IST 301

Dr. Ocker
Wal-Mart Introduction
Wal-Mart Introduction
Largest retailer in 2006
Earned $312.4 billion from 2006 sales
Wal-Marts supply chain is a key enabler of its growth
Voted Retailer of the Decade in 1989 but by 2006,
competitors were catching up
Company had been unable to meet its self-imposed target
of holding inventory growth to half the level of sales
growth
Johnnie C. Dobbs, new executive vice-president of logistics,
wondered what he could do to ensure that Wal-Marts
supply chain remained a key competitive advantage
Retail Industry
U.S. retail sales reaches $2.8 trillion in 2005
Retailers competed at local, regional and national
levels
The top 200 retailers accounted for 30% of worldwide
retail sales
Wal-Mart brought in the most retail sales in 2006
$312.4 billion
Background of Wal-Mart Stores, Inc
Background of Wal-Mart Stores, Inc
Based in Bentonville, Arkansas and founded by Sam
Walton
Worlds largest retailer
More than 6,500 stores worldwide
1.3 million employees
Served more than 138 million customers each week
Strategy was to provide quality merchandise and
services at every-day low prices (EDLP)
Development of Wal-Marts Supply
Chain
Development of Wal-Marts Supply
Chain
Before Wal-Mart, Walton owned a successful chain of stores
under Ben Franklin Stores banner
Able to selectively purchase merchandise in bulk from new
suppliers and then transport these good to his stores directly
Walton realized discount retailing was a new trend
Decided to open up large, warehouse-style stores
Needed to step up his merchandise procurement efforts
No suppliers were willing to send their trucks to his stores in rural
Arkansas
Self distribution was necessary
As Wal-Mart grew 1960 to 1980, it benefited from improved road
infrastructure and the inability of its competitors to react to
changes in legislation
 Purchasing
Describe Wal-Marts purchasing process.
Purchasing
Purchasing efforts increased
Walton and his senior management team cut out the
middleman
Began sourcing products globally
First office in China in the mid 1980s
International purchasing offices worked directly with
local factories to source Wal-Marts private label
merchandise
Private label items generated higher margins than the
suppliers branded products
Purchasing contd
Every quarter buyers met in Bentonville to review new
merchandise, exchange buying notes and tips
Buyers toured stores 2 or 3 times a week
Wielded enormous power over its suppliers
When negotiating, Wal-Mart insisted on a single invoice
price and did not pay for cooperative advertising,
discounting or distribution
Globally had around 90,000 suppliers
 Distribution
Describe Wal-Marts distribution process.
Distribution
Hub and Spoke design of high volume distribution centres
Location of stores
Low rent, suburban areas
Close to major highways
Largest private truck fleet employee base of any firm
Product was picked up at suppliers warehouse by in-house
trucking and then shipped to the distribution centres
Generated back-haul revenue
Transported unsold merchandise on trucks that would have been
empty
Revenues were more than $1 billion per year
Because its trucking employees were non-unionized and in-
house, Wal-Mart was able to implement and improve upon many
things
 Retail Strategy
How did Wal-Marts retail strategy fit (i.e., jive)
with its purchasing and distribution processes?
Retail Strategy
EDLP policy
Products displayed at a steady price and not discounted on a
regular basis
Did not need to advertise as frequently as competitors, able to
channel the savings back into price reductions
Demand was smoothed out to reduce bull whip effect
Distribution centers had close to real-time information on
each stores in stock levels
Store-level information systems allowed manufacturers to
be notified when an item was purchased
Management shared detailed information about store sales
with employees during daily 10 min. meetings
Aimed to be store of the community
 Information Systems
Describe the role that information systems played
in achieving Wal-Marts inventory goals?
Information Systems
Walton attended an IBM school in NY with the intent of
hiring the smartest person to computerize his operations
Mid 1980s, Wal-Mart invested in a central database, store-
level point-of-sale systems, and a satellite network
One of the retail industrys first chain-wide implementation
of UPC bar codes
Store-level information could be collected instantaneously
and analyzed
Early 1990s, Developed Retail Link
Largest civilian database in the world
Contained data on every sale made at the company during a
two-decade period
Gave suppliers access to real-time sales data
Information Systems contd
Became one of the early adapters of CPRF
An integrated approach to planning and forecasting by
sharing critical supply chain information with vendors
Wal-Marts vendor-managed inventory (VMI)
required suppliers to manage inventory levels at the
companys distribution centers
Supplier analysts worked closely with Wal-Marts
supply chain to coordinate the flow of products
Wal-Mart worked with suppliers on medium to long-
term supply chain strategy
 Human Resources
Describe Wal-Marts human resource practices.
Human Resources
Walton visited each store and encouraged associates to
contribute ideas
He held regular Saturday morning meetings
Toured competitors stores for new ideas
Walton believed centralization had benefits
Lowers costs and improved communications between
divisions

Wal-Mart was non-union

Could take advantage of technology to drive labor costs down
and make operation changes quickly and efficiently
 Supply Chain Improvements
Describe Wal-Marts key supply chain improvement
initiatives.
a. REMIX
b. RFID
REMIX
Started in 2005 and targeted to be completed in 2007
Aimed to reduce the percentage of out-of-stock
merchandise at stores by redesigning its network of
distribution centers
High velocity food distribution centers
It was believed to be an incremental improvement to
the current system
RFID
Mandatory RFID tags were an attempt to increase the
ability to track inventory
Goal of increasing in-stock rates at store level
Allow Wal-Mart to increase stock visibility
Be able to track promotion effectiveness within stores
RFID tag readers were placed in several parts of the
store
Study showed that Wal-Mart stores with RFID had a
net improvement of 16% less fewer out-of-stocks on
the RFID-tagged products that were tested
 Inventory Growth
Why do you think Wal-Mart had difficulty
achieving its goal of keeping the inventory growth
rate to half of its sales growth rate?
Keeping Inventory Growth Slower than
Sales Growth
In 2006 Wal-Mart continued to seek improvements to
its supply chain
Competitors like Target and Costco began catching up
to Wal-Mart
Performance in international markets was mixed
Wal-Mart pulled out of South Korea
Exited the German market with losses around $1 billion
In Mexico and Canada it was the largest retailer and
enjoyed strong profits
Case Study Questions
1. Describe Wal-Marts purchasing process.
2. Describe Wal-Marts distribution process.
3. How did Wal-Marts retail strategy fit (i.e., jive) with its
purchasing and distribution processes?
4. Describe the role that information systems played in achieving
Wal-Marts inventory goals?
5. Describe Wal-Marts human resource practices.
6. Describe Wal-Marts key supply chain improvement initiatives.
a. REMIX
b. RFID
7. Why do you think Wal-Mart had difficulty achieving its goal of
keeping the inventory growth rate to half of its sales growth rate?