HALF A CENTURY OF SUPPLY CHAIN

MANAGEMENT AT WALMART

Kumar Ravi (129)

Lakshay Nagpal (130)
Al Sabah
Shubham Gupta
 Walmart : An Introduction

U.S. retail sales, excluding motor vehicles and parts dealers, reached US$3.9 trillion in 2011.
Major categories in the U.S. retail industry included general merchandise, food and beverage,
health and personal care and other categories. In the United States, retailers competed at local,
regional and national levels, with some of the major chains such as Wal-Mart and Costco
counting operations in foreign countries as well. In addition to the traditional one-store
owner-operated retailer, the industry included formats such as discount stores, department
stores (selling a large percentage of soft goods, or clothing), variety and convenience stores,
specialty stores, supermarkets, supercentres (combination discount and supermarket stores),
Internet retailers and catalog retailers. Online retail sales were rising in importance, accounting
for US$197 billion in 2011.

Based in Bentonville, Arkansas and founded by the legendary Sam Walton, Wal-Mart was the
number one retailer in the world with fiscal year 2011 net income from continuing operations, of
US$16 billion on sales of US$419 billion. It had over 2 million employees and 8,500 stores in 15
countries, the result of a series of acquisitions over the past 20 years. Beginning with its “big
box” discount store format in the 1960s, Wal-Mart’s store formats around the world had grown to
include supercentres, which were a larger version of a discount store that included groceries,
supermarkets, wholesale outlets, restaurants and apparel stores. Globally, it served about 200
million customers per week.

Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at
“everyday low prices” (​EDLP​) and was best known for its discount stores, which offered
merchandise such as apparel, small appliances, housewares, electronics and hardware. In the
U.S. general merchandise arena, Wal-Mart’s competitors included Sears and Target, with
specialty retailers including Gap and Limited. Department store competitors included Dillard,
Federated and J.C. Penney. Grocery store competitors included Kroger, Albertsons and
Safeway. The major membership-only warehouse competitor was Costco Wholesale. Wal-Mart
was facing growing competition for large ticket general merchandise products and from online
retailers such as Amazon.com.
 Walmart Strategy

Wal-Mart’s supply chain, a key enabler of its growth from its beginnings in rural Arkansas, is
considered to be a major source of competitive advantage for the company. It was one of the
first firms to rely on data to make operational decisions, using barcodes, sharing sales data with
suppliers, controlling its own trucking fleet and installing computerized point-of-sale systems that
collected item- level data at every store in real time. In 1989, the distribution costs were
estimated at 1.7 percent of its cost of sales, comparing favourably with competitors such as
Kmart (3.5 percent of total sales) and Sears (5 percent of total sales).

Some of the key initiatives taken by Walmart over the decades in various stages of supply chain
have been:

● Procurement
○ Direct Sourcing

● Distribution
○ Hub and Spoke Model

● Store Network
○ Unique Store-wide template

● Information systems
○ Retail Link
○ RFID

The company was always in the process of improving the supply chain to reduce the cost inturn
reducing the prices with the following new initiatives:

● Global Sourcing
○ Partnership with Li & Fung

● Project One Touch

○ On-shelf availability improvement

● Multi-Channel Strategy
○ Walmart.com
 Walmart: New Initiatives

● Retail Link

Wal-Mart used IT to gain advantage and had been analyzing the sales data gathered
through a barcode implementation and compared it with other factors to advice suppliers on
better purchase forecasting. Walmart improved forecasting and developed Retail Link. This was
the largest civilian database and Walmart developed it through POS machines, barcodes and a
central database. This suppliers of Walmart would get real-time access to this data and hence
they were able to forecast better. Retail Link had over 1Lakh registered users who were working
for the suppliers on the sales data which was made available by Walmart.

● RFID

In an effort to improve its distribution system and to ensure a smooth flow of goods Walmart
decided to standardise its casing and labelling and along with this it also made it mandatory for
its top 100 suppliers to implement a RFID based tagging system on cases. This step increased
the visibility on goods and also through multiple points of reading RFID enabled Walmart to
track various indicators such as the effectiveness of promotions in store. Out-of-stock inventory
dropped by 25% due to effective tracking itself.

● Backhauling

Walmart decided that the trucks which were coming back empty from the stores will carry unsold
goods back and hence will generate revenue for Walmart. In one year walmart was able to cut
on 1 billion dollar. It stepped up this program by considering picking up goods from suppliers for
a rate cut of 6%. This program helped Walmart to cut on cost.

● Less Advertisements

Walmart had adopted EveryDay Low Price (EDLP) policy which meant that their products were
always low priced. This actually led to the decrease in frequent advertisement activities
compared to the competitors which cut a lot of costs and channelled back to low prices.

● Hub and spokes model

This is the main reason why Walmart could keep the products low priced. This model reduced
transportation cost, reduces inventory and improves cycle time. Walmart uses a centralised
integrated logistics system. The company has over 150 distribution centres worldwide. These
“hubs” are highly automated and run 24/7. Each distribution centre supports about 90 to 100
stores, within a distance of 200 miles.
 Hub and spoke distribution centers receive products from many different sources, consolidate
the products, and send them directly to destinations. No inventory is stored at the distribution
centres since Walmart uses the “hub-and-spoke” distribution network. Goods are picked up
directly from the manufacturers by a fleet of 6,500 trucks. They are then categorised at the
centres and distributed to stores within 24 to 48 hours. With certain goods or for special orders,
the company also take advantage of the manufacturers’ distribution system to deliver the goods
directly from the warehouses to the stores.

● Centralised system and Human resources management

Walton visited each store and encourage associates for ideas and implemented good ideas very
quickly. Regular top management meeting to discuss business results and strategies were held.
The team also toured competitor stores for inspiration. The centralisation of division cut costs
greatly. The non-union model reduced labour costs and made operational changes easy and
quicker.

● Supply chain innovations

Dedicated high velocity distribution system was adopted for fast moving goods like toilet paper,
paper towels, toothpastes etc. Additionally, the company undertook a significant program to
remodel stores to improve “checkout speed, customer service and store appearance.”
Global Sourcing: Walmart partnered with Li & Fung who would assist with product sourcing in a
range of categories and markets where Wal-Mart did not scales or competencies.

Competitors and what they learnt

Walmart's competitors are Amazon, Target, Kroger Co, Costco Wholesale Corp, Dollar general
etc.
These competitors had copied many aspects of WalMart’s distribution system, including
cross-docking product to eliminate storage time in warehouses, positioning stores around
distribution centres and widespread adoption of electronic data interchange (EDI), to manage
ordering and shipping from supplier.
Over the years, competitors had learnt to copy Walmart’s “hub-and spoke” distribution design of
high volume distribution centres serving a cluster of stores.
In an effort to match with Wal-Mart’s ability to share information with suppliers, Wal-Mart’s
competitors also started developing systems similar to Retail Link