Supply Chain Management

(Wal-Mart)

Introduction

• One of the world’s largest business successes

• Wal-Mart is the world’s largest retail company

History of Wal-Mart

• The company’s founder was Sam Walton

• He was born in 1918 at Oklahoma, USA

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

• He decided to give up his job and start his own retail store

History of Wal-Mart (cont’d)

• He purchased a store franchise in Arkansas

• Using techniques he picked up at J C Penney (ex: significant discounts, etc), he became successful and acquired a second store in 3 years.

• By 1969, he had established 18 Wal-Mart stores

• By 1970, it had diversified into the pharmacy and auto service sectors

History of Wal-Mart (cont’d)

• The key USP of Wal-Mart was that it was offering low prices, customer satisfaction & realistic shopping hours for shoppers (ex: open all night for university students)

• By 1984, there were 640 Wal-Mart stores in the US

• The most important factor behind its phenomenal success is efficient SUPPLY CHAIN MANAGEMENT PRACTICES

• It continued it’s growth in the 1970s, focusing on overseas stores (Mexico, Germany, Korea, Brazil, Canada, etc)

Hub & Spoke System

• In the early 1970s, Wal-Mart became one of the first retailing companies in the world to centralize its distribution system, and thus pioneered the retail hub-&-spoke system

• Under this system, goods were centrally ordered, assembled at a massive warehouse, known as ‘distribution centre’ (or hub), from where they were dispatched to the individual stores (spokes)

Hub & Spoke System

• The Hub-&-Spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities…

… and distributing them through it’s own logistics infrastructure to the retail stores

spread across the US.

Procurement

• Procurement is the acquisition of appropriate goods and/or services at the best possible total cost of ownership to meet the needs of the purchaser in terms of quality and quantity, time, and location.

Wal-Mart Procurement Process

• Basically, Wal-Mart aims to provide it’s customers products of all varieties at minimum costs.

• This very objective shapes the process of their procurement model.

• It purchases the products directly from the manufacturers, bypassing all intermediaries.

• Also ensuring that the products being bought are not available at a lower cost anywhere else.

Traditional

Manufacture -> Wholesaler -> Retailer -> Customer

Wal-Mart

Manufacturer ->Wal-Mart -> Customer

Use of EDI for Procurement

• All computer systems of Wal-Mart are connected to their suppliers.

• Thus, through EDI the suppliers download purchase orders along with the store to store sales information of their products sold.

• Using the obtained info, the suppliers ship the required goods to the distribution centers.

Logistics Management

• Without the use of any new technology as such, Wal-Mart maintains a very fast and responsive transportation system.

• It maintains 3,500 company owned trucks and only hires drivers with experience of more than 300,000 accident-free miles.

• This results in dedicated and committed service to the company and it’s customers.

Cross Docking

• A logistics technique “cross docking” allows Wal-Mart to directly pick up the finished goods from the manufacturers, sort them and deliver them to the customers.

• This system greatly reduces the need to handle & store finished goods or have a distribution centers and stores.

• The manufacturer directly forwards the finished goods to a place called the ‘staging area’.

• Finished goods are then packed according to orders received from various stores and delivered

directly to the customers.

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Inventory Management

• Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country.

• With the rapid expansion, it was essential to have a good communication system.

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Inventory Management…• Employees at the stores had the “Magic Wand,” a hand-held

computer which was linked to in-store terminals through a radio frequency network.

• These helped them to keep track of the inventory in stores, deliveries, and backup merchandise in stock at the distribution centers.

• The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system.

• Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves.

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Inventory Management… (pretty darn quick displays)

• The company asked its suppliers to ship goods in store-ready displays called pretty darn quick (PDQ) displays.

• Goods were packed in PDQ displays that arrived at the stores ready to be boarded on the racks.

• Wal-Mart’s employees could directly replace the empty racks at the stores with fully packed racks, instead of refilling each and every item at the racks.

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Inventory Management… (retail link system)

• In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system.

• More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories.

• Retail Link connected Wal-Mart’s EDI network with an extranet, accessible to Wal-Mart’s thousands of suppliers.

• The suppliers could find out how their product was performing vis-a-vis competitors’ products in a particular product category.

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CPFR

• By the mid 1990s, Retail Link had emerged into an Internet-enabled SCM system whose functions were not confined to inventory management alone, but also covered collaborative planning, forecasting and replenishment (CPFR).

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CPFR

• 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.

• CPFR is defined as a business practice for business partners to share forecasts and results data through the Internet, in order to reduce inventory costs while at the same time, enhancing product availability across the supply chain.

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CPFR: Hard to implement

• Though CPFR was a promising supply chain initiative aimed at a mutually beneficial collaboration between Wal-Mart and its suppliers, its actual implementation required huge investments in time and money.

• A few suppliers with whom Wal-Mart tried to implement CPFR complained that a significant amount of time had to be spent on developing forecasts and analyzing sales data.

INFORMATION TECHNOLOGY

USED TO IMPROVE SUPPLY CHAIN

• With the rapid expansion of the Wal-Mart system it was necessary to have a good communication system.

• Hence it set up its own satellite communication system in 1983.

• Wal- Mart made full use of its IT capabilities for the items that the customers wanted the most

.

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Satellite system Data collected and analyzedObserving Merchandise flow, overstock, discountVideo transmissions, credit card authorizations, and inventory control

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Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricingImprove efficiencyReduce ShrinkageImprove communications

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RFID Technology(Radio Frequency Identification)

• In efforts to implement new technologies to reduce costs and increase the efficiency, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005.

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

• The company believed that this replacement would reduce its supply chain management costs and enhance efficiency.

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RFID Technology(Radio Frequency Identification)

• 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.

• Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.

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RFID Technology(Radio Frequency Identification)

• Although Wal-Mart was optimistic about the benefits of RFID, analysts felt that it would impose a heavy burden on its suppliers.

• To make themselves RFID compliant, the suppliers needed to incur an estimated $20 Million.

• Of this, an estimated %50 would be spent on integrating the system and making modifications in the supply chain software.

Strength WeaknessCost advantage Low price & customer-orientedStrong supply chainPeople are key to success

Ignore store decorationSince Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Opportunity ThreatBuild its own brandPut efforts on social welfare better imageNew locations and store typesOverseas markets

Other competitorsIntense price competition

CONCLUSION

• Wal-Mart capitalized on every cost saving opportunity which was passed on to the consumers.

• Wal-art, as it had its own transportation system was able to replenish its shelves four time faster than his competitors

• The overall benefits of the system included reduction in lead time, faster inventory turn over, accurate forecasting of inventory levels ,increased ware house space .

• The system increased efficiency in operations and better customer service, eliminated old stock and maintained quality of goods.

Sam’s Clubs

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THANK YOU!!!