Wal-Mart: Supply Chain Management

1. Wal-Mart: Supply Chain Management • Background • Business Process Redesign: Process, IT • Implications: Process, IT

2. WAL-MART: BACKGROUND Wal-Mart Is the Largest and Fastest Growing Discount Department Store • 1992 revenues totaled $43.9 billion: • Increased 35% from previous year, whereas competitors’ growth rates averaged only 10% • Net income increased 25% to $1.6 billion • Operations include growing chain of stores, including discount department stores, wholesale clubs, food stores, wholesale distributor of books and pre-recorded music, and grocery distribution services • First discount department store chain to expand internationally: • Joint venture with CIFRA, Mexico’s largest retailer • 18% market share of $250 billion discount department store industry: • KMart, the next largest competitor, has 13.8% • Analysts estimate that by the year 1995, Wal-Mart will drive all competitors, aside from KMart and Target, out of business • Wal-Mart grows through volume and market share gains rather than margin expansions. Source: Annual report.

3. Wal-Mart WAL-MART: BACKGROUND Stronger Competitors and More Powerful Suppliers Are Challenging Wal-Mart in Quickly and Effectively Responding to Customers Competitors: Suppliers: KMart Target • Improved operations • Foreign competition • Industry consolidation • Intense price competition • Improved operations • Powerful brand management • Industry consolidation Customer Demands: • The right product • In stock • The best value • Service and quality

4. WAL-MART: BUSINESS PROCESS Satisfying Customer Demands Depends on Five Critical Success Factors Critical Success Factors (CSF) • Quick responsiveness to market changes • Low inventory • Quick replenishment of inventory • Effective human resource system • Efficient distribution system Customer Demands • The right products • In stock • Best value • Service and quality

5. WAL-MART: BUSINESS PROCESS Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors • Customer demand “pulls” product through the supply chain • Tracking product movement at individual stores by market traits (e.g., size, color) • Investment in IT ensures timely analysis of sales/customer/market information and trends • Formal and informal cooperation among stores, distribution centers, and suppliers CSF Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

6. WAL-MART: BUSINESS PROCESS Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) • Direct high-level and long-term relationship with suppliers enabled by high information sharing: • Some vendors directly manage distribution warehouse inventory of their products • Efficient transportation system • Investment in IT (e.g., EDI, Quick Response, Radio frequency terminals) CSF Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

7. WAL-MART: BUSINESS PROCESS Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) • All employees are considered “associates” • Extensive training and support • Stock-ownership program • Profit-sharing CSF Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System • “Employees are your biggest capital investment, so it makes sense to maintain them—their skills, their morale, and their participation.”

8. WAL-MART: BUSINESS PROCESS Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) • Highly automated distribution centers (e.g., laser-guided conveyor belts) • A fleet of 2,000 company-owned trucks • High leverage of supplier relationships: • Some suppliers ship goods “sales floor ready” CSF Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

9. WAL-MART: BUSINESS PROCESS The Traditional Supply Chain Includes Inefficient and Unnecessary Steps Distribution Warehouse Individual Store Retailer Order Order Order Receive Select Pack Select Tag/ Label Storage Sell Storage Wholesaler Order Select Pack Receive Manufacturer (Supplier) Make Pack Shipper Ship Ship Ship

10. WAL-MART: BUSINESS PROCESS Wal-Mart Simplified Its Supply Chain Distribution Center Individual Store Retailer POS Order Receive Select Pack Ship Receive Storage Sell <48 hours <48 hours Wholesaler Deliver within 72 hours of order Manufacturer (Supplier) Make Select Tag/ Label Pack Shipper Ship • Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours.

11. WAL-MART: BUSINESS PROCESS Wal-Mart Invests Heavily in Information Technology • Inventory Tracking and Management System at distribution centers: • Identifies every product and its location in the warehouse • Integrated with some 8.5 miles of laser-guided conveyor belts • Lasers read the bar code on every product box and route them to appropriate loading dock • Electronic Data Interchange (EDI): • For electronic transmission of POS data, purchase orders, invoices, advance shipment notice, etc. between Wal-Mart headquarters, suppliers, distribution centers, and individual stores • Merchandising Artificial Intelligence System: • To adjust vendor merchandise assortments based on the needof each particular store • State-of-the-art satellite communication network which supports data, voice, and video

12. Wal-Mart Wal-Mart WAL-MART: BUSINESS PROCESS Wal-Mart Invests Heavily in Information Technology (cont.) • Various Quick-Response (QR) systems (retail-link) to allow direct store-to-supplier ordering: “continuous replenishment” Vendor-managed QR Wal-Mart-managed QR Distribution Center Supplier POS Data Store Order Supplier Store Warehouse Just-in-Time System Distribution Center POS Data Supplier Store

13. WAL-MART: IMPLICATIONS Wal-Mart’s Inventory Management Improvements Have Resulted in Efficiencies Unmatched by the Competition Inventory in System (Days) Inventory-to-Sales Ratio • At Vendor • At Warehouse • In-Store 14 1:5.94 30 1:4.58 30 3 2 3 Before New System After New System Wal-Mart KMart • IT systems have improved Wal-Mart’s in-stock position and increased vendor responsiveness • Wal-Mart stores replenish inventory twice a week vs. industry standard of once every two weeks Selling and Operating Expenses of Sales 28% 15% Wal-Mart Sears Roebuck & Co. • Wal-Mart has lowest cost of operations in the retail area, aside from wholesale clubs

14. WAL-MART: IMPLICATIONS Lessons Learned: The Road to Success Is Paved by Technology and Better Use of People Strong Supplier Relationships Economies of Sales: “Best Deals” Stable LowerPrices Predictable Sale Patterns Decreased Chance of Out-of-Stock Effective IT Systems Reduced Cost of Sale Increased Sales and Profits Effective Distribution Systems In-Depth Knowledge of Customer/ Market Empowered Employees

15. DOCUMENT ID Client Name: Project No.: Pres. Date: Prod. Date: • Comments: Author: Title: Location Template Archive Information B&W Pres 44 Client Folder: # of Pages: 35mm Slides 44: Doc. Folder: Transparencies 44: or Lby Date: Doc. Name: Other: