Case Study: WalMart Stores “Every Day Low Prices” In China

Case Study:Wal-Mart Stores “Every Day Low Prices” In China INTB 5000 Webster University 1

Webster University 2

Wal-Mart Stores “Every Day Low Prices” In ChinaFACTS: First opened in Shenzhen on August 12, 1996 As of December 2007  94 stores in 51 cities  Employs 43,000+ associates  Serves around 5 million customers per week Transition from rural US to metro/urban in China Competitive analysis a core value of the company  Shopping 1,500 items and price matching them through “Special Buy” Analysis Major pressure from the Chinese regional governments to centralize in high growth regions  About-face by Chinese govt. on Shanghai is of interest  Has major implications on Wal-Mart’s ability to provide infrastructure for stores Supply Chain Challenges Abound Tier 1 cities include Beijing – Tianjin, Shanghai, Guangzhou Tier 2 cities include Chengdu, Nanjing, Chongqing, & Wuhan Tier 3 cities include Changzho, Jinhua, Mianyang Webster University 3

Wal-Mart Stores “Every Day Low Prices” In China 7,058 Units 1.9 Million Associates UK 23 offices sourcing from 70 countries 340 UnitsCanada292 Units Japan 393 Units US China 4,103 Units 86 Units Mexico Puerto Rico 54 Units Trust-Mart 943 Units 101 UnitsCentral America India 433 Units Brazil JV –Aug 2007 297 Units Argentina 16 Units Webster University 4

Wal-Mart Stores “Every Day Low Prices” In China Webster University 5

Wal-Mart Stores “Every Day Low Prices” In China China Sales In billion US dollars $400 $344 $350 $312 $300 $285 $256 $250 $230 $200 $150 $100 $50 $0 FY03 FY04 FY05 FY06 FY07 Webster University 6

Wal-Mart Stores “Every Day Low Prices” In China Opinions Customer focus is critical even in new markets Price leadership will work in other nations besides the US Supplier partnership deserves heavy investment Supply chain management is what this country needs Technology enablement is key EDI = Electronic Data Interchange VMI = Vendor Managed Inventory Satellite Links = For Real-time Updates Corporate Social Responsibility  Environmental Sustainability  Food & Product Safety  Community Involvement Webster University 11

Wal-Mart China Five Forces Model • Foreign General Merchandisers or Potential Discounters • Established Chinese Retailers New Entrants •Asian Conglomerates with lower cost structures Competitive Rivalry Bargaining Rivals: Carrefour, Tesco Power Bargaining and many other smaller of Suppliers shops Power of Buyers• U.S. Product Manufacturers • Diversity of ethnic and economic• Foreign Manufacturers backgrounds• Local Government Restrictions • Consumers in Metropolitan• Tariffs•Slow Growth Initiatives Substitute Areas with high per capita income Products • Cultural bias for a specific and Services condition of products, delivering in a unique supply chain, is key to • Small, Village Shops these consumers •Regional Chains • Home grown (literally) • Global chains establishing new stores

Analysis: Wal-Mart Stores “Every Day Low Prices” In ChinaValue of goods procured from ChinaUSD billions ** 25-30* 2.6* 1.5* 2.0 CAGR CAGR 26% 15 33% 1.6 CAGR 1.3 20% 12 10.3 0.5 42000 01 02 03 2007 2001 02 03 2004 2000 2006 Over 300 employees in the Procurement centers in Aims at consolidating volume Shenzhen global 10 different cities of China at country level to drive procurement center 25% of 2003 volume (approx. cost savings, while 18-20% of 2003 volume USD0.5 bn) sourced direct, simultaneously capturing (approx. USD2.5 bn) sourced with growth of 30% per year country-specific direct advantages; e.g., in fleece fabric from Taiwan * Target value Webster University ** Including all categories; global sourcing in non-food categories would be approximately >80% of the total 13

Analysis: Wal-Mart Stores “Every Day Low Prices” In China Webster University 14

Analysis: Wal-Mart Stores “Every Day Low Prices” In China Webster University 15

Analysis: Wal-Mart Stores “Every Day Low Prices” In China Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,” Harvard Business Review 70(2; March–April 1992), pp. 60–71. Webster University 16

Warehouse and Distribution Center Management SystemWebster University 17

Analysis: Wal-Mart RFID Plan Base In transit Regional Walmart Walmart, Manufacturing Sam’s Club Product Distribution andAiO & Malaysia Completion NeighborhoodPersonal Flextronics Center Market StoresPrintersAiO & Shanghai MemphisPersonal Calcomp Memphis Menlo WalmartPrinters Flex DC1 Sanger,Scanners Shenzhen Texas& Mentor MediaCameras Walmart DC2 BangkokAIO Cleburn, Venture TexasToner Hong Kong Canon WalmartToner/ Guadalajara DC3 De-Personal Tokyo Flex Soto, Texas CanonLaserjet Guadalajara Supply SitePersonal LJ Canon China Jabill Tag Site VirginiaInkJet Various Sonoco Delivery SiteSupplies Webster University 18

Analysis: Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Firm InfrastructureSupport Human Resource ManagementActivities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Webster University Primary Activities 19

Wal-Mart Value Chain Analysis, China Specific Firm Inferior fixtures standardization, Trucks, Average store size 84,000 Infrastructure square feat Non-unionized, Full autonomy to associates, Decentralized,Activities Human ResourceSupport Management profit sharing program, Job rotation, Stock purchase plan Technology UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite Development system, CPFR Procurement Maintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy VMI Six days a Two step Everyday ECR Margin system week(9~21) hub and low price Satisfactio Retail link Monday spoke Always n low EDI (12:30~17:30) guarantee price, CPFR distributing always policy system Self Quick service response Cash and (QR) carry Save money, live better credit card, Primary Inbound Outbound Layaway Marketing After Sales Operations Activities Logistics Logistics plan & Sales Service Webster University 20

Recommendation Framework:Wal-Mart Stores “Every Day Low Prices” In China Webster University 21

Recommendation: Increase the Accuracy and Velocity of the Chinese Supply Chain With Heavy Investment in IT (RFID) With “slap and ship” you just spend money – use the information pallet logical build process reduced from minutes to seconds Improvements in transfer of pallet/case-level inventory between manufacturing and distribution center sites Operational benefits from improvements in outbound processes Automated identification at key stages of the assembly production line to gain manufacturing efficiencies Master data management influences the NPDI process Global deployment not easy Webster University 22

Recommendation:Better Collaborative Planning & Forecasting Processes are Needed Seller Once FRONT END AGREEMENT Collaborative Planning Qtr. JOINT BUSINESS PLAN CREATE SALES FORECAST Collaborative Wk, Mo IDENTIFY EXCEPTIONS Forecasting RESOLVE EXCEPTIONS Collaborative CREATE ORDER FORECAST Replenishment Wk, Mo IDENTIFY EXCEPTIONS RESOLVE EXCEPTIONS GENERATE ORDER Buyer Webster University 25

Recommendation: Buy Trust-Mart 黑龙江吉林新疆辽宁宁夏内蒙古北京河北青海山西山东西藏陕西河南江苏四川河北湖南江西贵州福建云南广西广东Webster University 26

Recommendation: Invest heavily in the 3K to 20K sq. ft. store segment and make analytics and supply chain performance real-time Webster University 27

MAGAZINE ASDA LIVING mini Webster University bompreco ˜ 28

Case Study: WalMart Stores “Every Day Low Prices” In China

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