Distribution Systems in the Retail Industry
a Walmart Case Study
Irina Antonescu
Julius König
Learning Goals

Developing a framework
Distribution Centers
Logistics
Learning from the best!
Conclusions and discussion
Establishing a Distribution Network

Strategy

Planning

Execution

Costs

• Distribution Strategy
• Transportation Networ...
Distribution Centers
Models and Economic Benefits
•

Consolidation and Break-Bulk
Distribution Centers
Models and Economic Benefits
•

Sorting
– Mixing
– Sorting and Assembly

– Cross-docking
Cross-Docking

Benefits
•
•
•
•
•

Direct processing of materials and supplies when they are received  no storing
Massive...
Distribution Centers
Service Benefits
•

Spot-Stocking
–
–

•

Full-Line Stoking
–
–
–

•

To support customer requests
Fo...
Location Analysis Techniques
•

Location factor rating
–
–

Ability to consider multiple factors
Subjective

•

Center of ...
Choosing the right location

Delivery service (customer
expectations vs competition)

Labour force

Type of distribution a...
Choosing the means of transportation
•

Concerns about costs

•

Environmental factors

•

Speed

•

Flexibility
Choosing a mode of transportation
•
•
•
•

Direct Shipping
Direct Shipping with milk runs
Shipping via Distribution Center...
2013 Top Retailers Worldwide

Profits 2012
Walmart 15.7 bn
Kroger
1.5 bn
Strategy

•

„Everyday low price“

•

Effective use of logistics management

•

Effective inventory control

•

Bargaining...
Walmart Distribution System

Suppliers

• Vendors =
suppliers
• Delivery to DC
or directly store
• High volume

Wal-Mart
D...
Hub and Spoke
•

Pioneers in centralizing their distribution system with the help of hub-and-spoke
system

•

Goods were c...
Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,” Harvard
Business Review 70(2; March–April 1992), pp. ...
Distribution Centers
•

158 distribution centers

•

each 1 million square feet in size, 5-12 miles of conveyor belts in e...
Cross-Docking at Distribution Center
Video Walmart Cross-Docking
Inventory Management
•

Vendor managed inventory

•

Relies on communication between suppliers, DCs and POS in stores

•

...
Wal-Mart Transportation System
•

Fast and responsive system

•

More than 7200 company owned trucks, 53000 trailers, 8000...
Reducing transportation costs

•

Efficient vehicle routing resulting in
fuel efficiency and less CO2 emmisions

•

Elimin...
RFID
•

In efforts to implement new technologies, reduce costs and increase the efficiency, in July 2003, Wal-Mart
asked i...
Green Transportation at Walmart

•

Fuel saving technologies to make distribution fleet 25% more efficient

•

Load trucks...
Long-term Goals
•

Reduce stock at the retail stores

•

Minimize costs in the supply chain

•

Support its green initiati...
Discussion
•

What are, in your opinion, the disadvantages of cross-docking in the distribution
network system?

•

How do...
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Distribution Systems in the Retail Industry a Walmart Case Study

  1. 1. Distribution Systems in the Retail Industry a Walmart Case Study Irina Antonescu Julius König
  2. 2. Learning Goals Developing a framework Distribution Centers Logistics Learning from the best! Conclusions and discussion
  3. 3. Establishing a Distribution Network Strategy Planning Execution Costs • Distribution Strategy • Transportation Network Design • Distribution Planning • Transportation Planning • Vehicle Planning • Tour Planning • Inventory carrying costs • Lost quantity costs • Transportation costs • Warehousing costs
  4. 4. Distribution Centers Models and Economic Benefits • Consolidation and Break-Bulk
  5. 5. Distribution Centers Models and Economic Benefits • Sorting – Mixing – Sorting and Assembly – Cross-docking
  6. 6. Cross-Docking Benefits • • • • • Direct processing of materials and supplies when they are received  no storing Massive reduction of distribution costs Requirements: tight sheduling and accurate inbound product identifications Reduced lead times  improved customer satisfaction and flexbility Suitable products: perishable goods and ready for sale products
  7. 7. Distribution Centers Service Benefits • Spot-Stocking – – • Full-Line Stoking – – – • To support customer requests For seasonal products Used by retailers One-stop shopping experience Restocking is done in large shipments Value-Added Services – – – Postponement of customization Low inventory Low risk
  8. 8. Location Analysis Techniques • Location factor rating – – Ability to consider multiple factors Subjective • Center of gravity technique • Service Location Strategy
  9. 9. Choosing the right location Delivery service (customer expectations vs competition) Labour force Type of distribution area (concentration of demand) Transport and storage costs Demand development (shifting of demand) Infrastructure (rail, ship, plane, trucks, etc.)
  10. 10. Choosing the means of transportation • Concerns about costs • Environmental factors • Speed • Flexibility
  11. 11. Choosing a mode of transportation • • • • Direct Shipping Direct Shipping with milk runs Shipping via Distribution Center Shipping via Distribution Center with milk runs
  12. 12. 2013 Top Retailers Worldwide Profits 2012 Walmart 15.7 bn Kroger 1.5 bn
  13. 13. Strategy • „Everyday low price“ • Effective use of logistics management • Effective inventory control • Bargaining power over suppliers • Global Expansion for new market opportunity
  14. 14. Walmart Distribution System Suppliers • Vendors = suppliers • Delivery to DC or directly store • High volume Wal-Mart Distribution Center • Cross-docking • Lead time 48 hours • Hub and spoke Wal-Mart Store Wal-Mart Shopper • Items placed on shelves • rural and urban towns • very low prices
  15. 15. Hub and Spoke • Pioneers in centralizing their distribution system with the help of hub-and-spoke system • Goods were centrally ordered, assembled at a ‘distribution center’ (hub), from where they were dispatched to the individual stores (spoke) • Lead to significant cost advantages caused by the centralized purchasing of goods in huge quantities (economies of scale) • Cost advantages increased through its own, independent logistics infrastructure
  16. 16. Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,” Harvard Business Review 70(2; March–April 1992), pp. 60–71.
  17. 17. Distribution Centers • 158 distribution centers • each 1 million square feet in size, 5-12 miles of conveyor belts in each, operate 24/7 • 9000 different lines of merchandise • each RDC supports 90 – 100 stores within a 200-mile radius
  18. 18. Cross-Docking at Distribution Center
  19. 19. Video Walmart Cross-Docking
  20. 20. Inventory Management • Vendor managed inventory • Relies on communication between suppliers, DCs and POS in stores • POS data is sent directly to 4000 vendors • Own satellite communication system • Stores manage their own stock • Use of IT to reduce inventory levels
  21. 21. Wal-Mart Transportation System • Fast and responsive system • More than 7200 company owned trucks, 53000 trailers, 8000 drivers • Experienced drivers committed to customer service • Merchandise replacement system in less than 48h • Services stores within a 200 mile radius of the DC
  22. 22. Reducing transportation costs • Efficient vehicle routing resulting in fuel efficiency and less CO2 emmisions • Eliminating empty backhauls • Introducing GPS Vehicle Tracking and mobile technologies
  23. 23. RFID • In efforts to implement new technologies, reduce costs and increase the efficiency, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005. • Wal-Mart replaced bar-code technology with RFID. • Because of the implementation of RFID, employees were no longer required to physically scan the bar codes of goods entering the stores and distribution centers, saving labor cost and time. • Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.
  24. 24. Green Transportation at Walmart • Fuel saving technologies to make distribution fleet 25% more efficient • Load trucks more efficiently • Improve routing • Alternatively fueled trucks
  25. 25. Long-term Goals • Reduce stock at the retail stores • Minimize costs in the supply chain • Support its green initiatives • Move towards collaboration and innovation • Increase visibility in the distribution chain
  26. 26. Discussion • What are, in your opinion, the disadvantages of cross-docking in the distribution network system? • How do you think distribution systems will develop in the next 5 years? • How have the new IT developments changed supply chains? Thank you for your attention!
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