Walmart SCM

Zhi Lin - Hossain Nazarat - Ulukman Mamytov

Kyoto University, IPROMAC GSMSupply Chain Management

professor: GAUTAM RAY

“Supply chain management is moving the right items to the right customer at the right time by the most efficient means,

no one does that better than Walmart.”Army Col. Vernon L. Beatty, commanded the Defense Distribution Depot in Kuwait, spent a year with Wal-Mart as part of the military’s Training With Industry program

Some Walmart facts

• Average profit - $1.8 million every hour

• 35 million people - every day, as much as the

population of Canada

• Worth $150 billion

• Top selling item in 2012 - the Banana

• 90% of Americans live within 15 minutes

About Walmart1. The first Walmart in Rogers, Ark in 19622. One of the world's most valuable companies by

market value and is also the largest grocery retailer in the U.S. In 2016.

3. Walmart International

Introduction

Walmart’s supply chain management1) early years - removing a few of the chain’s links

2) 1980s - working directly with manufacturers to cut costs

3) Vendor Managed Inventory (VMI) - manufacturers became responsible for managing their products in Walmart’s warehouses.

Walmart was able to expect close to 100% order fulfilment on merchandise.

Inventory & transportation

The goals – to provide customers with the goods they wanted whenever and wherever they wanted them.

Significant system 1) Cross docking system Means direct transfer of products from inbound or outbound truck trailers without extra storage.

Inventory & transportation

Significant system 2) benefits of Cross docking system It keeps inventory and transportation costs down, reduces transportation time, and eliminates inefficiencies.

Inventory & transportation

Applied technology 1) Universal Product Code bar codesstore level information was immediately collected and analyzed, and the company then devised Retail Link, a mammoth Bentonville database.

2) Radio frequency identification tags (RFID) use numerical codes that can be scanned from a distance to track pallets of merchandise moving along the supply chain.According to researchers at the University of Arkansas, there was a 16% reduction in out-of-stocks since Wal-Mart introduced RFID technology into its supply chain.

Inventory & transportation

Applied technology 3) smart tagsread by a handheld scanner, that allow employees to quickly learn which items need to be replaced so that shelves are consistently stocked and inventory is closely watched.

The role of IT in Walmart’s Supply Chain Management

EDI based Supply Chain SystemIn 1987, a 24 million dollar satellite communication system was introduced, which developed a Electronic Data Interchange (EDI) based supply chain management system in Walmart.

create just-in-time ordering with its key suppliers.

Inventory Management through IT system• The Point of Sales (POS) system helped

to keep track of the inventory in stores, deliveries and back up merchandise in stock at DCs. possible to monitor and track the sales and

merchandise stock levels on the store shelves

• A sophisticated algorithm system enabled it forecast the exact quantities of each item to be delivered , based on the inventories in each store. Since the data is correct, even bulk items could be supplied to the store.

• A centralized data system allowed it to find out the level of inventories and the location of each product at any given time.

Retail Link System• In 1991, Wal-Mart had invested $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.

• Retail Link connected Wal-Mart’s EDI network with an extranet, accessible to Wal-Mart’s thousands of suppliers. The suppliers could find out how their product was performing vis-a-vis

competitors’ products in a particular product category.

Inventory Management through UPC• The first companies to push for Universal Product Code bars

throughout all of their stores

• This allowed managers to quickly perform inventory by scanning the codes and storing the information into a central computer rather than hand counting the pallets.

It also allowed regional managers to quickly analyze the inventory count of all of their stores at once, which allowed them to create accurate forecasts quickly

Inventory Management through RFID• Wal-Mart replaced bar-code technology with RFID technology to

reduce costs and increase the efficiency, in July 2003, and asked its top 100 suppliers to be RFID compliant by January, 2005. The company believed that this replacement would reduce its supply chain management costs and enhance efficiency.

• Because of the implementation of RFID, employees were no longer required to physically scan the bar codes of goods entering the stores and distribution centers Save labor cost and time and reduce the instances of stock-outs at the stores.

Advantages of implementing IT in Supply Chain System

• Around 2% of all lost sales are due to the simple fact a store has run out of an item, but 41% of lost sales are due to inventory problems

• Gain $287 million per year by avoiding 10% lost sales • Improved performance of stores by 63% • Out-of-stock items are replenished 3 times faster

than before• The out-of-stock items that have to be manually filled

has been cut by 10 percent.

The role of facilities in Walmart’s Supply Chain Management

Walmart’s storeA variety format of stores in 50 states and Puerto Rico.

Walmart Supercenters offer a 24 hours one-stop shopping experience by combining a grocery store with fresh produce, bakery, deli and dairy products with electronics, apparel, toys and home furnishings, and also include specialty shops such as banks, hair and nail salons, restaurants, or vision centers.

Smaller than a Supercenter, discount stores offer electronics, apparel, toys, home furnishings, health and beauty aids, hardware and more.

Walmart Neighborhood Markets offer fresh produce, meat and dairy products, bakery and deli items, household supplies, health and beauty aids and a pharmacy.

Supercenter

Discount Store

Neighborhood Market

Distribution CenterA network of nearly 150 highly automated distribution centers covering 120 million square feet and all within 130 miles of the stores

• 42 regional general merchandise distribution center• 43 grocery distribution center• 7 fashion distribution center• 8 import distribution center• 26 Sam’s club distribution center• 26 specialty (sports, optical, pharmacy, returns, tire distribution center

General merchandise distribution center Grocery distribution center

Advantages of centralized DCs• Over 80,000 items were stocked in Wal-Mart’s distribution centers

located at different geographical locations, which directly supplied 85 percent of the inventory, as compared to 50-65 percent for its competitors.

to provide replenishments within 2 days against at least 5 days for competitors

shipping costs worked out to be roughly 3 percent as against 5 percent for competitors.

• Wal-Mart’s sophisticated hub-and-spoke distribution network uses warehouses to service stores less than a day's truck drive away

remove middlemen, quickly replenish shelves and reduce costs

• At its distribution centers, scanning technology tracks merchandise as it flows at 6 miles per hour on 12 miles of conveyor belts onto trucks

Some items spend less than 45 minutes in warehouses

Sourcing in Walmart’s Supply Chain Management

Sourcing• Till 2010, relied on intermediaries for bulk of its global

sourcing activities, instead of buying it directly from the offshore suppliers. Walmart bought hardly 20% of goods directly from the suppliers. Also the mode of operation was highly decentralized across all the 15 countries where it has its stores.

• In 2010 declared the sourcing strategy to buy 80% of the goods from the manufacturers directly from counterparts in Bangladesh, China and other countries.

• Planned to make the global sourcing process more centralized. By eliminating the middlemen in the transaction and consolidating global procurement functions, avoiding the 5-15% markup introduced by them. This helped reduce the cost leading to billions of dollars of savings

SourcingFor this strategy • Centralized the process by setting up four global

merchandising centers for general goods and clothing. • Started purchasing fruits and vegetables on a global scale and

eliminated the import companies and the agents. • Acquired Asda, the grocery chain in UK which had expertise in

direct sourcing, so Walmart leveraged this expertise across the globe.

This strategy of direct sourcing not only helped Walmart reduce the cost, but also helped in other supply chain activities by improving the efficiency throughout the process. They could now better manage and consolidate the incoming shipments and also gained a better visibility through the entire product lifecycle.

Some of the sourcing strategies:Strategic Vendor Partnerships• Selection of suppliers, who could meet the demand and at the same time

offer the best price for the goods. • Long-term strategic relationships with high volume purchases in exchange

for lowest possible prices. • Communication and relationship networks with suppliers to improve the

material flow. Collaboration - the key to success.

Cross Docking• Centered around a key inventory tactic called Cross docking. • Transfers products directly from inbound trucks to outbound trucks. • This saves the storage costs. Suppliers deliver products to Walmart’s

distribution centers, where those are cross docked and then delivered to the Walmart stores.

• This process of cross docking lowers the inventory transportation costs and eliminates inefficiencies. This results in savings for the company which are then passed on to the customers in the form of competitive prices.

Pricing in Walmart’s Supply Chain Management

Pricing Strategy• Everyday low prices (EDLP) - prices on items at relatively low

compared to the everyday market price (maintaining customer trust in pricing and customer loyalty)

• Additionally to their traditional Bricks-and-Mortar, Clicks and bricks model - allows the customer to order products either online or physically in one of their stores, also allowing them to either pick-up their order directly at a local branch of the store or get it delivered to their home

• “Price match guarantee“ it has challenged other competitors to reduce their pricing (PMG: if a consumer brings in some sort of proof that a competitor is offering the same product at a lower price, the business will allow the consumer to purchase that product from them at that lower price)

Why lowest prices?• Huge sales volume, scope of operation and wide customer

base - selling almost everything, and being almost everywhere.

Multiple-store format that extends its market reach, and it sells goods through four types of stores: discount stores, Walmart Supercenters, Sam's Club warehouses (which sell bulk items), and neighborhood markets.

90% of Americans live within 15 miles of a Walmart store. High penetration in customers' lives and increase the probability of a purchase.

Why lowest prices?• SCM based on maximizing efficiency and reducing outlays

WalMart was a pioneer in getting detailed product information electronically attached to products so that such information could be relayed to its database and could inform its inventory management system.

The goal - to master the art of knowing • what it needed, • how much was needed, and • when it needed it.

Why lowest prices?• Minimization of overhead and operational costs

Walmart saves money on everything, including the labor costs.

• Meager wages,• Low-benefit healthcare plans,• Executives fly coach and share hotel rooms with colleagues. • Hourly workers put in overtime without pay. • Each Walmart associate does the job of 1.5 to 1.75 employees

of a rival. • Saving on heating and cooling of the buildings.

Why lowest prices?• Leveraging of Its bargaining power to force suppliers to lower

prices (Porter’s five forces)

The Walmart Effect - as the biggest buyer Walmart is constantly pushing its suppliers to cut prices.

Case: Lakewood Engineering & Manufacturing CompanyIn the early 1990s the cost of a 20-inch fan was $20. After Walmart pushed for the lowering of the price, Lakewood automated its production process, which resulted in the layoff of workers. It also put pressure on its own suppliers to slash the prices of parts, and it opened a factory in China where workers earned 25 cents an hour. By 2003, the price of a fan in Walmart had dropped to $10.

Using Cross-Docking• The cross docking strategy has helped Wal-Mart to streamline

the supply chain from origin point to the final point of sale and it has reduced the handling cost, operating cost and drastically reduce the inventory storage cost + fast delivery.

Thank you!

Zhi Lin - Hossain Nazarat - Ulukman Mamytov

Kyoto University, IPROMAC GSMSupply Chain Management

professor: GAUTAM RAY