PDPM IIITDM-JABALPUR

A Study of Supply Chain of Wal-Mart

Group 7

Ajeet Singh Yadav ( 2009004 )

Harshit Tiwari ( 2009036 )

Manish Anand ( 2009057 )

Mohd. Moin ( 2009065 )

Satyendra Singh ( 2009107 )

ABSTRACT:

This report is a brief study about the supply chain strategy of Wal-Mart ™

Stores Inc, the largest mass merchandising store. It describes the supply chain strategy, operating models, supply chain design, replenishment and distribution processes. It also examines the innovations that have helped Wal-Mart stand out as an undisputed winner in Retail Business over other mass merchandisers like Kmart, Walgreen as well as small retailers.

It also emphasizes the importance of information exchange between vendors and retailers, and enhancing the vendor-retailer trust to improve the supply chain response and hence the service.

INTRODUCTION:

Wal-Mart ™ Stores Inc , commonly known as WALMART is an American MNC ( Multi National Corporation ) that runs a huge chain of Discount Stores and warehouses. With over 8500 stores in 15 countries and 55 different names, it is the world’s 18th

largest public MNC.

It was founded by Sam Walton in 1962, incorporated in 1969 and in 1972, it was listed on the New York Stock Exchange. The corporation has its head-quarters in Bentonville,Arkansas.

In September 2006, Wal-Mart announced that it would sell generic drugs at just 4$ per prescription. It claims that it is not selling at loss or providing as charity but they are using the same mechanisms of mass distribution that it uses to bring lower prices to other products. With its innovations like Every Day Low Price ( EDLP ) strategy , and an excellent supply chain with features like cross-docking etc. it is able to provide an unmatchable price to the customers resulting in a very high revenue.

Many of the Wal-Mart’s low cost generics are imported from India and made by drug makers like Cipla, Ranbaxy etc.

Wal-Mart’s operating divisions can be classified as:

1. Wal-Mart Discount Stores : They are discount departmental stores which carry general merchandise and a selection of groceries. A few of them also have a gasoline station.

2. Wal-Mart Market: Previously known as Wal-Mart Neighbourhood Market, these are a chain of grocery stores which are used to fill the gap between the Discount Stores and the Super Centers offering full line of groceries,pharmaceuticals, health and beauty aids, photo developing services, and a limited selection of general merchandise.

3. Walmart Super Centers : These are hypermarkets, and stock everything that a Discount Store does but also include a full-service supermarket. There are about 2900 Super Centers till date. The Super Centers portion of the name has been phased out, simply referring to these stores as Wal-Mart.

4. Sam’s Club: It is a chain of warehouse clubs which sell groceries and general merchandise, often in large quantities. These stores are “membership” stores and most customers buy annual memberships.

BUSINESS STRATEGY:

Wal-Mart has an innovative business strategy which provides it an edge over the competitors. Its business strategy is to provide Every Day Low Price (EDLP) for all of its products and services.

Customers trust Wal-Mart that it’s prices won’t change erratically, says one of its Annual Report.

Wal-Mart does not guarantee the lowest price in market but they do guarantee that their overall prices are lower than MOST competitors.

Sometimes due to temporary promotions, other retailer’s prices may be lower than that of Wal-Mart.

Wal-Mart uses its EDLP strategy to negotiate prices with their suppliers to keep their purchasing cost low.

Another strategy that Wal-Mart has followed is to build Wal-Mart stores in smaller communities while other competitors were building in metropolitan areas. This gives advantage by lowering infrastructure investment costs and wages to set up the stores.

Other programs that have been implemented to support Wal-Mart retail units are the ‘Rollback’ and ‘Store of the Community’ programs. They are meant to draw in more customers and improve the service level.

PAST REVENUES AND OPERATING INCOMES:

Wal-Mart has more than tripled their annual revenue in last ten years by minimizing cost in the supply chain network.

The graph below shows the historical revenue of Wal-Mart from 1995-2004.

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Revenue ($ million)

Revenue ($ million)

As seen in graph below, Wal-Mart operating income has also shown continuous growth from 1995-2004.

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Operating Income ($ mil-lions)

Operating Income ($ millions)

Wal-Mart measures its own progress with the help of specific performance metrics. It also utilized the growth in inventory compared to half of the growth in sales as a critical performance matrix.

SUPPLY CHAIN NETWORK OVERVIEW:

Wal-Mart has around 1478 total stores comprising of 90 Distribution Centers ( DCs) , each holding a particular product segment and a particular producat and various supercenters and discount stores.

There is one dedicated Distribution Center for ‘walmart.com’. 30 DC are dedicated for groceries as selective groceries are stored in discount stores. Remaining 59 DCs are used for replenishing Discount Stores.

Supercenters store groceries also, so all the 89 DCs are used to replenish them.

REPLENISHMENT PROCESSES:

Wal-Mart employs three different strategies for differentiating various replenishment processes.

1. Warehouse Replenishment Process: Products are first stored in warehouse level and then distributed to different retail stores.

The Products which go through this replenishment process, are generally ordered in order to re-stock the DC, not the store.

When products reach the DC, they are stored in inventory until they are needed at the stores. If needed at the stores, they are batched by store and delivered using Wal-Mart’s private fleet.

Types of product that go through this process are in high demand and high margins.

2. Assembly Replenishment Process: In this products flow through supply chain via modifie d form of cross-docking. Products arrive at the DC pre-allocated for the specific stores and are batched for delivery to those stores.

In this process, inventory storage portion of the supply chain is skipped so products flow through DC quickly. Most products going through this process do not stay in DC for more than 24 hours. Product types that flow through this process are not

highly demanded and have low price margins. So, high safety stock level is not needed.

3. Direct to Store Replenishment Process: In this process, products are shipped directly from vendors to the stores. Product types that flow through this process are not easy to store and are highly demanded. Hence, wastage of DC storage space on large packages does not take place which results in high velocity product to flow through the supply chain directly to the retail outlets.

Wal-Mart AND TECHNOLOGY:

Wal-Mart uses technology to help support their supply chain and business strategy of Every Day Low Price (EDLP). It utilizes an in-house developed supply chain visibility tool called Retail Link to facilitate communication and collaboration with supply chain partners.

The main functions of retail link are to store data and share data with vendors and to aid in shipment routing assignment. It provides data such as point of sale data, average price, current inventory by store, and current on order quantity.

This information can be viewed by day, week, store or any other combination. These data are provided by Wal-Mart to its vendors to make their supply chain more efficient which will in turn improve their service to Wal-Mart while lowering Wal-Mart’s cost.

A system called Inforem is used by Wal-Mart to automate their replenishment process for their retail stores. While making inventory decisions, two variables are considered according to Inforem which are the point sale data as well as amount of inventory on hand. These variables along with trend, demand and

supply variability help Inforem to make decisions on when to order and how much inventory to order. Inforem also considers stock keeping unit (SKU), shelf space, economic quantity and SKU pack size while making replenishment decision.

VENDOR-RETAILER COLLABORATION:

Vendor-retailer collaboration pushes more responsibility on suppliers. Vendor Managed Inventory (VMI) is a process where the responsibility of replenishing and managing inventory at the retailer level is performed by the vendor. Vendors who participate in VMI with Wal-Mart do so at the DC level. Products are ordered and replenished at the DC by vendor. Vendor uses the demand data provided as well as co-ordination with Wal-Mart to manage the inventory and also forecast and supply products at level which avoid stock outs but also minimizes holding inventory costs.

Wal-Mart and its vendors are shifting from VMI to Co-Managed Inventory (CMI) to obtain more control over its replenishment process due to concerns regarding suppliers ordering to their advantage. CMI is successful only to if retailers understand that consistent ordering and open communication through data and strategic discussions are involved.Wal-Mart made use of Radio Frequency Identification ( RFID) mandatory for all vendors in 2005. Due to it, benefits were observed in monitoring promotional activity at the store level as well as handling freight claims.

Wal-Mart TRANSPORTATION:

Wal-Mart maintains the largest private trucking fleet in the United States.Due to the volume that flows through its supply chain network, the private fleet is used in order to provide transportation cost savings.The private fleet is utilised to perform backhauls from store deliveries.

It is also used for all distribution from distribution centres to Wal-Mart stores except groceries. The private fleet is mostly used for short-hauls which are routes that can be serviced within 1 working day. Long Hauls are typically performed by other carriers due to US driving regulations.

Excluding groceries, the Wal-Mart private fleet is used for all distribution from distribution center to Wal-Mart stores.