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WalWal--Marts SupplyMarts SupplyChainChain

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History of WalHistory of Wal--MartMart

The companys founder is Sam Walton.The companys founder is Sam Walton.

In 1940, he worked for the famous retailer, J C Penney.In 1940, he worked for the famous retailer, J C Penney.Walton gave up the job and decided to set up his own retailWalton gave up the job and decided to set up his own retail

storestore

WalWal--Mart was offering low prices, customer satisfactionMart was offering low prices, customer satisfactionguaranteed, discounts on prices and hours that were realisticguaranteed, discounts on prices and hours that were realisticfor the way people wanted to shop.for the way people wanted to shop.

This phenomenal growth of WalThis phenomenal growth of Wal--Mart is attributed to itsMart is attributed to itscontinued focus on customer needs and reducing cost throughcontinued focus on customer needs and reducing cost throughefficientefficient supply chain management practicessupply chain management practices..

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Hub and Spoke SystemHub and Spoke System

Under the system, goods were centrally ordered,Under the system, goods were centrally ordered,assembled at a massive warehouse, known asassembled at a massive warehouse, known asdistribution center (distribution center (hubhub), from where they were), from where they weredispatched to the individual stores (dispatched to the individual stores (spokespoke).).

The hub and spoke system enabled WalThe hub and spoke system enabled Wal--Mart toMart toachieve significant cost advantages by the centralizedachieve significant cost advantages by the centralized

purchasing of goods inpurchasing of goods in huge quantitieshuge quantities....

and distributing them through itsand distributing them through its own logisticsown logisticsinfrastructureinfrastructure to the retail stores spread acrossto the retail stores spread acrossthe U.S.the U.S.

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WalWal--Marts ProcurementMarts Procurement

WalWal--Mart emphasized the need to reduce purchasing costs andMart emphasized the need to reduce purchasing costs andoffer the best price to the customer.offer the best price to the customer.

The companyThe companydirectlydirectly procured from manufacturers, by passingprocured from manufacturers, by passing

all intermediaries.all intermediaries.

WalWal--Mart finalizes a purchase deal only when it is fully confidentMart finalizes a purchase deal only when it is fully confidentthat the products being boughtthat the products being bought is not available else where at ais not available else where at alower pricelower price..

By making the process transparent, the retailer can be certainBy making the process transparent, the retailer can be certainthat the manufacturers are doing their best to cut down costs.that the manufacturers are doing their best to cut down costs.

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Using EDI for ProcurementUsing EDI for Procurement

The computer systems of WalThe computer systems of Wal--Mart were connected toMart were connected tothose of its suppliers.those of its suppliers.

EDIEDI enabled the suppliers to download purchaseenabled the suppliers to download purchaseorders along with storeorders along with store--toto--store sales informationstore sales informationrelating to their products sold.relating to their products sold.

On receiving information about the sales of variousOn receiving information about the sales of variousproducts, the suppliers shipped the required goods toproducts, the suppliers shipped the required goods to

WalWal--Marts distribution centersMarts distribution centers..

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Logistics ManagementLogistics Management

An important feature of WalAn important feature of Wal--MartsMartslogistics infrastructure was its fast andlogistics infrastructure was its fast andresponsive transportation system.responsive transportation system.

The distribution centers were servicedThe distribution centers were servicedby more than 3500 company ownedby more than 3500 company ownedtrucks.trucks.

WalWal--Mart believed that it neededMart believed that it neededdrivers who were committed anddrivers who were committed anddedicated to customer service so theydedicated to customer service so theyhired experienced drivers.hired experienced drivers.

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CrossCross--dockingdocking

To make its distribution process more efficient, WalTo make its distribution process more efficient, Wal--Mart also made use of a logistics technique calledMart also made use of a logistics technique calledcrosscross--docking.docking.

In this system, the finished goods were directly pickedIn this system, the finished goods were directly pickedup from the manufacturing plant, sorted out and thenup from the manufacturing plant, sorted out and thendirectly supplied to the customers.directly supplied to the customers.

The system reduced the handling and storage ofThe system reduced the handling and storage offinished goods, virtually eliminating the role of thefinished goods, virtually eliminating the role of thedistribution centers and stores.distribution centers and stores.

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CrossCross--dockingdocking

The manufacturer directlyThe manufacturer directlyforwarded the goods to aforwarded the goods to a

place called the stagingplace called the stagingarea.area.

The goods were packed hereThe goods were packed here

according to the ordersaccording to the ordersreceived from different storesreceived from different storesand then directly sent to theand then directly sent to therespective customers.respective customers.

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Inventory ManagementInventory Management

WalWal--Mart invested heavily in IT and communicationMart invested heavily in IT and communicationsystems to effectively track sales and merchandisesystems to effectively track sales and merchandiseinventories in stores across the country.inventories in stores across the country.

With the rapid expansion, it was essential to have aWith the rapid expansion, it was essential to have agood communication system. Hence, Walgood communication system. Hence, Wal--Mart set upMart set upits own satellite communication system in 1983.its own satellite communication system in 1983.

WalWal--Mart was able to reduce unproductive inventory byMart was able to reduce unproductive inventory byallowing stores to manage their own stocks, reducingallowing stores to manage their own stocks, reducingpack sizes across many product categories, and timelypack sizes across many product categories, and timelyprice markdowns.price markdowns.

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VoiceVoice--based Order Filling (VOF)based Order Filling (VOF)

In 1998, WalIn 1998, Wal--Mart installed a voiceMart installed a voice--based order filling (VOF)based order filling (VOF)system in all its grocery distribution centers.system in all its grocery distribution centers.

Each person responsible for order picking was provided with aEach person responsible for order picking was provided with amicrophone/speaker headset, connected to the portable (VOF)microphone/speaker headset, connected to the portable (VOF)system that could be worn on waist belt.system that could be worn on waist belt.

They were guided by the voice to item locations in theThey were guided by the voice to item locations in the

distribution centers.distribution centers.

The VOF system also verified quantities picked, and couldThe VOF system also verified quantities picked, and couldrespond to a variety of requests such as providing product detailrespond to a variety of requests such as providing product detail(type, price, barcode number, etc.)(type, price, barcode number, etc.)

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Inventory ManagementInventory Management

((quick replenishment)quick replenishment)

Since the floor area of any WalSince the floor area of any Wal--Mart store variedMart store variedbetween 40,000 to 200,000 square feet, movement ofbetween 40,000 to 200,000 square feet, movement ofgoods within the store was an important part ofgoods within the store was an important part oflogistics operations.logistics operations.

WalWal--Mart made significant investments in IT to quicklyMart made significant investments in IT to quicklylocate and replenish goods at the stores.locate and replenish goods at the stores.

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Inventory ManagementInventory Management

((pretty darn quick displays)pretty darn quick displays)

The company asked its suppliers to ship goods in storeThe company asked its suppliers to ship goods in store--ready displays called pretty darn quick (PDQ) displays.ready displays called pretty darn quick (PDQ) displays.

Goods were packed in PDQ displays that arrived at theGoods were packed in PDQ displays that arrived at thestores ready to be boarded on the racks.stores ready to be boarded on the racks.

WalWal--Marts employees could directly replace the emptyMarts employees could directly replace the emptyracks at the stores with fully packed racks, instead ofracks at the stores with fully packed racks, instead ofrefilling each and every item at the racks.refilling each and every item at the racks.

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Inventory ManagementInventory Management

((retail link systemretail link system))

In 1991, WalIn 1991, Wal--Mart had invested approximately $4Mart had invested approximately $4billion to build a retail link system.billion to build a retail link system.

More than 10,000 WalMore than 10,000 Wal--Mart retail suppliers used theMart retail suppliers used theretail link system to monitor the sales of their goods atretail link system to monitor the sales of their goods atstores and replenish inventories.stores and replenish inventories.

Details of daily transactions (~10 million per day) wereDetails of daily transactions (~10 million per day) wereprocessed through this system.processed through this system.

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RFID TechnologyRFID Technology(Radio Frequency Identification)(Radio Frequency Identification)

In efforts to implement new technologies to reduceIn efforts to implement new technologies to reducecosts and increase the efficiency, in July 2003, Walcosts and increase the efficiency, in July 2003, Wal--MartMartasked its top 100 suppliers to be RFID compliant byasked its top 100 suppliers to be RFID compliant by

January, 2005.January, 2005.

WalWal--Mart planned to replace barMart planned to replace bar--code technology withcode technology withRFID technology.RFID technology.

The company believed that this replacement wouldThe company believed that this replacement wouldreduce its supply chain management costs and enhancereduce its supply chain management costs and enhanceefficiency.efficiency.

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RFID TechnologyRFID Technology(Radio Frequency Identification)(Radio Frequency Identification)

Because of the implementation of RFID, employeesBecause of the implementation of RFID, employeeswere no longer required to physically scan the bar codeswere no longer required to physically scan the bar codesof goods entering the stores and distribution centers,of goods entering the stores and distribution centers,saving labor cost and time.saving labor cost and time.

WalWal--Mart expected that RFID would reduce theMart expected that RFID would reduce theinstances of stockinstances of stock--outs at the stores.outs at the stores.

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