Walmart Supply chain Management

Submited by

Aditya Thakre

150101007

Section D

Walmart

Summary

Walmart became the largest retailer in the world with sales of $312.4 billion in the year 2006. Walmart did this by focusing on cost saving initiatives and by using the model of other retailers. Recently it has failed to achieve the inventory growth targets. Efforts are required to strengthen the supply chain network and to streamline it.

Analysis

Wal-Mart was founded by Sam Walton in 1962 on the discounted retailing model. It was focused on selling high volumes of products at low prices. Initially there were logistics issues as suppliers were reluctant to transport material to his stores in rural areas. This made him think in the direction of self distribution and setting up his own supply chain network.

Walmart started global procurement of materials and entered into tie up with local players in China for the procurement of goods. This also laid the foundation of setting up walmart’s local

brands into the stores and selling them at cheaper prices. Private labels were introduced in 1980 and in 2005 accounted for almost 20% of the total sales. Due to cheaper prices they were preferred by consumers and they also gave Walmart higher profit margins compared to branded labels.

Walmart controlled its suppliers in terms of payment terms, sourcing of raw materials, and interaction of suppliers with the external agencies and where their goods were sold. Wal-Mart’s success primarily lies on the concept of Everyday Low Prices it introduced in 1970s. The products were offered on similar prices every day. This caused the demand to be stable and there was no demand fluctuation. Also since there were no frequent discounts, they saved a lot of cost on advertising.

Wal-Mart kept its prices about 15% less than the competitors. Its main competitions were Sears and Target. Distribution centers maintained real time data on each store’s inventory and the buffer stock available before the shipment of the next batch. ‘Category Captains’ was a concept where key category suppliers had to work with rivals to find the product mix which would give Wal-Mart maximum profits from self-allocation.

In 1980 a central database was established along with point of sale systems, a satellite network and implementation of UPC bar codes. They maintained the data of every sale made in the last 2 years for trend analyses. Even suppliers were given access to real time sales data on products. The vendor managed inventory system focused on suppliers managing inventory levels at the distribution centers.

Walmart used technology to bring down costs and operational changes were implemented quickly. Remix was a new strategy in which Wal-Mart tried to reduce out of stock merchandise through distribution network redesign. Fast moving merchandise would be shipped from high velocity food distribution centers which were smaller and had lesser automation. Walmart also made RFID tags mandatory. The suppliers were asked to implement the RFID process on their end at their own costs but it facilitated tracking of products and increase in-stock rates. All this was done with a viewpoint to cater to the demand of the end user, i.e. the customers. When any of the product was not in the store for a customer, it meant that either there would be a loss of sales or the complete loss of customer in the sense that customer would go to some other store from now on.

Wal-Mart’s distribution network was and advantage to the company. Since it was in-house so all the middlemen were eliminated. Directly dealing with suppliers meant lower prices. Inventory management was a joint effort between suppliers and Walmart through exchange of data. Hub and spoke model was used for placement of warehouses for efficient supply management.

RFID

Another step taken by Wal-Mart to improve warehouse costs and improve its distribution network is RFID. Wal-Mart has made it mandatory for RFID tags to be there on merchandise shipped by its top 100 suppliers. This will give improved visibility on locating where the product really is. Even in stores manager will be able to ascertain which inventory was on the floor and which was in the storeroom. 25 percent of out of stock inventory in USA is said to be wrongly classified as out of stock and is either misplaced or mis-shelved. This can be eliminated by RFID tracking.

Logistics

Walmart had its own trucking fleet that transported goods to the distribution centres. The labels and cases were standardized for easy identification and uniformity amongst suppliers. “Back haul” revenue was generated by transporting unsold merchandise on otherwise empty trucks. The trucking fleet was used as a for-hire sire carrier when not in use. Having one’s own trucking fleet ensured a high amount of flexibility for the company, as it directly controlled an essential element of logistics.

For key competitive advantage of the firm :

• Some inventory can be had at the stores for emergencies

• Collaborate with distributors to avoid the cost of transport

• 20 years data-can be reduced to lower time frame-as it eats up lot of memory

• Some flexibility to the manufacturer-in shelfing

• Go online

• Favour memberships