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.
 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.

17
 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.

18
 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.
19
 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.

20
 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).

21
 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.
22
 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.

23
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
.
Satellite system
Data collected and
analyzed
Observing Merchandise
flow, overstock, discount
Video transmissions, credit
card authorizations, and
inventory control

27
Electronic scanning of
uniform product code
(UPC) at the POS
Ensure accurate pricing
Improve efficiency
Reduce Shrinkage
Improve communications

28
 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.

29
 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.

30
 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.

31
 Strength
Cost advantage
Low price & customer-oriented
Strong supply chain
People are key to success
Opportunity
Build its own brand
Put efforts on social welfare
 better image
New locations and store types
Overseas markets
Weakness
Ignore store decoration
Since 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.
Threat
Other competitors
Intense 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
THANKClubs

YOU!!!

34