Wal-Mart Supply Chain - Business Model

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Wal Mart Supply ChainBusiness Model

ByChintham Ashish

Doney M Angilivelil

Nivedita Ravi

Sitanshu Bindra

Chandrapu SiddhanthNeeraj Kannoth Jayaraj



Corporate Strategy

Sam Walton (The founder of Walmart) gave 3 policy goals to defineWal-Mart's business:

• Respect for the individual

• Service to customers

• Strive for excellence

Walmart’s practices:• Consistently stock the shelves with a wide range of goods at low

prices

• Keep the store open later than most other stores, especially duringthe Christmas season

• Discount merchandising- - Buy wholesale goods from the lowest

priced supplier - Pass on the savings to the customer• Aggressive hospitality

• Using door-greeters

• Patriotic themes and displays in stores

• Compels its staff to engage in morning cheers



Wal Mart Supply Chain



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Walton’s Business Model was Different…

Located stores in small towns since big retailers suchas Kmart and Sears dominated large towns

Kept overhead low

Offered incentives - Profit-sharing for staff

Partnerships for suppliers

Large investment in IT… To keep inventory low

Customers got friendly service

AND, “Everyday Low Price”



Wal-Mart gets benefited through Supply Chain

• Lower inventories

• Higher productivity

• Greater agility

• Shorter lead times

• Higher profits

• Greater customer loyalty



Value Chain



Inventory Management• 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.

• Wal-Mart was able to reduce unproductive inventory by allowing stores to manage theirown stocks, reducing pack sizes across many product categories, and timely pricemarkdowns.

• Instead of cutting the inventory across the board, Wal-Mart made full use of its ITcapabilities to make more inventories available in the case of items that customers

wanted most , while reducing the overall inventory levels.

• The order management and store replenishment of goods were entirely executed with thehelp of computers through the Point-of-Sales (POS) system.

• Through this system, it was possible to monitor and track the sales and merchandisestock levels on the store shelves.

Voice-based Order Filling (VOF)• In 1998, Wal-Mart installed a voice-based order filling (VOF) system in all its

grocery distribution centers.

• Each person responsible for order picking was provided with a

microphone/speaker headset, connected to the portable (VOF) system that

could be worn on waist belt. They were guided by the voice to item locations in

the distribution centers.



Inventory ManagementStore Displays

• The company asked its suppliers to ship goods in store-ready displays called pretty darnquick (PDQ) displays.

• Goods were packed in PDQ displays that arrived at the stores ready to be boarded on theracks.

• Wal-Mart‟s employees could directly replace the empty racks at the stores with fully packed

racks, instead of refilling each and every item at the racks.

Retail linked System

• Retail Link connected Wal-Mart‟s EDI network with an extranet, accessible to Wal-Mart‟sthousands of suppliers.

• The suppliers could find out how their product was performing vis-a-vis competitors‟products in a particular product category.

Radio Frequency Identification Technology

• Wal-Mart planned to replace bar-code technology with RFID technology in 2005.

• Because of the implementation of RFID, employees were no longer required to physicallyscan the bar codes of goods entering the stores and distribution centers, saving labor costand time.

• Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.



A Simple But Powerful Idea:

Minimize the “Bad I” - Inventory

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Walton figured out that most of the costs gets addedafter the product leaves the factory and moves throughthe supply chain:

Mfg. Wholesaler Retailer

• 20% - 30% of retail price spent on keeping inventory in3 warehouses

• Walton eliminated the wholesaler

• He instituted JIT inventory practices using “real-time”flow of information from a store‟s sales floors to thesupplier‟s plants that dictated:

What to produce? When to ship? To which stores?



Walmart’s Distribution

• In the early 1970s, Wal-Mart became one of the first retailingcompanies 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 „distributioncenter‟ (hub), from where they were dispatched to theindividual stores (spoke).

• The hub and spoke system enabled Wal-Mart to achievesignificant cost advantages by the centralized purchasingof goods in huge quantities..

o and distributing them through its own logisticsinfrastructure to the retail stores spread across theU.S.



Walmart’s Procurement • Wal-Mart emphasized the need to reduce purchasing costs and offer the best

price to the customer.

• The company directly procured from manufacturers, by passing allintermediaries.

• Wal-Mart finalizes a purchase deal only when it is fully confident that theproducts being bought is not available else where at a lower price.

• Wal-Mart spends a significant amount of time meeting vendors andunderstanding their cost structure.

• By making the process transparent, the retailer can be certain that themanufacturers are doing their best to cut down costs.

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-storesales information relating to their products sold.

• On receiving information about the sales of various products, the suppliers

shipped the required goods to Wal-Mart‟s distribution centers.



Logistics management•

An important feature of Wal-Mart‟s logistics infrastructure was its fastand responsive transportation system.

• The distribution centers were serviced by more than 3500 companyowned trucks.

• Wal-Mart believed that it needed drivers who were committed and

dedicated to customer service.

• The company hired only experienced drivers who had driven more than300,000 accident-free miles, with no major traffic violation.

Cross Docking

• To make its distribution process more efficient, Wal-Mart also made useof a logistics technique called “cross-docking.”

• In this system, the finished goods were directly picked up from themanufacturing plant, sorted out and then directly supplied to thecustomers.



IT is Critical for Wal-Mart’s

“Everyday Low Price” Strategy

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Invested in most of the waves of retail IT systems earlier andmore aggressively than its competitors

- Set industry standards in IT

1969 : Used computers to track store inventory

1980 : Adopted bar codes

1985 : Electronic Data Interchange (EDI) with suppliersLate 80‟s : Wireless scanning guns

2003 : Mandated its 100 largest suppliers to place RFID (Radio Frequency

Identification) tags on the boxes and pallets shipped to Wal-mart

stores by January 2005

Wal-Mart Supply Chain - Business Model

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