Walmarts supply-chain-a-business-success4293


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Walmarts supply-chain-a-business-success4293

  1. 1. Wal-Mart’s Supply Chain A Business Success
  2. 2. Wal-Mart is the World’s Largest Retail Company
  3. 5. Ranked first in the Global Fortune 500 list in 2001-2002 financial year
  4. 6. History of Wal-Mart <ul><li>The company’s founder is Sam Walton. </li></ul><ul><li>He was born in 1918 at Oklahoma. </li></ul><ul><li>In 1940, he worked for the famous retailer, J C Penney. </li></ul>
  5. 7. History of Wal-Mart … <ul><li>Walton gave up the job and decided to set up his own retail store. </li></ul><ul><li>He purchased a store franchise in Arkansas. </li></ul><ul><li>Offering significant discounts on prices, he became successful and acquired a second store in 3 years. </li></ul>
  6. 8. History of Wal-Mart … <ul><li>By 1969, Walton had established 18 Wal-Mart stores. </li></ul><ul><li>By late 1970s, the retail chain had established a pharmacy and an auto service center. </li></ul><ul><li>In 1980s, Wal-Mart continued to grow due to huge customer demands in small towns. </li></ul>
  7. 9. History of Wal-Mart … <ul><li>Wal-Mart was offering low prices, customer satisfaction guaranteed, and hours that were realistic for the way people wanted to shop. </li></ul><ul><ul><li>Open all night, for university students </li></ul></ul><ul><li>By 1984, there were 640 Wal-Mart stores in U.S. </li></ul>
  8. 10. History of Wal-Mart … <ul><li>Wal-Mart suffered a setback in 1992, when Walton died. </li></ul><ul><li>But it continued its growth in the 1990s, focusing on overseas stores. </li></ul><ul><ul><li>1992, Mexico (joint venture with Cifra) </li></ul></ul><ul><ul><li>1994, Canada (acquired 122 Woolco stores from Woolworth) </li></ul></ul><ul><ul><li>1997, Germany (acquired 21 store of Wertkauf) </li></ul></ul><ul><ul><li>Korea, Brazil, and so on. </li></ul></ul>
  9. 11. History of Wal-Mart … <ul><li>This phenomenal growth of Wal-Mart is attributed to its continued focus on customer needs and reducing cost through efficient supply chain management practices . </li></ul>
  10. 12. Hub and Spoke System <ul><li>In the early 1970s, Wal-Mart became one of the first retailing companies in the world to centralize its distribution system, pioneering the retail hub-and-spoke system. </li></ul><ul><li>Under the system, goods were centrally ordered, assembled at a massive warehouse, known as ‘distribution center’ ( hub ), from where they were dispatched to the individual stores ( spoke ). </li></ul>
  11. 13. Hub and Spoke System … <ul><li>The hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities .. </li></ul><ul><ul><li>and distributing them through its own logistics infrastructure to the retail stores spread across the U.S. </li></ul></ul>
  12. 14. Wal-Mart’s Procurement <ul><li>Wal-Mart emphasized the need to reduce purchasing costs and offer the best price to the customer. </li></ul><ul><li>The company directly procured from manufacturers, by passing all intermediaries. </li></ul>
  13. 15. Wal-Mart’s Procurement … <ul><li>Wal-Mart finalizes a purchase deal only when it is fully confident that the products being bought is not available else where at a lower price . </li></ul>
  14. 16. Wal-Mart’s Procurement … <ul><li>Wal-Mart spends a significant amount of time meeting vendors and understanding their cost structure. </li></ul><ul><li>By making the process transparent, the retailer can be certain that the manufacturers are doing their best to cut down costs. </li></ul>
  15. 17. Using EDI for Procurement <ul><li>The computer systems of Wal-Mart were connected to those of its suppliers. </li></ul><ul><li>EDI enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold. </li></ul><ul><li>On receiving information about the sales of various products, the suppliers shipped the required goods to Wal-Mart’s distribution centers. </li></ul>
  16. 18. Logistics Management <ul><li>An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive transportation system. </li></ul><ul><li>The distribution centers were serviced by more than 3500 company owned trucks. </li></ul>
  17. 19. Logistics Management … <ul><li>Wal-Mart believed that it needed drivers who were committed and dedicated to customer service. </li></ul><ul><li>The company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation. </li></ul>
  18. 20. Cross-docking <ul><li>To make its distribution process more efficient, Wal-Mart also made use of a logistics technique called “cross-docking.” </li></ul><ul><li>In this system, the finished goods were directly picked up from the manufacturing plant, sorted out and then directly supplied to the customers. </li></ul>
  19. 21. Cross-docking <ul><li>The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores. </li></ul><ul><li>The manufacturer directly forwarded the goods to a place called the “staging area.” </li></ul><ul><li>The goods were packed here according to the orders received from different stores and then directly sent to the respective customers. </li></ul>
  20. 22. Inventory Management <ul><li>Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country. </li></ul><ul><li>With the rapid expansion, it was essential to have a good communication system. </li></ul><ul><li>Hence, Wal-Mart set up its own satellite communication system in 1983. </li></ul>
  21. 23. Inventory Management … <ul><li>Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. </li></ul><ul><li>Instead of cutting the inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most , while reducing the overall inventory levels. </li></ul>
  22. 24. Inventory Management … <ul><li>Employees at the stores had the “Magic Wand,” a hand-held computer which was linked to in-store terminals through a radio frequency network. </li></ul><ul><li>These helped them to keep track of the inventory in stores, deliveries, and backup merchandise in stock at the distribution centers. </li></ul>
  23. 25. Inventory Management … <ul><li>The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system. </li></ul><ul><li>Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves. </li></ul>
  24. 26. Voice-based Order Filling (VOF) <ul><li>In 1998, Wal-Mart installed a voice-based order filling (VOF) system in all its grocery distribution centers. </li></ul><ul><li>Each person responsible for order picking was provided with a microphone/speaker headset, connected to the portable (VOF) system that could be worn on waist belt. </li></ul><ul><li>They were guided by the voice to item locations in the distribution centers. </li></ul>
  25. 27. Voice-based Order Filling (VOF) … <ul><li>The VOF system also verified quantities picked, and could respond to a variety of requests such as providing product detail (type, price, barcode number, etc.) </li></ul><ul><li>By installing the VOF system, Wal-Mart eliminated mispicks and product labeling costs since the system did not require paper lists and labels to be affixed on the goods. </li></ul>
  26. 28. Inventory Management… ( quick replenishment) <ul><li>Since the floor area of any Wal-Mart store varied between 40,000 to 200,000 square feet, movement of goods within the store was an important part of logistics operations. </li></ul><ul><li>Wal-Mart made significant investments in IT to quickly locate and replenish goods at the stores. </li></ul>
  27. 29. Inventory Management… ( pretty darn quick displays) <ul><li>The company asked its suppliers to ship goods in store-ready displays called pretty darn quick (PDQ) displays. </li></ul><ul><li>Goods were packed in PDQ displays that arrived at the stores ready to be boarded on the racks. </li></ul><ul><li>Wal-Mart’s employees could directly replace the empty racks at the stores with fully packed racks, instead of refilling each and every item at the racks. </li></ul>
  28. 30. Inventory Management … ( retail link system ) <ul><li>In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system . </li></ul><ul><li>More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories. </li></ul><ul><li>Details of daily transactions (~10 million per day) were processed through this system. </li></ul>
  29. 31. Inventory Management … ( retail link system ) <ul><li>Retail Link connected Wal-Mart’s EDI network with an extranet, accessible to Wal-Mart’s thousands of suppliers. </li></ul><ul><li>The suppliers could find out how their product was performing vis-a-vis competitors’ products in a particular product category. </li></ul>
  30. 32. Inventory Management … ( retail link system ) <ul><li>Wal-Mart owned the largest and most sophisticated computer system in the private sector. </li></ul><ul><li>The company used Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels. </li></ul><ul><li>All information related to sales and inventories was passed on through an advanced satellite communication system. </li></ul>
  31. 33. CPFR <ul><li>By the mid 1990s, Retail Link had emerged into an Internet-enabled SCM system whose functions were not confined to inventory management alone, but also covered collaborative planning, forecasting and replenishment (CPFR). </li></ul>
  32. 34. CPFR <ul><li>In CPFR , Wal-Mart worked together with its key suppliers on a real-time basis by using the Internet to jointly determine product-wise demand forecast. </li></ul><ul><li>CPFR is defined as a business practice for business partners to share forecasts and results data through the Internet , in order to reduce inventory costs while at the same time, enhancing product availability across the supply chain. </li></ul>
  33. 35. CPFR: Hard to implement <ul><li>Though CPFR was a promising supply chain initiative aimed at a mutually beneficial collaboration between Wal-Mart and its suppliers, its actual implementation required huge investments in time and money. </li></ul><ul><li>A few suppliers with whom Wal-Mart tried to implement CPFR complained that a significant amount of time had to be spent on developing forecasts and analyzing sales data. </li></ul>
  34. 36. VAN EDI vs Web-EDI <ul><li>In October 2002, Wal-Mart asked its 14,000 suppliers to switch over from the existing Value Added Networks (VAN) EDI to web enabled EDI. </li></ul><ul><li>VANs route and manage EDI messages for their customers. </li></ul><ul><li>By implementing web-EDI, Wal-Mart can save millions of dollars in the form of license fees to the private VANs. </li></ul>
  35. 37. VAN EDI vs. Web-EDI
  36. 38. RFID Technology (Radio Frequency Identification) <ul><li>In efforts to implement new technologies to reduce costs and increase the efficiency, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005. </li></ul><ul><li>Wal-Mart planned to replace bar-code technology with RFID technology. </li></ul><ul><li>The company believed that this replacement would reduce its supply chain management costs and enhance efficiency. </li></ul>
  37. 39. RFID Technology (Radio Frequency Identification) <ul><li>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. </li></ul><ul><li>Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores. </li></ul>
  38. 40. RFID Technology (Radio Frequency Identification) <ul><li>Although Wal-Mart was optimistic about the benefits of RFID, analysts felt that it would impose a heavy burden on its suppliers. </li></ul><ul><li>To make themselves RFID compliant, the suppliers needed to incur an estimated $20 Million. </li></ul><ul><li>Of this, an estimated %50 would be spent on integrating the system and making modifications in the supply chain software. </li></ul>