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PROJECT-SUPPLY CHAIN MANAGEMENT AT WAL-MART

A PROJECT REPORT ON SUPPLY CHAIN MANAGEMENT AT WAL-MART

PRESENTED BY GROUP-H1 HRLP


ANKUR SEHGAL

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PROJECT-SUPPLY CHAIN MANAGEMENT AT WAL-MART

INDEX
S.NO 1. 2. 3. 4. 5. 6. 7. 8. 9. DESCRIPTION PAGE NUMBER 3 4-5 6 7-8 9 10 11 12 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT LEVELS OF SUPPLY CHAIN MANAGEMENT HISTORY-WALMART WAL-MART INTRODUCTION AND ITS BUSINESS PROCESSES SUPPLY CHAIN MANGEMENT AT WAL-MART PROCUREMENT AND DISTRIBUTION LOGISTICS MANAGEMENT INVENTORY MANAGEMENT COMPETITIVE ADVANTAGE AND BUSINESS MODELS USED AT WAL-MART 10. 11. 12. 13. RFID IN WAL-MART EFFICENCY IN SUPPLY CHAIN WITH RFID CONCLUSION LIST OF REFERENCES 20-21 13 14 15-18 19

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Introduction to Supply Chain Management Supply Chain Management is the discipline which encompasses the end to end business activities carried out in any business, independent of the manufacturing or service sectors. It is the synchronization of a network of facilities and distribution options that performs procurement of materials, processing the materials into finished products, and distribution of the products to customers. SCM is seen as involving five fundamental processes. These include planning, sourcing, making, delivering, and returning.

Typical supply chain showing interrelations between all involved parties. [Source: Auto-ID: Managing Anything, Anywhere, Anytime in the Supply Chain, Bose and Pal, ACM August 2005] SCM subsists in both service and manufacturing environments. A typical supply chain consists of many interactions between suppliers, manufacturers, distributors, retailers, with the vital goal of providing either a service or a product to customers. This also works in reverse with the customer at the head of the process when returning a product. SCM is used as a means to assimilate planning, purchasing, manufacturing, distribution, and marketing organizations that normally do not work together to achieve a common goal. Each works toward goals specific to their own organization that accomplish narrow objectives. SCM is a way of integrating these varying functions so that they work together to make best use of the benefits for all involved.

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There are three levels of SCM: strategic, tactical, and operational

Three Levels of SCM [Source: Auto-ID: Managing Anything, Anywhere, Anytime in the Supply Chain, Bose and Pal, ACM August 2005] Strategic SCM covenants with future planning than looking at market evaluation, capacity issues, new products, and technology changes. This planning is addressing issues that may be factors several years out. This is accomplished at the executive management level. Tactical SCM involves a shorter planning cycle. It is more concerned demand planning, inventory planning, and supply planning. This is determined at a less senior level than Strategic SCM. Operational SCM is current planning activities measured in at most weeks. Operational SCM involves the mainstream of the operations. It includes demand fulfillment, scheduling, production, transport, and monitoring. There are many decisions that are made while looking at SCM. They follow the categories as discussed above. Strategic decisions are made over longer periods of time and linked to a corporations strategy. Operational decisions are more or less short term in nature and look after day to day activities. Mainly Four major decisions are considered. They include decisions on location, production, inventory, and transportation. A geographically strategic placement of the production facilities is key to creating a successful supply chain. Decisions on what products to be produced have to be made wisely and strategically. Also, where these products (which locations) will be manufactured is very important to SCM. Inventory decisions and management is critical. Some inventories are necessary to hedge against uncertainty, but this comes with a cost. Managing these inventories proficiently will be of benefit to the corporation. Transportation decisions include cost versus benefit. Air transportation is costly, but fast and reliable. Other modes of transportation may be cheaper, but the sacrifice has to hold inventories due to delays that may occur. If the above
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decisions are made with careful and strategic thought as well as with concern for integration, the supply chain should be efficient and successful. The complete goal of SCM is to optimize supply chains in an endeavor to provide more accurate and time sensitive information that can be used to improve process times and cut costs. Supply chains have been around for decades and a constantly being improved. The newest opportunity for improvement is the introduction of Radio frequency identification (RFID) tags. RFID technology will provide real-time information that will allow manufacturers to get better readings of customers and markets thus further improving supply chains. RFID will help retailers provide the right products at the right places at the right times. Finally, maximizing sales and profits. Wal-Mart has been leading the charge with RFID technology. Having the largest retailer adopt and begin to use RFID technology has given strong backing to the technology and will only further and quicken the expansion of RFID. They have begun requiring all their major suppliers to implement RFID technology on all products supplied to Wal-Mart. One example of what Wal-Mart has done with SCM and its suppliers is that of its relationship with Proctor & Gamble. These two have built a software system that hooked Proctor & Gamble up to Wal-Marts distribution centers. This system would then monitor supply levels and when products run low, automatic alerts are sent out to require the shipment of more products to that distribution center. Wal-Mart has taken this as far as going to the individual store locations. The shelves are monitored in real time via satellite links that send inventory messages whenever Proctor & Gamble products are scanned at a register. This allows Proctor & Gamble to be fully aware of up to the minute product inventories at the actual store locations and ship additional products as necessary. This concept is a huge step in making SCM as efficient as it can be.

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History-Wal-Mart 1962: Company founded with opening of first Wal-Mart in Rogers, Ark. 1967: Wal-Mart's 24 stores total $12.6 million in sales. 1970: Wal-Mart opens first distribution center and home office in Bentonville, Ark. 1977: Wal-Mart makes first acquisition, 16 Mohr-Value stores in Michigan and Illinois. 1978: Hutcheson Shoe Company acquired 1981: Wal-Mart makes its next acquisition with 92 Kuhn's Big K stores. 1983: U.S. Woolco Stores acquired. 1990: Wal-Mart becomes nation's No. 1 retailer.1990McLane Company of Temple, Texas acquired. 1997: Wal-Mart replaces Woolworth on the Dow Jones Industrial Average. 2003: Wal-Mart named by FORTUNE magazine as the most admired company in America.

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Wal-Mart Introduction and its Business Processes Wal-Mart is one of the leading Fortune 500 companies, which is spread across the globe. It is perhaps the largest retail chain which deals with everything from food to consumer electronics. In terms of the revenue generated, it leads the fortune 500 companies like GE and Microsoft. Simply put, it has everything a homemaker can ever think of. Affordable price range coupled with aggressive online and market strategy has led to wide acceptance for Wal-Mart in towns and cities alike. Wal-Mart is probably the only largest fortune 500 corporations in the world, which directly services the common man. Supply chain management has been the foundation to Wal-Marts success and remains their chief competitive advantage in the retail/department store industry. Their distribution system is generally regarded as the most efficient and they have an approach to supply chain management that has long emphasized visibility through the sharing of information with their suppliers. Operations Wal-Mart operations are comprised of three business segments: Wal-Mart Stores SAMS CLUB Wal-Mart International Wal-Mart Stores segment is the largest segment, which accounted for approximately 67.3% of their 2005 fiscal sales. This segment consists of three different retail formats, all of which are located in the United States. This includes the following sections: Super-centers, which average approximately 187,000 square feet in size and offer a wide variety of products and a full-line supermarket; Discount Stores, which average approximately 100,000 square feet in size and offer a wide variety of products and a limited stock of food products; and Neighborhood Markets, which average approximately 43,000 square feet in size and offer a full-line supermarket and a limited variety of general merchandise. SAMS CLUB segment consists of membership warehouse clubs in the United States which accounted for approximately 13.0% of 2005 fiscal sales. SAMS CLUBs in the United States average approximately 128,000 square feet in size. Wal-Mart International operations are located in Argentina, Canada, Germany, South Korea, Puerto Rico and the United Kingdom, the operations of joint ventures in China and operations of majority-owned subsidiaries in Brazil and Mexico. This segment generated approximately 19.7% of 2005 fiscal sales. Here, it operates several different formats of retail stores and restaurants, including Super-centers, Discount Stores and SAMS CLUBs.

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For the fiscal year ending January 31, 2005, Wal-Mart topped $10 billion in net income for the first time in their history and added almost $29 billion in sales. Business Model A Business model is crucial to any successful business. Wal-Mart is no exemption. Wal-Mart has always been revolutionizing and enlightening its business model to suite its organizational goals and also meet customer requirements, and so has managed to stay on top year after year. Wal-Mart has employed a mixed-business model for its business for the same. To understand the Business models used by Wal-Mart, firstly it is important to know the factors, which go in defining those models, and how does it relate to Wal-Mart specifically. Market Strategy of Wal-Mart Wal-Mart stresses primarily on their Everyday Low prices (EDLP) pricing philosophy, in which they price items at a low price every day that builds & maintains customers trust in their pricing. Since they employ both the clicks and bricks and bricks and mortar methods to market their products, consumers get to choose their products either the traditional way or online anytime of the day. Though Wal-Mart has not advertised in Advertising, as many of its competitors do, the trust people have built on the Wal-Mart brand has taken them far from their competitors. Organizational Development Wal-Mart has restructured its business into two parts to handle specific organizational needs. Specialty Division Tire & Lube Express Wal-Mart Optical Wal-Mart Pharmacy Wal-Mart Vacations Wal-Mart's Used Fixture Auctions Wal-Mart Alaska Bush Shopper Retail Division Wal-Mart Stores Super centers SAM'S CLUBS Neighborhood Market Internationalwalmart.com

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Supply Chain Management at Wal-Mart Supply chain management at Wal-Mart can be described in 3 sections.

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Procurement and Distribution Wal-Marts process of procurement involves reducing its purchasing costs as far as possible so that it can offer best price to its customers. The company procures goods directly from the manufacturers, bypassing all intermediaries. Wal-Mart has distribution centers in different geographical places in US. Wal-Marts own warehouses supplies about 80% of the inventory. Each distribution center is divided in different groups depending on the quantity of goods received. The inventory turnover rate is very high, about once every week for most of the items. The goods to be used internally in US arrive in pallets & imported goods arrive in re-usable boxes. The distribution centers ensured steady flow & consistent flow of products. Managing the center is economical with the large-scale use of sophisticated technology such as Bar code, hand held computer systems (Magic Wand) and now, RFID. Every employee has access to the required information regarding the inventory levels of all the products in the center. They make 2 scans- one for identifying the pallet, and other to identify the location from where the stock had to be picked up. Bar codes & RFID are used to label different products, shelves & bins in the center. The hand held computers guide employee to the location of the specific product. The quantity of the product required from the center is entered in the hand held computer, which updates the information on the main central server. The computers also enabled the packaging department to get accurate information such as storage, packaging & shipping, thus saving time in unnecessary paperwork. It also enables supervisors to monitor their employees closely in order to guide them & give directions. This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency of distribution center management operations.

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Logistics Management This involves fast & responsive transportation system. More than 7000 company owned trucks services the distribution centers. These dedicated truck fleets enables shipping of goods from distribution centers to the stores within 2 days and replenish the store shelves twice a week. The drivers hired are all very experienced & their activities are tracked regularly through Private Fleet Driver handbook. This allows the drivers to be aware of the terms & conditions for safe exchange of Wal-Mart property, along with the general code of conduct.

For more efficiency, Wal-Mart uses a logistics technique called Cross Docking. In this system, finished goods are directly picked up from the manufacturing site of supplier, sorted out and directly supplied to the customers. This system reduces handling & storage of finished goods, virtually eliminating role of distribution centers & stores. Because of cross-docking the system shifted from supply chain to demand chain which meant, instead of retailers pushing the products into the system, the customers could pull the products, when & where they required.

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Inventory Management Considering the rapid expansion of Wal-Mart stores, it was essential to have a very good communication system. For this, Wal-Mart set up its own satellite communication system in 1983. This allowed the management to monitor each and every activity going on in a particular store at any point of the day and analyze the course of action taken depending on how the things went. Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores to manage their own stocks, thereby reducing pack sizes across many categories and timely price markdowns. Wal-Mart makes full use of its IT infrastructure to make more inventories available in case of items that customers wanted most, while reducing overall inventory. By making use of Bar-coding & RFID technologies, different processes like efficient picking, receiving & proper inventory control of the products along with easy packing and counting of the inventories was ensured. Wal-Mart owns the Massively Parallel Processor (MPP), largest & the most sophisticated computer system in private sector, which enables it to easily track movement of goods & stock levels across all distribution centers and stores. For emergency backup, it has an extensive contingency plan in place as well. Employees use Magic Wand, which is linked to in-store terminals through a Radio frequency network, 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 is entirely executed with the help of computers through Point of Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to forecast the quantities of each item to be delivered, based on inventories in the store. A Centralized inventory database allows the personnel at the store to find out the level of inventories and location of each product at a given time. It also shows the location of the product like distribution center or transit on the truck. When the goods are unloaded at the store, the inventory system is immediately updated.

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Competitive Advantage Wal-Mart has been an undisputed leader in offering the markets lowest prices to consumers. It has always given a price match guarantee, and has challenged other stores to offer lesser prices and has agrees to reimburse the difference, the difference of price if any. No other store could meet this and Wal-Mart has been leading the pack for years. Market Opportunity Wal-Mart employs a combination of two Business Models viz. B2B Single firm network Business Model SAMS CLUB segment of Wal-Mart supports small businesses. Its main focus in this segment is to create its own network of trusted partners to coordinate supply chains and provide exceptional value on brand-name merchandise at Members Only prices. B2C E-Tailor Business Model Wal-Mart uses clicks and bricks methodology to provide millions of its customers online version of its retail store, where customers can shop at any hour of the day or night without leaving their home or office. Wal-Mart employs Sales revenue model as it is mainly involved in sale of goods and services. These two models help Wal-Mart in achieving its business perspectives related to its firms organizational needs and the second helps in its interaction with the customer and manages goods and services offered by Wal-Mart to the end users.

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RFID in Wal-Mart Wal-Mart had initiated its plan to employ RFID technology in its supply chain in June 2003. Subsequently Wal-Mart reinforced its plans and actively asserted on defining the RFID standards it will be implementing. The specification of the following RFID components was laid out in November 2003. EPC (Electronic Product Code) specification Type of Chip that would be installed The Distribution centers that will accept RFID tagged products After the defining phase, Wal-Mart specified the RFID requirements to its suppliers that they should comply with: EPC: 96-bit with a Global Trade Identification number TAGS: Should operate in UHF spectrum (868 MHz to 956 MHz) The TAG will carry the 96-bit serial number and will be field-programmable, that will allow the suppliers to write serial numbers to the tags while being applied to the products. EPC compliant tags in UHF band consists of two main parts: EPC data format on the chip Class0 or Class1 communication protocol Class0 is a factory programmable tag Class1 provides the capability to the end users to write serial number on it Wal-Mart planned to implement Class1 Version2, a globally accepted protocol that incorporates both specification of Class0 and Class1. In addition, Wal-Mart is planning to enhance mobility to its existing RFID tag readers by implementing RFID-enabled forklift. These readers will have the capability to read the tags on the pallets and transmit data through the RFID network, which would help the users to be better informed about the supply-chain data.

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Efficiency in Supply Chain with RFID The various components of Supply Chain are: Procurement, Distribution, Logistics and Inventory Management. Since the core of Wal-Mart business is perpetual improvement in its Supply Chain implementation, it believes in no-compromise on implementing an innovative IT infrastructure and strong communication system as they are they the important links in the chain for a smooth functioning of the complete system. Wal-Mart tapped RFID technology with an aim to increase the efficiency of its supply chain. This is because RFID implementation will enhance transparency of their supply chain and hence will help them minimize cost and labor and will strengthen inventory control. According to Venture Development Corporation, With Wal-Mart selling over $245 billion worth of goods in fiscal year 2003, a 1% improvement in the out-of-stock issue could generate nearly $2.5 billion in very profitable sales. In addition, a study by Cohen at Wharton chalks out the difference between the existing inventory management and the RFID enabled supply chain. In current systems, you may know there are 10 items on the shelf, and that information is compiled in an enterprise planning software system. With RFID, you know there are 10 items, their age, lot number, and expiration date and warehouse origin. "It's like knowing there are 1,000 people in a city," says Cohen. "With RFID, you know their names." From the above studies it indicates that employing RFID technology will help in implementing a seamless supply chain and hence yield profits. The increase in their efficiency is evident from the news article at Breitbart.com, where it states that implementation of RFID tags in Wal-Marts inventory has helped boost sales by keeping shelves better stocked. Usage of RFID has reduced out-of-stock merchandise by 16% at the stores that have implemented RFID tags for more than a year. The CIO at WalMart stated that, Wal-Mart has been able to restock RFID-tagged items three times as fast as non-tagged items. In addition to improving the availability of in-stock merchandise, Wal-Mart aims to reduce the practice of manually placing the order and has achieved 10% reduction in the case.

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The recent studies show that 130 major suppliers ship merchandise to Wal-Mart distribution centers with about 5.4 million tags. Wal-Mart expects to increase RFID implementation by adding another 200 suppliers that are projected to supply to another 1000 stores. At present, Wal-Mart is at a nascent state of implementing RFID. In addition to strengthening the Supply Chain, the largest retailer is also looking into different dimensions where RFID can be helpful. As a pilot test, Wal-Mart is working on the data collected by RFID to analyze the consumer behavior. According to Venture Development Corporation, the major implementation milestones of RFID at Wal-Mart are to expand Regional and domestic implementation of RFID throughout 2005. These include Regional Distribution Centers, Grocery Distribution Centers and Sams Club Distribution Centers in Texas. And, by 2006, Wal-Mart aims to mandate RFID implementation for all its suppliers. Limitations and Challenges of RFID Many issues still exist about the implementation of RFID that even Wal-Mart may have trouble addressing despite their decision to move forward with the new technology. Current challenges in RFID implementation are: Global standards: A single global RFID standard is highly unlikely to evolve. Like barcodes, standards for RFID will probably vary between many regions of the world. Multinationals like Wal-Mart may need to implement a variety of RFID standards and technologies across their global organizations. Technology problems: Problems such as signal distortion, reader accuracy and speed, and tag transmission capabilities persist making RFID still not practical for widespread use. Some of the major technical limitations are: Read-range distances are not sufficient to allow for consumer surveillance: Most of the RFID tags currently in use have read ranges of fewer than 5 feet. The read range of the RFID tags depends on the antenna size, transmission frequency, and whether they are passive or active. 2. Limited information contained on tags: Although some researchers on RFID support this aspect of the technology by pointing out that the tags associated with most consumer products will contain only a serial number. However, this number can reveal a lot of information, which is generally used as a reference number that corresponds to information contained on one or more Internet-connected databases. This means that the data associated with
1.

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that number is theoretically unlimited, and can be augmented as new information is collected. 3. Defective and poorly performing RFID tags: RFID tag manufacturers continue to produce faulty tags. Failure rates in early RFID pilots have been as high as 30%. Unfortunately, "relatively high reliability" is unacceptable if an RFID mandate calls for a 100% read rate. 4. Damaged RFID tags: Since tag reading happens automatically without line of sight and no human interaction, it can be difficult to know when certain tags are not read. This becomes a serious issue for business applications built around RFID if 100% read rates are implicit as part of the core business application design. Data management: Lack of development of right information management tools to manage the data effectively, is making it difficult to realize the full potential of RFID in generating a wealth of information. Companies planning to adopt RFID face technical concerns related to effective data capture (or reading), and to data volume (in database management and transmission). Cost: Any developing technology is associated with high costs and so is RFID, which is highly expensive to implement. Individual tags cost about 30 cents each; this will drop to between one and five cents per tag once billions are being produced. And depending on functionality, tag readers can cost anywhere from several hundred to several hundred thousand dollars. The largest cost issues, however, reside in the required size of the databases, their integration with a companys current systems and the effective transmission of information. Associated costs can approach the millions of dollars, but they are unavoidable if the full benefits of RFID are to be realized. Industry Standards: Many privacy advocates are insisting the companies to state their intended use of the technologydue tolack of industry standards regarding the use of personal information that could be encoded on the chips. Privacy and civil liberties: One major confrontation for RFID technology would be to deal with the threats to consumer privacy and civil liberties. RFID tags can be embedded into/onto objects and documents without the knowledge of the individual who obtains those items. Must be programmed, applied and verified individually, and data synchronization is usually required. A final barrier to implementation that may need managing is employee acceptance, particularly in light of potential job losses.

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RFID Practices that should be prohibited: Merchants must not force their customers into accepting RFID tags in the products they buy. RFID must not be used to track individuals absent informed and written consent of the data subject. Human tracking is inappropriate, either directly or indirectly, through clothing, consumer goods, or other items. RFID should never be employed in a fashion to eliminate or reduce anonymity. For instance, RFID should not be incorporated into currency. Future of RFID

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ConclusionWhat Should Wal-Mart Do? Wal-Mart should redefine the scope of its RFID mandate by narrowing the scope of products to those with limited amounts of metal and liquid. Suppliers would not be affected with a narrower focus on high-priced products like prescription drugs, apparel, and DVDs etc. It gives additional time for vendors and suppliers to perfect tag reliability for all products. Forrester recommends that Wal-Mart use its influence to help create a buying consortium, giving suppliers the collective power to cut tag costs. What Should Suppliers Do? Suppliers should use their initial knowledge to shape mandates by Wal-Mart and other retailers. In addition to addressing the challenges they are facing in implementing RFID with Wal-Mart, suppliers should create an internal RFID lead position with direct access to the CEO.

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List Of Referenceswww.walmart.com/

http://www.google.co.in/url?sa=t&source=web&cd=1&ved=0CBsQFjAA&url=http %3A%2F%2Fmason.gmu.edu%2F~ryellapr%2Fwalmart.doc&rct=j&q=WalMart_Case_Study_%E2%80%93_RFID_and_Supply_Chain_Management&ei=L5t6TJL qI5L5cZHtyJQG&usg=AFQjCNHaiu5o74EjcVQOUTNIqrKFtn81Iw


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PROJECT-SUPPLY CHAIN MANAGEMENT AT WAL-MART


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