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Wal-Mart vs. REI 6Ten LtdA comparison of the supply chain strategy of a largeinternational retailer vs. a medium sized domestic retailer

Submitted By:

Bhagat Singh 118

Manjari Lakshmanan 128

Rakesh Das 139

Ratika Kapoor 140


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Table of ContentsSUMMARY ............................................................................................................................................... 3

BACKGROUND ......................................................................................................................................... 3

Introduction To Wal-Mart ....................................................................................................................... 5

Vision & Culture ...................................................................................................................................... 5

Features Of A Supply Chain ..................................................................................................................... 8

Procurement & Distribution ................................................................................................................... 9

Logistics Management .......................................................................................................................... 10

Cross Docking .................................................................................................................................... 10

Inventory Management ........................................................................................................................ 12

Performance Indicators ........................................................................................................................ 15

Efficiency measures that Walmart has incorporated ........................................................................... 17

Bull whip effect .............................................................................................................................. 17

Consequences: .................................................................................................................................. 19

WalMarts response: ....................................................................................................................... 19

Sustainable Supply Chain ...................................................................................................................... 19

Issues that Wal-Mart might will face in India ................................................................................... 20

Recommendations to Wal-Mart ........................................................................................................... 21

REI 6TEN RETAIL LTD ............................................................................................................................. 22

Procurement ......................................................................................................................................... 22

Issues faced in procurement ............................................................................................................. 23

Managing Inventory .............................................................................................................................. 24

Supply Chain .......................................................................................................................................... 24

Forecasting issue ............................................................................................................................... 24

Order and delivery Issues: ................................................................................................................ 25

Recommendations for 6Ten Retail ....................................................................................................... 25

CONCLUSION ......................................................................................................................................... 25


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SUMMARY

Wal-Mart

Saving People money so they can live betterThe Indian retail industry is the fifth largest in the world. Comprising of organized and

unorganized sectors, India retail industry is one of the fastest growing industries in India,especially over the last few years. Though initially, the retail industry in India was mostly

unorganized, however with the change of tastes and preferences of the consumers, the

industry is getting more popular these days and getting organized as well. With growing

market demand, the industry is expected to grow at a pace of 25-30% annually. The India

retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by

the year 2010.

India is witnessing a retail revolution and the sector is seeing a rapid growth. But the food

and grocery segment is still a segmented one. It is also characterized by inefficiencies. It

aspire to create a vibrant and sustainable business model for this segment keeping abreast of

this radical change in the retailing industry. Predominantly, it focuses on the products of daily

needs especially fruits and vegetables.

REI Agro launched its 6Ten chain of retail outlets in the last quarter of the fiscal of 2006-07.

Through this venture, it endeavors to get closer to the customers to fulfill their needs. It is

committed to provide excellent value for money maintaining an innovative and responsive

operating structure that delivers quality products and services to customers.

It is uniquely positioned because of its experience in the food industry as well as relationship

in the supply network.

Wal-Mart strongly believed and constantly emphasized on strengthening its relationships

with its customers, suppliers and employees. The company was very vigilant and sensed thesmallest of changes in store layouts and merchandising techniques to improve performance

and value for customers. The company made efforts to capitalize on every cost saving

opportunity. The savings on cost were always passed on to the customers, therby adding

value at every stage and process.

The report covers the literature behind Supply chain and Supply chain management. The

various objectives and analysis of Supply chain management are covered in the report. There

are many elements which form a backbone of Supply chain management. Efforts are been

made to explore these dimensions with the help of retail giant Wal-mart. The report also

covers the application of RFID in Wal-mart with Supply chain management technology at its

behest. Efforts are been made to understand different processes that Wal-mart uses in its

Supply chain management.

BACKGROUND

In the times of rapid globalization, with a number of foreign players entering different

industries in India, it is interesting to see the effect that FDI will have on retailing in India.

According to the 1991 population census, the total population of India was 846 million. One


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fourth of this population lived in 3768 towns and the remaining in 627000 villages.1 To cater

to such a large population spread over a vast geographic area with different levels of

infrastructure, retailing in India evolved into a complex structure that varied in terms of size,

economics and scope of activities. Unlike developed countries, retailing in India is

fragmented. The structure ordinarily consists of many layers such as stockists, wholesalers,

retailers, carrying and forwarding agents.

Retail in India operates at three parallel levels:

Formal sector: shops with ongoing business registered with government agenciesunder the Shops and Establishment Act ( kirana shops, malls, supermarkets)

Informal Sector: enterprises without any fixed premises ( hawkers) Government Fair Price Shops: ration shops owned by private individuals

Retail is further divided into Inorganised Sector ( Kirana Stores) & Organised Retailing (

Reliance Retail, Subhiksha etc.)

This paper is an effort to understand the supply chain and distribution strategies of A large

international chain like Walmart Vs. the strategy of small organized retailers and whether the

organized retailers will be able to match up to these international chains in the advent of

100% FDI in retail and Walmart entering the Indian Market.

This project is divided into 2 parts

An analysis of the best practices that Walmart follows Issues that Walmart might face in India An analysis of a domestic organized retail chain What it can learn from the Walmart example

We chose Walmart for 2 reasons:

Being one of the largest retail chains in the world it has a lo Its entry into the Indian Market has the potential to beat a lot of indigenous players

1

Paper on Indian retail market by Mr.Amit Roy, and Mr. Sujit Das, director Indian Research and informationservices


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We chose REI 6/10 retail

Its a mid sized organized retail chain in India We wanted to learn about how many of the best practices are followed and can be

followed by Indian Retail Chains-Interviews with staff and CEO of Rei 6/10 Retail

Introduction To Wal-Mart

Wal-Mart was founded in 1962, with the opening of the first Wal-Mart discount store in

Rogers, Ark. By 1969, Walmat had 18 stores, and an annual sale of $44 million. The

company incorporated as Wal-Mart Stores, Inc. on Oct. 31, 1969. The company's shares

began trading on OTC markets in 1970, and were listed on the New York Stock Exchangetwo years later. In mid 1970s Walmart acquired 16 Mohr-Value stores in Michigan and

Illinois & by Late 70s, the retail chain had a pharmacy, an Auto service center and jew ellery

divisions.

In the 1980s, continued to grow due to the large customer demand. Walton said When we

arrived in these small towns offering lower prices everyday, customer satisfaction

guaranteed, we passed right by the old variety store competition, with their 45% mark ups,

limited selection and limited hours.

Walmart stores were located in large warehouse type buildings, away from the main city. It

targeted customers who bought merchandise in bulk.

With the infusion of investor capital, the company grew to 276 stores in 11 states by the end

of the decade. In 1983, the company opened its first Sams Club membership warehouse, and

in 1988 opened the first supercentre -- now the companys dominant format -- featuring a

complete grocery in addition to general merchandise. Wal-Mart became an international

company in 1991 when it opened its first Sam's Club near Mexico City.

Vision & Culture

Wal-Mart is known all over the world as the company that helps their customers save moneyso they can live better. At the core of their rules and customs is the basic value of respect


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for the customer, associates, and suppliers, which is their focus for building relationships.

They are well known for their unique corporate culture which has made them one of the most

admired companies in the world.

Operating divisions

Wal-Mart's operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club,

and Wal-Mart International.

The company does business in nine different retail formats: supercentres, food and

drugs, general merchandise stores, bodegas (small markets), cash and carry

stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.

Wal-Mart Stores US

Wal-Mart Stores U.S. is Wal-Mart's largest division, accounting for 67.2% of net sales for

financial year 2006.It consists of three retail formats that have become commonplace in the

United States: Discount Stores, Supercentres, and Neighbourhood Markets. The retail

department stores sell a variety of mostly non-grocery products, though emphasis has now

shifted towards supercentres, which include more grocery items.

Wal-Mart Discount Stores

Wal-Mart Discount Stores are discount department stores which carry general

merchandise and a selection offood. As of July 2009, there were 883 Wal-Mart Discount

Stores in the United States.

Wal-Mart Supercentre

Wal-Mart Supercentres are hypermarkets which stock everything a Wal-Mart Discount Store

does, and also include a full-service supermarket. Many Wal-Mart Supercentres also have a

garden centre, pet shop, pharmacy, etc

Wal-Mart Neighbourhood Market
http://en.wikipedia.org/wiki/Sam%27s_Clubhttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/Clothinghttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Restauranthttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Wal-Mart_Neighborhood_Markethttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Groceryhttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Pet_shophttp://en.wikipedia.org/wiki/Pharmacyhttp://en.wikipedia.org/wiki/Pharmacyhttp://en.wikipedia.org/wiki/Pet_shophttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Groceryhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Wal-Mart_Neighborhood_Markethttp://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Restauranthttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Clothinghttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Sam%27s_Club


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Wal-Mart Neighbourhood Markets are grocery stores that offer a variety of products, which

include full lines ofgroceries, pharmaceuticals, health and beauty aids, photo developing

services, and a limited selection ofgeneral merchandise. Neighbourhood Markets are used to

fill the gap between Discount Stores and Supercentres.

Market side

Market side is a new chain of grocery stores opened in October 2008. The stores are said to

be less than half the size of a conventional supermarket.

Sams Club

Sam's Club is a chain ofwarehouse clubs which sell groceries and general merchandise, often

in large quantities. Sam's Club stores are "membership" stores and most customers buy

annual memberships. However, non-members can make purchases either by buying a one-

day membership or paying a surcharge based on the price of the purchase. Some locations

also sell gasoline.

Sam's has found a niche market in recent years as a supplier to small businesses. All Sam's

Club stores are open early hours exclusively for business members and their slogan is "We're

in Business for Small Business."

Wal-Mart International

Wal-Mart's international operations currently comprise 2,980 stores in 14 countries outside

the United States. According to Wal-Mart's 2006 Annual Report, the International division

accounted for about 20.1% of sales. There are wholly owned operations in Argentina, Brazil,

Canada, Puerto Rico (although PR is part of the US, the company's operations there are

managed through its international division), and the UK. With 1.8 million employees

worldwide, the company is the largest private employer in the US and Mexico, and one of the

largest in Canada

In addition to its wholly-owned international operations, Wal-Mart has joint ventures in

China and several majority-owned subsidiaries. Wal-Mart's majority-owned subsidiary in

Mexico is Walmex. In Japan, Wal-Mart owns about 53% ofSeiyu.Additionally, Wal-Mart

owns 51% of the Central American Retail Holding Company (CARHCO), consisting of more

than 360 supermarkets and other stores in Guatemala, El Salvador, Honduras, Nicaragua, and

Costa Rica.
http://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Walmexhttp://en.wikipedia.org/wiki/Seiyu_Grouphttp://en.wikipedia.org/wiki/Seiyu_Grouphttp://en.wikipedia.org/wiki/Walmexhttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/Warehouse_clubhttp://en.wikipedia.org/wiki/General_merchandisehttp://en.wikipedia.org/wiki/Grocerieshttp://en.wikipedia.org/wiki/Supermarket


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In November 2006, Wal-Mart announced a joint venture with Bharti Enterprises to open

retail stores in India. As foreign corporations are not allowed to directly enter the retail sector

in India, Wal-Mart will operate through franchises and handle the wholesale end. The

partnership will involve two joint ventures; Bharti will manage the front end involving

opening of retail outlets, while Wal-Mart will take care of the back end, such as cold

chains and logistics.

Private label Brands

Almost all retailers dream to introduce and increase the sales of their private labels. This is

where the money is because the margins earned in this case are the biggest.

About 40% of products sold in Wal-Mart are private label store brands, or products offeredby Wal-Mart and produced through contracts with manufacturers. Wal-Mart began offering

private label brands in 1991 with the launch ofSam's Choice, a brand of drinks produced

by Cott Beverages exclusively for Wal-Mart. Other Wal-Mart brands include Great Value

and Equate in the US and Canada, and Smart Price in Britain.

Features Of A Supply Chain

The structure is almost cyclical in the supply chain. Initially the purchase order is generated,which is generated by the buyer of each category. This order is sent to the supplier and the
http://en.wikipedia.org/wiki/Bharti_Enterpriseshttp://en.wikipedia.org/wiki/Wholesalehttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Private_labelhttp://en.wikipedia.org/wiki/Store_brandhttp://en.wikipedia.org/wiki/Sam%27s_Choicehttp://en.wikipedia.org/wiki/Cott_Corporationhttp://en.wikipedia.org/wiki/Asdahttp://en.wikipedia.org/wiki/Asdahttp://en.wikipedia.org/wiki/Cott_Corporationhttp://en.wikipedia.org/wiki/Sam%27s_Choicehttp://en.wikipedia.org/wiki/Store_brandhttp://en.wikipedia.org/wiki/Private_labelhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Cold_chainhttp://en.wikipedia.org/wiki/Wholesalehttp://en.wikipedia.org/wiki/Bharti_Enterprises


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supplier delivers to the depot, where the goods are received. The goods are picked from the

depot by Walmart and dispatched to the store which placed the order . Here the stocks are

scanned and the numbers are updated directly into the system. The customer buys at the store,

and once the sales scan takes place, the stock amount decreases.

Base Stock and Economic Order Quantity:

Base Stock: Is the minimum level of inventory that a retailer must maintain at the store level.

EOQ: An inventory-related equation that determines the optimum order quantity that a

company should hold in its inventory given a set cost of production, demand rate and other

variables. This is done to minimize variable inventory costs.

When the amount is almost going to reach the base stock, a re purchase is initiated and the

purchase order is sent to the supplier.

Procurement & Distribution

Wal-Mart emphasizes the need to reduce its purchasing costs and offer the best price to its

customers. The company procures goods directly from manufacturers, bypassing all

intermediaries. Wal-Mart is a tough negotiator on prices and finalizes a purchase deal only

when it is fully confident that the products being bought are not available elsewhere at a

lower price.

By 1998, the company had 40 distribution centres located at different geographical towns. Its

warehouses directly supplied 80-85% of inventory as compared to 50-65% in case of the

competitors. According to some estimates, Wal-Mart is able to provide replenishments within

two days against at least five days for competitors. Each distribution centre is further divided

on the basis of the quantity of goods.

Wal-Mart uses sophisticated barcode technology and hand-held computer systems, managing

the centre became easier and more economical. Every employee has an access to real-time

information regarding the inventory levels of all the products in the centre. They have to just

make two scansone to identify the pallet, and the other to identify the location from where

the stock had to be picked up. Different barcodes were used to label different products,

shelves and bins in a centre. The hand-held computer guides an employee with regard to the

location of a particular product from a particular bin or shelf in the centre. When thecomputer verifies the bin and picks up a product, the employee confirms whether it is the


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right product or not. The quantity of the product required from the centre is entered into the

hand- held computer by the employee and then the computer updates the information on the

main server.

The hand-held computer also enabled the packaging department to get accurate information

about the products to be packed. It displays all information about the storage, packaging and

shipping of a particular product thus, saving time on unnecessary paperwork.

Logistics Management

An important feature of Wal-Marts logistics infrastructure is its fast and responsive

transportation system. The distribution centres is serviced by more than 3,500 company

owned trucks. These dedicated truck fleets allows the company to ship goods from the

distribution centres to the stores within two days and replenish the store shelves twice a week.

The truck fleet is the visible link between the stores and distribution centres.

Cross Docking

To make its distribution process more efficient, Wal-Mart also uses a logistics technique

known as cross-docking. In this system the finished goods are directly picked up from the

manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The

system reduces the handling and storage of finished goods, virtually eliminating the role of

the distribution centres. There are 5 types of cross docking:

Opportunistic Cross dockingIn this method of cross docking, exact information about where the required good is to be

shipped and from where it has to be procured and the exact quantity to be shipped, is needed.

This method of cross docking enables the company to directly ship the goods needed by the

retail customers, without storing them in the warehouse bins or shelves.

Flow-through Cross dockingIn this type of cross docking, there is a constant inflow and outflow of goods from the

distribution centre. This type of cross docking is mostly suitable for perishable goods, which

had a very short time span, or goods that were difficult to be stored in the warehouses.

Distributor Cross docking


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In this type of cross docking, the manufacturer delivered the goods directly to the retailer. No

intermediaries were involved in this process. This enabled the retailer to save a major portion

of the costs in the form of storage. As the retailer did not need to maintain a distribution

centre for storing various kinds of goods, it helped him save warehouse costs. The lead time

for the delivery of goods from the manufacturer to the consumer is also drastically reduced.

Manufacturing Cross dockingIn Manufacturing cross docking, these cross docking facilities served the factories and acted

as temporary and mini warehouses. Whenever a manufacturing company requires some

parts or materials for manufacturing a particular product, it is delivered by the supplier in

small lots within a very short span of time, just when it is needed. This helps reduce the

transportation and warehouse costs substantially.

Pre-Allocated Cross DockingPre-allocated cross docking is very much like the usual cross-docking, except that in this type

of cross docking, the goods are already packed and labelled by the manufacturer and it is

ready for shipment to the distribution centre from where it is sent to the store. The goods can

be delivered by the distribution centre directly to the store without opening the pack of the

manufacturer and re-packing the goods. The store can then deliver the goods directly to the

consumer without any further re-packing.

BENEFITS OF CROSS

DOCKING

BARRIERS TO CROSS

DOCKING

Reduces Walmarts cost ofsales

o Reducing excessinventory

o Sales predictiono Everyday low priceso Reducing the

promotion expense

Huge investment

Hard in adopting Management complexity

Continuous contact

between each

department

Operation of privatesatellite system


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Inventory Management

Wal-Mart has invested heavily in IT and communications systems to effectively track sales

and merchandise inventories in stores across the country. With the rapid expansion of Wal-

Mart stores in the US, it was essential to have a good communication system. Hence, Wal-

Mart set up its own satellite communication system in 1983. Wal-Mart is 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 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. Wal-Mart also networked its suppliers through computers. The company

entered into collaboration with P&G for maintaining the inventory in its stores and built an

automated re-ordering system, which linked all computers between P&G and its stores and

other distribution centres.

Walmart connected its stores and the vendor through satellite. P&G was able to check the

sales of its items directly as they were being bought and collated by the system. This was

good because, Walmart could safely move away from the reordering issues. Plus P&G had

information about offers, national promotions, new products etc that Walmart did not have.

The question arises, why wouldnt P&G decide to overstock, but this issue was also taken

care of by Walmart, they paid on a SOR ( sales or return) basis, i.e. they paid for only whatthey sold, excess was returned.


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Employees at the store have the Magic-Wand, a hand held computer which is linked to in-

store terminals through a radio frequency network. These help them to keep track of the

inventory in stores, deliveries and back-up merchandise in stock at the distribution centres.

The order management and store replenishment of goods is entirely executed with the help of

computers through the Point-of-Sales (POS) system. Through this system, it is possible to

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

Wal-Mart makes use of an efficient algorithm system which enabled it to forecast the exact

quantities of each item to be delivered, based on the inventories in each store. Wal-Mart also

uses a centralized inventory data system using which the personnel at the stores could find

out the level of inventories and the location of each product at any given time. It also shows

whether a particular product is stored at the distribution centre or is in transit on a truck.

Wal-Mart also makes use of bar coding and radio frequency technology to manage its

inventories. Using bar codes and fixed optical readers, the goods could be directed to the

appropriate dock, from where they were loaded on to the trucks for shipment. Bar coding

devices enable efficient picking, receiving and proper inventory control of the appropriate

goods.

RFID is simply an enabling technology that has the potential of helping retailers provide theright product at the right place at the right time, thus maximising sales and profits. RFID

provides the technology to identify uniquely each container, pallet, case and item being

manufactured, shipped and sold, thus providing the building blocks for increased visibility

throughout the supply chain.

The technology will bring benefits to a wide range of industries, as we shall see, but one of

the main drivers of RFID adoption has been the retail sector, led by Wal-Mart in the US.

Phillip J. Windley, an Associate Professor of Computer Science at Brigham Young

University, estimates that US retail giant Wal-Mart alone could save $8.35 billion annually

with RFID - that's more than the total revenue of half the companies in the Fortune 500.

His massive total is made up as follows: $600 million through avoiding stock-outs; $575

million by avoiding theft, error and vendor fraud; $300 million through better tracking of a

billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by

eliminating the need to have people scan barcodes in the supply chain and in-store. Small

wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of

the leading proponents of RFID implementation.


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RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that

transmit data via a radio signal to RFID readers and related hardware and software

infrastructure. The transmitters can be placed anywhere that tracking the movement of goods

adds value to the commercial process: on containers, pallets, materials handling equipment,

cases or even on individual products.

The information on tags is read when they pass by an RFID reader, and that movement is

captured and managed by the infrastructure. In this way, organisations are able to link the

physical world to the digital world without any human interaction. Whatever actions are then

triggered depends on the individual application, from basic stock replenishment at one end of

the spectrum to facilitating the ultimate lean supply chain at the other.

RFID promises to revolutionise supply chains and usher in a new era of cost savings,

efficiency and business intelligence. The potential applications are vast as it is relevant to any

organisation engaged in the production, movement or sale of physical goods. This includes

retailers, distributors, logistics service providers, manufacturers and their entire supplier base,

hospitals and pharmaceuticals companies, and the entire food chain.

It has the potential to improve efficiency and visibility, cut costs, deliver better asset

utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase

sales by reducing out-of-stocks.

The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for

the technology. One Canadian consumer products manufacturer has established that RFID

becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a

replacement for barcode labels becomes very real indeed.

Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and

that is being regarded as a breakthrough level. Yet even that is still too expensive for, say, an

individual can of Coke, which is why packaging companies and other researchers are looking

at innovative ways to apply this technology. In the coming years, at least, we are likely to see

RFID tags and barcodes existing side by side.

The path to RFID nirvana is not without its obstacles: tag costs are still high; readers can't

always read all the cases on a pallet; one frequency and one tag design does not fit all;

standards are in a state of flux; end-users lack real RFID knowledge; and radio interference

can upset the best-laid plans. Wal-Mart laid down its marker as an RFID pioneer by issuing

mandates to its suppliers throughout the entire supply chain. Wal-Mart, Metro Group, Tesco,

Target and the US Department of Defense all told their top suppliers to incorporate RFID


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tags in all pallet shipments by 2005. Wal-Mart then relented a little, having found that not

only would its suppliers find the deadline hard to meet, but so would Wal-Mart itself.

Wal-Mart has also invested heavily in a retail link system through which it can collaborate

with its suppliers in a much more effective manner. Also, the company owns the largest and

the most sophisticated computer system in the private sector (Massively Parallel Processor)

to track the movement of goods and stock levels.

Performance Indicators

Wal-Mart strongly believed and constantly emphasized on strengthening its relationships

with its customers, suppliers and employees. The company was very vigilant and sensed the

smallest of changes in store layouts and merchandising techniques to improve performance

and value for customers. The company made efforts to capitalize on every cost saving

opportunity. The savings on cost were always passed on to the consumers, thereby adding

value at every stage and process.


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Efficiency measures that Walmart has incorporated:

1. Its warehouses directly supplied 80-85% of inventory as compared to 50-65% in caseof the competitors.

2. Wal-Mart able to provide replenishments within two days against at least five days forcompetitors.

3. Its transportation costs are 3% on an average as compared to 5% for the competitors.4. Better Working Capital Management as compared to the competitors.

a. Decreased lead time , safety stockb. Accurate inventory forecasting , faster turnoverc. Increased warehouse spaced. Reduced inventory storage cost

5. Inventory turnover rate lass than two weeks.6. All the discounts provided to the customer are an indicator of the cost savings done in

its Supply Chain Management

Bull whip effect

The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels and

refers to the oscillating demand magnification further upstream a supply chain.

Because customer demand is rarely perfectly stable, businesses must forecast demand to

properly position inventory and other resources. Forecasts are based on statistics, and they are

rarely perfectly accurate. Since forecast errors are a given, companies often carry

an inventory buffer called "safety stock". Moving up the supply chain from end-consumer

to raw materials supplier, each supply chain participant has greater observed variation in

demand and thus greater need for safety stock.
http://en.wikipedia.org/wiki/Distribution_channelhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Safety_stockhttp://en.wikipedia.org/wiki/Safety_stockhttp://en.wikipedia.org/wiki/Raw_materialhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Distribution_channel


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The causes can further be divided into behavioural and operational causes:

Behavioural causes:

Misperceptions of feedback and time delays Panic ordering reactions after unmet demand Perceived risk of other players' bounded rationality

Operational causes

Dependent demand processing Forecast Errors Adjustment of inventory control parameters with each demand observation

Lead Time Variability (forecast error during replenishment lead time) Lot-sizing/order synchronization

Consolidation of demands Transaction motive Quantity discount

Trade promotion and forward buying Anticipation of shortages
http://en.wikipedia.org/wiki/Behavioralhttp://en.wikipedia.org/wiki/Operationalhttp://en.wikipedia.org/wiki/Calculating_Demand_Forecast_Accuracyhttp://en.wikipedia.org/wiki/Lead_Timehttp://en.wikipedia.org/wiki/Lead_Timehttp://en.wikipedia.org/wiki/Calculating_Demand_Forecast_Accuracyhttp://en.wikipedia.org/wiki/Operationalhttp://en.wikipedia.org/wiki/Behavioral


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Consequences:

In addition to greater safety stocks the described effect can lead to either inefficient

production or excessive inventory as the producer needs to fulfil the demand of its successor

in the supply chain. This also leads to a low utilization of the distribution channel. Despite of

having safety stocks there is still the hazard of stock-outs which result in poor customer

service. Furthermore, theBullwhip effectleads to a row of financial costs. Next to the

intangible consequences of poor customer services and the damage of public image and

loyalty, an organization has to cope with the ramifications of failed fulfilment which can lead

to contract penalties. Moreover the hiring and dismissals of employees to manage the demand

variability induce further costs due to training and possible pay-offs.

WalMarts response:Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of

each period. One way to achieve this is to establish a demand-driven supply chain which

reacts to actual customer orders. In manufacturing, this concept is calledKanban. This

model has been most successfully implemented in Wal-Mart's distribution system. Individual

Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate

headquarters several times a day. This demand information is used to queue shipments from

the Wal-Mart distribution centre to the store and from the supplier to the Wal-Mart

distribution centre. The result is near-perfect visibility of customer demand and inventory

movement throughout the supply chain. Better information leads to better inventory

positioning and lower costs throughout the supply chain.

Sustainable Supply Chain

Wal-Mart is spearheading collaboration among supply-chain companies to measure and

reduce the environmental footprint of its product shipping process and logistics network.

The new rules for supply chain sustainability cover everything from fuel use, to facilities and

equipment standards, to the overall environmental commitment demonstrated by the

companies they hire to ship and store their products.

Wal-Mart insists that once suppliers evaluate the environmental costs of their products, they

will be able to improve production efficiencies and provide the items at a lower cost.

With the introduction of the Supply Chain Sustainability Scorecard, Wal-Mart Canada plans

to assess the businesses it hires to ship and store its products based on four categories:
http://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Wal-Marthttp://en.wikipedia.org/wiki/Point-of-salehttp://en.wikipedia.org/wiki/Cash_registerhttp://en.wikipedia.org/wiki/Cash_registerhttp://en.wikipedia.org/wiki/Point-of-salehttp://en.wikipedia.org/wiki/Wal-Marthttp://en.wikipedia.org/wiki/Kanbanhttp://en.wikipedia.org/wiki/Manufacturing


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Equipment - e.g. use of sustainable alternatives, efficient engines and tires, etc. Operations - e.g. enforcement of programs for recycling, vehicle idling, oil collection Facilities - e.g. responsible energy use (including green power), efficient buildings Corporate commitment - e.g. a vision or culture of sustainability throughout the

business

Wal-Mart has committed to three long-term sustainability goals, globally and in Canada:

To produce zero waste To be powered 100 per cent by renewable energy To make more environmentally preferable products available to customers

It plans to introduce a "sustainability label" similar to the nutritional information required on

U.S. food packaging - can capture the full costs of producing a product or substantially shift

consumer behaviour, perhaps persuading the more informed consumer to purchase less

damaging products.

By moving goods more efficiently, Wal-Mart Canada and its supply-chain service providers

expect to directly contribute to the companys everyday-low-cost approach - lowering coststo ensure the lowest prices for customers, a key to Wal-Marts business model. At the same

time, by reducing materials, increasing efficiency, and eliminating unnecessary shipping, the

company and its suppliers will meet rising environmental standards.

Issues that Wal-Mart might will face in India

The Kirana store: High level of CRM. Shopkeeper knows about families andpurchase history. Familiarity runs from generation to generation. Open long hours,

home delivery, credit options, proximity to home, make the kirana store a preferreddestination for shopping.

High Costs: Small retailers have practically nil real estate and labour costs and littleor no taxes to pay. On the other hand, players in the organized sector have high

expenses and have to keep price low enough to compete with the traditional sector

Correct Merchandise Mix: Right product mix is essential for retailing. All retailerslike to have high value, high margin, fast moving products. This is however not


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possible. Organised retailers have a number of SKUs many of which do not sell, and a

large inventory needs to be kept.

Poor infrastructure: Efficient supply chain strategies like those of Walmart workbest in countries that have the infrastructure to facilitate easy movement. In India,

infrastructure like cold storage is primitive. Little access to electricity , poor rail and

road network act as an impediment to efficient supply chain.

Walmart Model: Walmart is traditionally based in areas outside the city, mostcustomers come in cars and buy large quantities on a monthly basis. Spending

patterns and lifestyle is not the same for Indians. Indians mostly donot have cars and

thus cannot afford to go outside the city to buy provisions. Even Big Bazaar has a

number of stores within the city limits. Secondly, the Indian customer never buys in

bulk, they usually buy on a weekly or biweekly basis. Some items are bought daily.

This is probably also due to the less incomes, coupled with electricity issues,

refrigeration issues that domestic households are plagued with.

Recommendations to Wal-Mart

One allegation made against Wal-Mart is that it places unrealistic cost and timepressures upon its supply chain. Suppliers must be provided with the opportunity to

make improvements in operating practices without compromising the viability of their

operations.

Moreover, responsibility for improvement cannot be simply transferred to suppliers.Wal-Mart itself has a responsibility to adopt proactive supply chain management

initiatives, including the training of suppliers in terms of best practice operating

procedures.


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Once we have understood in depth how Walmart Functions, It would be interesting to know

how an organised retail chain would function, and whether the theories we learn apply to

these companies or not. Through detailed interviews with the owner of REI 6/10 Retail: Mr.

Ambuj Jhunjhunwala, we understood the functioning of the retail chains in India and the

issues they face.

REI 6TEN RETAIL LTD

6 TEN is a organized retail format, similar to Reliance Fresh, Spencers Hyper etc. With a

presence in Ludhiana, Mohali, Ghaziabad, Delhi, Faridabad, Rajasthan, Ahmedabad, Mumbai

and Nagpur, 6TEN has 315 shops.

Procurement

What to order: Unlike Walmart that stocks every kind of item, smaller retailer cater to a

particular segment, segmentation that is done on Income. It identifies fast and slow moving

SKUs and orders accordingly. Again it identifies, seasonal and flow items. Flow items are

those items that have a demand throughout the year, and seasonal items are those whose

demand differs at different times of the year.

INPUT

Large product categories and product mix

Follow FIFO: First in First out

Good vendor relationships, negotiations for margins

Lead time and fill rate

Transformation

Placement of products, display and visual merchandising Packaging of products

Billing

Promotions and discounts: bundling, markdowns

Output

More footfalls

Higher conversion rate and bill value

Satisfied customer and repeat purchases

Value for money


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When to order: Similar to Walmart, smaller retail chains, also buy according to the

ecomomic order quantity and base stock. Like larger retail chains, these also consider the lead

time i.e. the time between the placing of the order and delivery to the store. 6/10 maintains an

average of 15 days sales and orders according to lead time and fill rate. i.e. how much of a

quantity demanded is delivered.

Walmart has a number of vendors supplying the same product, so that a mistake or delay at

the end of the vendor doesnt upset the business. However, unlike Walmart, smaller retailers

like 6/10 usually order from one vendor or a few. Therefore fill rate is a major concern for

these retailers.

How much to order: Unlike Walmart which works on a just in time model, accepting

requests from customers and updating it in the system immediately to reduce warehousing

costs, smaller retail chains work differently.

Ordering takes according to historical sales data. Previous month sales data is used to forecast

sales in a particular month. 10 days min stock 17 days max stock then reordering happens

within 7 days.

Linearity of Sales method is followed. Ordering depends on the MBU and what is on hand.

Walmart is routed through the satellite and vendors like P&G, etc monitor stock details at

their end and replenish stock as and when they believe its reaching its base stock, keeping

their lead times in mind.

Smaller retailers, mostly have store staff to maintain these records and then these records are

sent to the buyer and finally the purchase orders are created. This can be inaccurate and time

consuming. Which is why, more and more retailers are going for ERP systems like SAP,

which centralize the buying process. Buyers can monitor the stock across all stores and place

orders accordingly. This information can also be viewed the the vendors end.

Issues faced in procurement

1. Linearity: Some products dont work on linearity, their sales happen in twos or threes.

Reordering needs to keep this aspect in time.

E.g sugar sales are 60 kilos a month at a store. Which amounts to 2kgs a day, however this

sale doesnt take place everyday and customers might buy 4 kilos a day, h ence reordering


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needs to keep this aspect in mind. For a commodity like this it would always be better to have

a large base stock.

2. Productivity improvement: Benchmark month sales forecast to previous years sale in

the same month to accommodate seasonal changes. Some products like fruits and vegetables

show seasonal variations in terms of demand and supply.

Some companies and distributors sell on an Outright or a Sales or Return (SOR)/

consignmentbasis. Outright buying needs to be very conservative, since a lack of demand

and unsold stock adds to the retailers loss whereas SOR can be less conservative as stock

will be returned to the distributor and company. 6Ten buys some of their private labels on a

consignment basis, e.g Masala Category is bought on consignment as it has a longer shelf

life.

Since smaller retails have less bargaining power, they usually adhere to outright basis, unlike

Walmart which had an SOR basis with almost all its vendors.

Managing Inventory

REI 6ten does not have store level DCs as this increases their costs, and reduces theshelf and display space. Located in prime locations they pay a large price per sqft area

Has a Distribution centers that cater to stores in a particular location and in kilometerradius. E.g there are 4 distribution centers to cater to their Stores in Delhi NCR

Has a mother warehouse that caters to all the distribution centers. Distributors send 30% to the DCs and 70% to the mother DC

On the other hand, Walmart would collect supplies from the vendor directly, just in time, soas to reduce the need for large distribution centers.

Supply Chain

Issues in supply chain were due to Forecasting and due to inefficient order of inefficient

delivery.

Forecasting issue: Price of sugar depends on government prices, and as price fluctuates,

demand fluctuates. E.g. The price of sugar is Rs. 30 a kilogram, there is a forecasted increase


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in prices by Rs 8. Customers would flock to buy sugar at the current price. The forecasting

and subsequent stocking did not keep this increase in account so the chain faced a stock out.

Sometimes forecasting doesnt take into account defected, spoiled items.

Order and delivery Issues: E.g. HUL has a filling rate of 80% and a lead time of 6

days. However once the order is placed. 6Ten notices that the filling rate is only 60%. Again

a stock out. This can be curtailed by analyzing the vendors and ordering accordingly.

Walmart has a number of vendors that reduces their chance of a mistake, delay and hence a

stock out.

Recommendations for 6Ten Retail

Manage its forecasting issues to reduce excess stock, since most of the stock is on anOutright basis, a loss in sales means a loss to Rei 6Ten

Increase the number of suppliers in order to reduce the risk of delay and default Integrate the suppliers with the stores directly so as to reduce the costs of warehousing Softwares like SAP Retail and Oracle, that manage stock & sales information and

reduce the need for manual entry, thus limiting mistakes

CONCLUSION

Only a small portion of the retailing market in India is organized. It is estimated that in the

supply chain for fruits and vegetables in India a substantial part of the products ends up as

wastage. 6Ten stores will strive to organize the retail market in India and to improve

efficiencies in the supply chain in order to offer quality products at attractive prices.

The mission is to be the trendsetter in the retail space in India with professional services

making the lives of ordinary Indians easier and more convenient.

Through an efficient business model in the retailing sector, 6Ten will be a household namethrough out the nation. By enhancing efficiency and reducing wastage it will ensure

substantial savings in the food and vegetable retailing sector which will be passed on to the

customers. It envisages an ideal retailing business model that can cater to the daily needs of

the Indian consumers.

True to the basic principle of business, the minimization of cost, high production leads to the

maximization of profit. The practice of core principles on constantly improving sales is

brought about by the service they have been offering at no extra cost. At Wal-Mart, they

have been very successful in finding means in which to capitalize on every cost saving

opportunities and the adoption of efficient logistics system enable Wal-Mart to earn unrivaled


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intangible competitive advantage and edge to the rest of the business world which is made

possible also in the use innovative technology.

Information technology has the potential to improve many business processes. Anything that

is able to decrease costs and increase efficiency is welcome to companies that are constantly

seeking ways to decrease cost and increase the quality of products and services. Wal-Mart,

for example, is able to offer consumers an every-day-low-price largely in part because it is

able to control its costs. The cost of its products, however, is not only a function of its

efficiency or lack of it but also the efficiency/inefficiency of its suppliers. Because of the

volume of products sold by Wal-Mart, it has a great influence over its suppliers and often

pressures its suppliers to find ways to lower costs. Though it has a large influence over these

suppliers, it is impossible for Wal-Mart to operate without their assistance, and thus it is

important for Wal-Mart to maintain mutually beneficial relationships with those suppliers.

Sharing benefits and costs in, instead of mandating the use of, technology implementations is

an effective way for Wal-Mart to cultivate a mutually beneficial relationship with itssuppliers. The novelty and frailty of certain technologies like RFID, however, sometimes

preclude a timely and effective implementation of them. A technologys benefits are felt the

more its use is standardized throughout the marketplace. Once unit cost has decreased and

privacy issues have been resolved, many more companies will be able to implement RFID as

an effective means to improve supply chain management efficiency.

Documents

SCM Project_Group 2_Section C