Wal-Mart’s Supply Chain – a

business success

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Wal-Mart is the World’s
Largest Retail Company
Ranked first in the Global Fortune
500 list in 2001-2002 financial year

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 History of Wal-Mart…
Sam Walton, the founder of Wal
mart gave up his job and decided to
set up his own retail store.

 He purchased a store franchise in

Arkansas.

 Offering significant discounts on

prices, he became successful and
acquired a second store in 3 years.
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 History of Wal-Mart…
 Wal-Mart suffered a setback in 1992,
when Walton died.

 But it continued its growth in the 1990s,

focusing on overseas stores.
◦ 1992, Mexico (joint venture with Cifra)
◦ 1994, Canada (acquired 122 Woolco stores
from Woolworth)
◦ 1997, Germany (acquired 21 store of Wertkauf)
◦ Korea, Brazil, and so on.

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 Wal-Mart’s Procurement…
 The company directly procured from
manufacturers, by passing all intermediaries.
 Wal-Mart finalizes a purchase deal only when it
is fully confident that the products being bought
is not available else where at a lower price .
 Wal-Mart spends a significant amount of time
meeting vendors and understanding their cost
structure.
 By making the process transparent, the retailer
can be certain that the manufacturers are doing
their best to cut down costs.
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 Using EDI for Procurement
The computer systems of Wal-Mart were
connected to those of its suppliers.

EDI (electronic data interchange) enabled

the suppliers to download purchase orders
along with store-to-store sales information
relating to their products sold.

On receiving information about the sales of

various products, the suppliers shipped the
required goods to Wal-Mart’s distribution
centers.
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 Logistics Management
An important feature of Wal-Mart’s logistics
infrastructure was its fast and responsive
transportation system.

The distribution centers were serviced by more

than 3500 company owned trucks.

Wal-Mart believed that it needed drivers who were

committed and dedicated to customer service.

The company hired only experienced drivers who

had driven more than 300,000 accident-free miles,
with no major traffic violation.
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 Cross-docking
To make its distribution process more
efficient, Wal-Mart also made use of a
logistics technique called “cross-
docking.”

In this system, the finished goods were

directly picked up from the manufacturing
plant, sorted out and then directly
supplied to the customers.
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 Cross-docking
The system reduced the handling and storage
of finished goods, virtually eliminating the
role of the distribution centers and stores.

The manufacturer directly forwarded the

goods to a place called the “staging area.”

The goods were packed here according to the

orders received from different stores and
then directly sent to the respective
customers.

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 Inventory Management…
(quick replenishment)
Since the floor area of any Wal-Mart
store varied between 40,000 to 200,000
square feet, movement of goods within
the store was an important part of logistics
operations.

Wal-Mart made significant investments in

IT to quickly locate and replenish goods
at the stores.
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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)
Wal-Mart owned the largest and most
sophisticated computer system in the
private sector.

The company used Massively Parallel

Processor (MPP) computer system to track
the movement of goods and stock levels.

All information related to sales and

inventories was passed on through an
advanced satellite communication system.
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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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 VAN EDI vs Web-EDI
In October 2002, Wal-Mart asked its
14,000 suppliers to switch over from the
existing Value Added Networks (VAN)
EDI to web enabled EDI.

VANs route and manage EDI messages for

their customers.

By implementing web-EDI, Wal-Mart can

save millions of dollars in the form of
license fees to the private VANs.
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VAN EDI vs. Web-EDI

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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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