitive Rivalry

Substitute

Products

and Services

Bargaining

Power of Buyers

Potential

New Entrants

Bargaining

Power

of Suppliers • Diversity of ethnic and economic

backgrounds

• Consumers in Metropolitan

Areas with high per capita

income

• Cultural bias for a specific

condition of products, delivering

in a unique supply chain, is key to

these consumers

• U.S. Product Manufacturers

• Foreign Manufacturers

• Local Government Restrictions

• Tariffs

•Slow Growth Initiatives

• Foreign General Merchandisers or

Discounters

• Established Chinese Retailers

•Asian Conglomerates with lower cost structures

• Small, Village Shops

•Regional Chains

• Home grown (literally)

• Global chains establishing new stores

Rivals: Carrefour, Tesco

and many other smaller

shops

Wal-Mart China Five Forces Model

13

Webster University * Target value

** Including all categories; global sourcing in non-food categories would be approximately >80% of the total

Over 300 employees in the Shenzhen global procurement center

18-20% of 2003 volume (approx. USD2.5 bn) sourced direct

Value of goods procured from China

USD billions

Procurement centers in 10 different cities of China

25% of 2003 volume (approx. USD0.5 bn) sourced direct, with growth of 30% per year

**

Aims at consolidating volume at country level to drive cost savings, while simultaneously capturing country-specific advantages; e.g., in fleece fabric from Taiwan

2000 01 02 2007

4

10.3 12

25-30*

CAGR 33% 15

03 2001 02 2004

1.3

1.6

2.6*

2.0

03 2000 2006

0.5

1.5*

CAGR 26%

CAGR 20%

Analysis: Wal-Mart Stores “Every Day Low Prices” In China

../

14

Webster University


15

Webster University


16

Webster University

Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,”

Harvard Business Review 70(2; March–April 1992), pp. 60–71.


17

Webster University

Warehouse and Distribution Center

Management System

18

Webster University

Analysis: Wal-Mart RFID Plan

AiO &

Personal

Printers

AiO &

Personal

Printers

Scanners

&

Cameras

AIO

Toner

Toner/

Personal

Laserjet

Personal LJ

InkJet

Supplies

Shenzhen

Mentor Media

Base

Manufacturing

In transit

Malaysia

Flextronics

Shanghai

Calcomp

Bangkok

Venture

Hong Kong

Canon

Tokyo

Canon

Canon China

Various

Memphis

Flex

Guadalajara

Flex

Guadalajara

Jabill

Virginia

Sonoco

Memphis

Menlo

Product

Completion

Center

Regional

Distribution

Walmart Walmart,

Sam’s Club

and

Neighborhood

Market Stores

Walmart

DC1

Sanger,

Texas

Walmart

DC2

Cleburn,

Texas

Walmart

DC3 De-

Soto, Texas

Supply Site

Tag Site

Delivery Site

19

Webster University

Support

Activities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

Inb

ou

nd

Logis

tics

Op

erati

on

s

Ou

tbou

nd

Logis

tics

Ma

rket

ing

& S

ale

s

Ser

vic

e

Analysis: Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

20

Webster University

Non-unionized, Full autonomy to associates, Decentralized, profit sharing program, Job rotation, Stock purchase plan

UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFR

Maintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy

Inferior fixtures standardization, Trucks, Average store size 84,000 square feat

Everyday low price Always low price, always Self service Cash and carry Save money, live better credit card, Layaway plan

Outbound Logistics

Marketing & Sales

After Sales Service

Inbound Logistics

Primary Activities

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Su

pp

ort

A

ctiv

itie

s

VMI system Retail link EDI CPFR

Six days a week(9~21) Monday (12:30~17:30)

Two step hub and spoke distributing system

ECR Satisfaction guarantee policy Quick response (QR)

Operations

Margin

Wal-Mart Value Chain Analysis, China Specific

21

Webster University

Recommendation Framework: Wal-Mart Stores “Every Day Low Prices” In China

22

Webster University

Recommendation: Increase the Accuracy and Velocity of the Chinese Supply Chain With Heavy Investment

in IT (RFID)

With “slap and ship” you just spend money – use the information

pallet logical build process reduced from minutes to seconds

Improvements in transfer of pallet/case-level inventory between manufacturing and distribution center sites

Operational benefits from improvements in outbound processes

Automated identification at key stages of the assembly production line to gain manufacturing efficiencies

Master data management influences the NPDI process

Global deployment not easy

23

Webster University

24

Webster University

25

Webster University Buyer

Seller

FRONT END AGREEMENT

JOINT BUSINESS PLAN

Collaborative

Planning

Once

Qtr

.

CREATE SALES FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

Collaborative

Forecasting

Wk,

Mo

CREATE ORDER FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

Collaborative

Replenishment

Wk,

Mo

GENERATE ORDER

Recommendation: Better Collaborative Planning & Forecasting Processes are Needed

26

Webster University

新疆

西藏

青海

内蒙古宁夏

四川

云南

贵州

湖南

广西广东

福建

江苏

山东

河北

江西

陕西

山西

河南

河北

北京

辽宁

吉林

黑龙江

Recommendation: Buy Trust-Mart

27

Webster University

Recommendation: Invest heavily in the 3K to 20K sq. ft. store segment and make analytics and supply chain performance real-time

28

Webster University

ASDA

LIVING

mini bompreco

˜

MAGAZINE