Richard Ivey School of Business The University of Western Ontario IvEy 907D01 SU

Question

Richard Ivey School of Business The University of Western Ontario IvEy 907D01 SUPPLY CHAIN MANAGEMENT AT WAL-MART Professor P. Fraser Johnson wrote this case solely to provide material for class discussion. The author does not intend to iNustrate either effective or ineffective handling of a managerial stuation. The author may have disguised certain names and other identifying information to protect confidentiality Ivcy Management Services prohibits any forrm of reproduction, storagc or transmittal without its written permission. Rcproduction of this matenrial is not covered under authovization by any reproduction rights organization. To ovder copies or request permission to repoduce materials, contact vey Pubishing, Ivey Management Serwces, c/o Richard lvey School of Business, The University of Westem Ontario, London, Ontario, Canada, N64 3K7; phone (519) 661-3208; fax (519) 661-3882, e-mail cases@ivey.uwo.ca. Copyright Q 2006, Ivey Management Services Version: 2008-06-03 INTRODUCTION With US$312.4 billion in 2006 sales from operations Mart) was the world's largest retailer. Wal-Mart's supply chain, a kex enabler of its growth from its beginnings in rural Arkansas, was long considered by many to be a major source of competitive advantage for the company. In fact, when Wal-Mart was voted "Retailer of the Decade im 1989, its distribution costs were estimated at 1.7 per cent of its cost of sales, comparing favorabl with competitors such as Kmart (3.5 per cent of total sales) and Scars (five per cent of total sales). g 15 countries, Wal-Mart Stores, Inc. (Wal But by 2006, competitors were catching up. Many of Wal-Mart's management techniques, which it borrowed and refined after having seen them in action at innovative retailers, were now being copied by others. By 2006oseiersWere using cbar codés) shared sales data with suppliers, had in-hou trucking fleets to enable self distribution, and possessed computerized point-of-sale systems that collected item-level data, in real-time shared sales data with suppliers, had in-house Although Wal-Mart continually searched for cost saving initiatives, in the most recent quarters the company had been unable to meet its self-imposed target of holding inventory growth to half the level of sales growth. Wal-Mart'snew cxecutive vice-president of logistics, Johnnie C. Dobbs, wondered what he could do to ensure that Wal-Martis supply chain remained a key competitive advantage for his firm RETAIL INDUSTRY U.S. retail sales, excluding motor vehicles and parts dealers, reached USS2.8 trillion in 2005. Major categories in the U.S. retail industry included the following 1 ·This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Wal-Mart or any of its employees. Discount Store News, "Low distribution costs buttress chain's profits", 18 December 1989 wwww.census.gov, accessed 23 August 2006.

Explanation / Answer

Describe Wal-Mart’s supply chain and how does it compare to its competitors?

Wal-Mart has an efficient supply chain with distribution costs at 1.7% of the cost of sales, a lower proportion compared to that of competitors. Wal-Mart uses:

With 6500 stores worldwide and 138 million customers each week, Wal-Mart Employs 90000 suppliers globally

Supplier relationships

Several suppliers had fulltime employees working for Wal-Mart since the company employed sales data analysis, research management, and category management responsibilities

Wal-Mart deals directly with suppliers. It shares Store-level sales data with them and commands a huge discount from them in exchange for volume.

It has collaborative planning, forecasting, and replenishment through which it helps suppliers with data and helped them to manage the inventory at Wal-Mart - vendor managed inventory. Wal-Mart worked with suppliers even for long-term planning including factory location determination and raw materials supply

Distribution

The company uses a Hub and spoke method of distribution with a cen tre distribution cen tre –DC serving a cluster of neighborhood stores in the region with stores being located in sub-urban areas for low rent

Wal-Mart had 75000 persons working for its private logistics division for its 114 distribution cen tres in US. The fleet collect goods from suppliers of Wal-Mart and takes it to DC. Here they are cross-docked or directly transported after segregation and assortment and then outbound trucks carry the goods to stores. No storage takes place for many goods at DC, resulting in a huge inventory cost savings. Goods from off shore are directly processed at centres in the coasts and trucked to stores. Trucks after unloading goods at stores bring back unsold goods also. Wal-Mart uses them as ‘for-hire’, trucks for other retailers helping the company to generate a huge back-haul revenue.

Standard operating procedures throughout the supply chain and non-unionized employees

Wal-Mart associates at stores had the authority to manually input order or override impending deliveries whereas at other competitors order entry and indent generation took place at a higher level of management. Also, employees were kept abreast of updates with daily 10-minutes meetings as well as broadcast videos through satellite

Technology

Wal-Mart used a strong database system that helped suppliers in making more accurate forecasts. Wal-Mart offered them real-time data as well as historical data for 2 decades period on every sale made. Wal-Mart uses centralized administration efforts with most of its executives and systems being placed at Bentonville, to reduce costs.

RFID& Remix

Wal-Mart supplements its logistics and forecasting technology with other technologies like RFID

25% of out of stock items in US stores are actually not out of stock but rather misplaced. This RFID helped in 16 % fewer out of stocks. RFID- Wal-Mart introduced them to reduce tracking costs and increase in-stock rates

Remix-Here Wal-Mart has started a special set of distribution cen tres- food DC’s for transport of fast moving items like toothpaste along with traditional DCs

Compared to its competitors Wal-Mart has more efficient and huge supply chain with self-reliant logistics armed with advanced technologies and huge data base. With accurate forecasting systems and efficient practices like cross-docking, Wal-Mart makes huge cost savings in the supply chain. Also, use of technology in supply chain increase the service levels of Wal-Mart

What is your evaluation of Remix and RFID initiatives? Are they the right places for the company to focus its efforts?  

Wal-Mart’s inventory growth is greater than sales growth (2004-05). Inventory occupies a big part of Wal-Mart’s cost and with around $6 billion in excess inventory in 2006 alone, inventory elimination is definitely a huge and significant cost saving task for Wal-Mart. RFID helps to reduce excess inventory. Also, RFID helps to prevent lost sales bringing in more revenue. Also keeping in mind the future possibilities, RFID is not a luxury but a necessity.

With competitors catching up with Wal-Mart, the company is forced to improve its service levels with prompt delivery and sufficient in-stock rate. Hence Remix strategy also becomes necessary.

The current scenario seems disappointing for Wal-Mart. Since other players had first mover advantage in other countries Wal-Mart fails to achieve the necessary success in these countries. In the discount based retailing system, companies gain competitive advantage through costs savings and passing theses savings to customers. Hence such strategies become necessary for Wal-Mart

As Johnnie C. Dobbs, what recommendations would you make to the CEO? What do you think are the opportunities for Wal-Mart in its global supply chain?

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