Wal-Marts Supply Chain

A Business Success

Hub and Spoke System

In the early 1970s, Wal-Mart became one of the first retailing companies in the world to centralize its distribution system, pioneering the retail hub-and-spoke system. Under the system, goods were centrally ordered, assembled at a massive warehouse, known as distribution center (hub), from where they were dispatched to the individual stores (spoke).
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Hub and Spoke System

The

hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities..
and distributing them through its own logistics infrastructure to the retail stores spread across the U.S.

Wal-Marts Procurement
Wal-Mart

emphasized the need to reduce purchasing costs and offer the best price to the customer. company directly procured from manufacturers, bypassing all intermediaries.

The

Wal-Marts Procurement
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-Marts Procurement
Wal-Mart

spends a significant amount of time meeting vendors and understanding their cost structure. making the process transparent, the retailer can be certain that the manufacturers are doing their best to cut down costs.
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By

Using EDI for Procurement

The computer systems of Wal-Mart were connected to those of its suppliers. EDI 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-Marts distribution centers.
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Logistics Management
An

important feature of Wal-Marts logistics infrastructure was its fast and responsive transportation system. distribution centers were serviced by more than 3500 company owned trucks.
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The

Logistics Management
Wal-Mart

believed that it needed drivers who were committed and dedicated to customer service. company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation.
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The

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

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.

Hence, Wal-Mart set up its own satellite communication system in 1983.

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Inventory Management

Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting the inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels.
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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.
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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 (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.

Details of daily transactions (~10 million per day) were processed through this system.
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Inventory Management (retail link system)

Retail

Link connected Wal-Marts EDI network with an extranet, accessible to Wal-Marts thousands of suppliers. suppliers could find out how their product was performing vis-avis competitors products in a particular product category.
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The

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.
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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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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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Thank You

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