Wal-Mart’sSCM system practices

MIS Case Study

15 March 2013

Walmart

Walmart, an American multinational retail corporation that runs chains of large department and warehouse stores

Established 1962, Arkansan-USA

Sam Walton- Founder & Mike duke- current CEO

Successful due to its IT usage in SCM

Introduction to case

1990 –Superseded ‘K-Mart’ rival retail chain as one of the largest retailing chain in US

1991- Superseded ‘Sears Roebuck & Company’ and became the largest retailing chain in US

In November 2003, Wal-Mart, world’s largest retailer, planned to replace bar code technology with RFID.

Objective: To enhance supply chain efficiency

Expected they could save $8.35 million per year primarily in labor costs

Background Note

Wal-Mart known for innovative business practices

One of the first retailing companies to centralize distribution system.

Always among the front runners in employing IT to manage its supply chain processes.

Using IT in supply chain management

Using EDI for procurement

- EDI saved time and made procurement efficient.

- Using the bar code scanners, an analysis of daily, weekly, monthly sales data helped the store manager determine what products were selling and at what quantity.

- Accordingly, the store manager would place orders in the manufacturing division.

EDI=Electronic Data Interchange

Using IT in supply chain management

In 1977, Wal-Mart set up a computer terminal network (CTN) to establish a communication link between its stores and the company headquarters

Real time business operations

In 1978, Wal-Mart set up its first fully automated distribution center

Using EDI for procurement

Wal-Mart placed orders for huge quantities of goods with its suppliers

Cost of sales worked out to be 2-3 %(very low from industry average)

Information of product, manufacturer, price was recorded on computer system

That information was passed to centralized data warehouse

Using EDI at Wal-Mart

Analysis of daily, weekly, monthly sales data helped store manager to determine which products were sold in which quantities

So that they can place purchase order

Edi also helped suppliers

Right merchandize at the right time, and have it at right place at right price

Using IT in supply chain management

Using voice based technologies: Enhancing warehouse and logistics management

Wal-Mart could replenish stock at any of its 1525 stores in US within 24 hours

Cross-docking

It enabled the company to receive goods and dispatch them to stores in lees than a day

How it works at distribution centers?

Using IT in supply chain management

It installed voice based order filling(VOF) system in all distribution centers

Is consisted portable Voice Recognition Talkman Terminals(VRTT) and radio module on company’s wireless LAN

It eliminated mis-picks and product labeling costs since VOF didn’t require paper lists labor

How to quickly locate & replenish goods?

Store ready displays called PDQ(pretty darn quick) displays

Time saved per employees were not much but aggregate time saved was quite good

GPS

GPS system in communication in trucks

Any truck can be located

Drivers could activate system by voice and interact with staff

Using IT in supply chain management

The Retail Link system- Supporting Inventory Management

Retail link connected EDI network to extranet ,accessible to all suppliers

Provided suppliers historical sales data of 24 months, allowed them to track invoice, can make demand forecast

Suppliers could also study competitors products demand

Using the Internet in Supply chain Management

CPFR (Collaborative Planning Forecasting Replenishment)

Real time bases to determine product wise demand forecast

Wal-Mart shared past data, customer data, demographic data, stock positions

Both forecasted demand individually and then co-operated

Reduced inventory cost

Product availability across supply chain

As a result lead time was cut to 11 days from 21 days

On-hand inventory was reduced by two weeks

Sales grew by $8.5 millions in six months

Later on it was implemented to other stores

By 1990’s, about 90% of suppliers were doing business through Retail Link

Barriers to CPFR

Lack of discipline to execute primary phases

Promotions and new items events are not jointly planned

Ineffective replenishment in response to demand fluctuations

Trading partners focus on traditional supply chain steps

Scalability and critical mass

Recent Supply Chain Initiatives

2001- Global Procurement Division[Shenzhen, China

Exchange of sales and inventory data

Best deal procurement from any part of world

Strategy Employed

Identify generic products

Enhance product quality

reduce cost by collaborating

2001- copy paper – increased sales

[ 46% in UK, 94% in Federal Republic of Germany, 38% in Canada, 25% in US]

Recent Supply Chain Initiatives

October 2002- Asked suppliers to replace VAN-EDI to Web based EDI Direct online communication between trading partners

No transaction costs

Highly secured

Saved millions[ VAN-EDI cost $200 Billion] No licensing fees

July 2003 – Asked suppliers to place RFID tags on goods, packed in pallets and crates

VAN-EDI = Value Added Network-EDI

RFID = Radio Frequency Identification

Benefits from RFID

Drastic decrease in Stock out situations

From $400 million to $1.2 billion for P&G

Lesser labor requirements

Almost $6.34 billion yearly

Decrease in merchandise thefts

Almost $2 billion

Real time tracking of consumption patterns

Would help enhance JIT Inventory management system

Decrease in stock levels by around 25%[IBM]

Total savings expected to be 8.34 billion per year

Problems

An estimated cost of $20 million to suppliers

50% of this is integration of system with software and modification in soft wares

Not a proven technology

Not compatible with liquids and metal packaging

THANK YOU -Neel Patel [AM 1012]

-Sagar Morakhia [AM 0912]

-Prajita Chowdhary [AM 0212]

-Krutik Patel [AM 1412]