Wal-Mart pioneered an efficient supply chain model with centralized distribution hubs that allowed for bulk purchasing and lower costs. Key aspects of their supply chain included direct procurement from manufacturers, electronic data interchange with suppliers, ownership of transportation fleets, and cross-docking and inventory management systems enabled by investments in information technology. This integrated and efficient supply chain model was instrumental in Wal-Mart's success and growth into the world's largest retailer.

1. 11
Wal-Mart’s SupplyWal-Mart’s Supply
ChainChain
A Business SuccessA Business Success

2. 22
Wal-Mart is the World’s LargestWal-Mart is the World’s Largest
Retail CompanyRetail Company

3. 33

4. 44

5. 55
Ranked first in the Global FortuneRanked first in the Global Fortune
500 list in 2001-2002 financial year500 list in 2001-2002 financial year

6. 66
History of Wal-MartHistory of Wal-Mart
 The company’s founder is SamThe company’s founder is Sam
Walton.Walton.
 He was born in 1918 at Oklahoma.He was born in 1918 at Oklahoma.
 In 1940, he worked for the famousIn 1940, he worked for the famous
retailer, J C Penney.retailer, J C Penney.

7. 77
History of Wal-MartHistory of Wal-Mart……
 Walton gave up the job and decidedWalton gave up the job and decided
to set up his own retail store.to set up his own retail store.
 He purchased a store franchise inHe purchased a store franchise in
Arkansas.Arkansas.
 Offering significant discounts onOffering significant discounts on
prices, he became successful andprices, he became successful and
acquired a second store in 3 years.acquired a second store in 3 years.

8. 88
History of Wal-MartHistory of Wal-Mart……
 By 1969, Walton had established 18 Wal-By 1969, Walton had established 18 Wal-
Mart stores.Mart stores.
 By late 1970s, the retail chain hadBy late 1970s, the retail chain had
established a pharmacyestablished a pharmacy and an auto serviceand an auto service
center.center.
 In 1980s, Wal-Mart continued to grow dueIn 1980s, Wal-Mart continued to grow due
to huge customer demands in small towns.to huge customer demands in small towns.

9. 99
History of Wal-MartHistory of Wal-Mart……
 Wal-Mart was offering low prices,Wal-Mart was offering low prices,
customer satisfaction guaranteed,customer satisfaction guaranteed,
and hours that were realistic for theand hours that were realistic for the
way people wanted to shop.way people wanted to shop.
– Open all night, for university studentsOpen all night, for university students
 By 1984, there were 640 Wal-MartBy 1984, there were 640 Wal-Mart
stores in U.S.stores in U.S.

10. 1010
History of Wal-MartHistory of Wal-Mart……
 Wal-Mart suffered a setback in 1992,Wal-Mart suffered a setback in 1992,
when Walton died.when Walton died.
 But it continued its growth in the 1990s,But it continued its growth in the 1990s,
focusing on overseas stores.focusing on overseas stores.
– 1992, Mexico (joint venture with Cifra)1992, Mexico (joint venture with Cifra)
– 1994, Canada (acquired 122 Woolco stores1994, Canada (acquired 122 Woolco stores
from Woolworth)from Woolworth)
– 1997, Germany (acquired 21 store of1997, Germany (acquired 21 store of
Wertkauf)Wertkauf)
– Korea, Brazil, and so on.Korea, Brazil, and so on.

11. 1111
The Diffusion of Wal-MartThe Diffusion of Wal-Mart
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12. 1212
History of Wal-MartHistory of Wal-Mart……
 This phenomenal growth of Wal-This phenomenal growth of Wal-
Mart is attributed to its continuedMart is attributed to its continued
focus on customer needs andfocus on customer needs and
reducing cost through efficientreducing cost through efficient
supply chain managementsupply chain management
practicespractices..

13. 1313
Hub and Spoke SystemHub and Spoke System
 In the early 1970s, Wal-Mart became oneIn the early 1970s, Wal-Mart became one
of the first retailing companies in the worldof the first retailing companies in the world
to centralize its distribution system,to centralize its distribution system,
pioneering the retailpioneering the retail hub-and-spokehub-and-spoke
system.system.
 Under the system, goods were centrallyUnder the system, goods were centrally
ordered, assembled at a massiveordered, assembled at a massive
warehouse, known as ‘distribution center’warehouse, known as ‘distribution center’
((hubhub), from where they were dispatched), from where they were dispatched
to the individual stores (to the individual stores (spokespoke).).

14. 1414
Hub and Spoke SystemHub and Spoke System……
 The hub and spoke system enabledThe hub and spoke system enabled
Wal-Mart to achieve significant costWal-Mart to achieve significant cost
advantages by the centralizedadvantages by the centralized
purchasing of goods inpurchasing of goods in hugehuge
quantitiesquantities....
– and distributing them through itsand distributing them through its ownown
logistics infrastructurelogistics infrastructure to the retailto the retail
stores spread across the U.S.stores spread across the U.S.

15. 1515
Wal-Mart’s ProcurementWal-Mart’s Procurement
 Wal-Mart emphasized the need toWal-Mart emphasized the need to
reduce purchasing costs and offerreduce purchasing costs and offer
the best price to the customer.the best price to the customer.
 The companyThe company directlydirectly procured fromprocured from
manufacturers, by passing allmanufacturers, by passing all
intermediaries.intermediaries.

16. 1616
Wal-Mart’s ProcurementWal-Mart’s Procurement……
 Wal-Mart finalizes a purchase dealWal-Mart finalizes a purchase deal
only when it is fully confident thatonly when it is fully confident that
the products being boughtthe products being bought is notis not
available else where at a loweravailable else where at a lower
priceprice..

17. 1717
Wal-Mart’s ProcurementWal-Mart’s Procurement……
 Wal-Mart spends a significantWal-Mart spends a significant
amount of time meeting vendors andamount of time meeting vendors and
understanding their cost structure.understanding their cost structure.
 By making the process transparent,By making the process transparent,
the retailer can be certain that thethe retailer can be certain that the
manufacturers are doing their best tomanufacturers are doing their best to
cut down costs.cut down costs.

18. 1818
Using EDI for ProcurementUsing EDI for Procurement
 The computer systems of Wal-Mart wereThe computer systems of Wal-Mart were
connected to those of its suppliers.connected to those of its suppliers.
 EDIEDI enabled the suppliers to downloadenabled the suppliers to download
purchase orders along with store-to-storepurchase orders along with store-to-store
sales information relating to their productssales information relating to their products
sold.sold.
 On receiving information about the salesOn receiving information about the sales
of various products, the suppliers shippedof various products, the suppliers shipped
the required goods to Wal-Mart’sthe required goods to Wal-Mart’s
distribution centers.distribution centers.

19. 1919
Wal-Mart and ChinaWal-Mart and China
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20. 2020
Logistics ManagementLogistics Management
 An important feature of Wal-Mart’sAn important feature of Wal-Mart’s
logistics infrastructure was its fastlogistics infrastructure was its fast
and responsive transportationand responsive transportation
system.system.
 The distribution centers wereThe distribution centers were
serviced by more than 3500serviced by more than 3500
company owned trucks.company owned trucks.

21. 2121
Logistics ManagementLogistics Management……
 Wal-Mart believed that it neededWal-Mart believed that it needed
drivers who were committed anddrivers who were committed and
dedicated to customer service.dedicated to customer service.
 The company hired only experiencedThe company hired only experienced
drivers who had driven more thandrivers who had driven more than
300,000 accident-free miles, with no300,000 accident-free miles, with no
major traffic violation.major traffic violation.

22. 2222
Cross-dockingCross-docking
 To make its distribution process moreTo make its distribution process more
efficient, Wal-Mart also made use of aefficient, Wal-Mart also made use of a
logistics technique called “cross-docking.”logistics technique called “cross-docking.”
 In this system, the finished goods wereIn this system, the finished goods were
directly picked up from the manufacturingdirectly picked up from the manufacturing
plant, sorted out and then directlyplant, sorted out and then directly
supplied to the customers.supplied to the customers.

23. 2323
Cross-dockingCross-docking
 The system reduced the handling andThe system reduced the handling and
storage of finished goods, virtuallystorage of finished goods, virtually
eliminating the role of the distributioneliminating the role of the distribution
centers and stores.centers and stores.
 The manufacturer directly forwarded theThe manufacturer directly forwarded the
goods to a place called the “staging area.”goods to a place called the “staging area.”
 The goods were packed here according toThe goods were packed here according to
the orders received from different storesthe orders received from different stores
and then directly sent to the respectiveand then directly sent to the respective
customers.customers.

24. 2424
Inventory ManagementInventory Management
 Wal-Mart invested heavily in IT andWal-Mart invested heavily in IT and
communication systems to effectivelycommunication systems to effectively
track sales and merchandise inventories intrack sales and merchandise inventories in
stores across the country.stores across the country.
 With the rapid expansion, it was essentialWith the rapid expansion, it was essential
to have a good communication system.to have a good communication system.
 Hence, Wal-Mart set up its own satelliteHence, Wal-Mart set up its own satellite
communication system in 1983.communication system in 1983.

25. 2525
Inventory ManagementInventory Management……
 Wal-Mart was able to reduce unproductiveWal-Mart was able to reduce unproductive
inventory by allowing stores to manageinventory by allowing stores to manage
their own stocks,their own stocks, reducing pack sizesreducing pack sizes
across many product categories, andacross many product categories, and
timely price markdowns.timely price markdowns.
 Instead of cutting the inventory across theInstead of cutting the inventory across the
board, Wal-Mart made full use of its ITboard, Wal-Mart made full use of its IT
capabilities to make more inventoriescapabilities to make more inventories
available in the case of items thatavailable in the case of items that
customers wanted mostcustomers wanted most, while reducing, while reducing
the overall inventory levels.the overall inventory levels.

26. 2626
Inventory ManagementInventory Management……
 Employees at the stores had the “MagicEmployees at the stores had the “Magic
Wand,” aWand,” a hand-held computerhand-held computer whichwhich
was linked to in-store terminals through awas linked to in-store terminals through a
radio frequency network.radio frequency network.
 These helped them to keep track of theThese helped them to keep track of the
inventory in stores, deliveries, and backupinventory in stores, deliveries, and backup
merchandise in stock at the distributionmerchandise in stock at the distribution
centers.centers.

27. 2727
Inventory ManagementInventory Management……
 The order management and storeThe order management and store
replenishment of goods were entirelyreplenishment of goods were entirely
executed with the help of computersexecuted with the help of computers
through the Point-of-Sales (POS) system.through the Point-of-Sales (POS) system.
 Through this system, it was possible toThrough this system, it was possible to
monitor and track the sales andmonitor and track the sales and
merchandise stock levels on the storemerchandise stock levels on the store
shelves.shelves.

28. 2828
Voice-based Order Filling (VOF)Voice-based Order Filling (VOF)
 In 1998, Wal-Mart installed a voice-basedIn 1998, Wal-Mart installed a voice-based
order filling (VOF) system in all its groceryorder filling (VOF) system in all its grocery
distribution centers.distribution centers.
 Each person responsible for order pickingEach person responsible for order picking
was provided with a microphone/speakerwas provided with a microphone/speaker
headset, connected to the portable (VOF)headset, connected to the portable (VOF)
system that could be worn on waist belt.system that could be worn on waist belt.
 They were guided by the voice to itemThey were guided by the voice to item
locations in the distribution centers.locations in the distribution centers.

29. 2929
Voice-based Order Filling (VOF)Voice-based Order Filling (VOF)……
 The VOF system also verified quantitiesThe VOF system also verified quantities
picked, and could respond to a variety ofpicked, and could respond to a variety of
requests such as providing product detailrequests such as providing product detail
(type, price, barcode number, etc.)(type, price, barcode number, etc.)
 By installing the VOF system, Wal-MartBy installing the VOF system, Wal-Mart
eliminated mispicks and product labelingeliminated mispicks and product labeling
costs since the system did not requirecosts since the system did not require
paper lists and labels to be affixed on thepaper lists and labels to be affixed on the
goods.goods.

30. 3030
Inventory Management…Inventory Management…
((quick replenishment)quick replenishment)
 Since the floor area of any Wal-Mart storeSince the floor area of any Wal-Mart store
varied between 40,000 to 200,000 squarevaried between 40,000 to 200,000 square
feet, movement of goods within the storefeet, movement of goods within the store
was an important part of logisticswas an important part of logistics
operations.operations.
 Wal-Mart made significant investments inWal-Mart made significant investments in
IT toIT to quicklyquickly locate and replenish goodslocate and replenish goods
at the stores.at the stores.

31. 3131
Inventory Management…Inventory Management…
((pretty darn quick displays)pretty darn quick displays)
 The company asked its suppliers to shipThe company asked its suppliers to ship
goods in store-ready displays called prettygoods in store-ready displays called pretty
darn quick (PDQ) displays.darn quick (PDQ) displays.
 Goods were packed in PDQ displays thatGoods were packed in PDQ displays that
arrived at the stores ready to be boardedarrived at the stores ready to be boarded
on the racks.on the racks.
 Wal-Mart’s employees could directlyWal-Mart’s employees could directly
replace the empty racks at the stores withreplace the empty racks at the stores with
fully packed racks, instead of refilling eachfully packed racks, instead of refilling each
and every item at the racks.and every item at the racks.

32. 3232
Inventory ManagementInventory Management……
((retail link systemretail link system))
 In 1991, Wal-Mart had investedIn 1991, Wal-Mart had invested
approximately $4 billion to build aapproximately $4 billion to build a retailretail
link systemlink system..
 More than 10,000 Wal-Mart retail suppliersMore than 10,000 Wal-Mart retail suppliers
used the retail link system to monitor theused the retail link system to monitor the
sales of their goods at stores and replenishsales of their goods at stores and replenish
inventories.inventories.
 Details of daily transactions (~10 millionDetails of daily transactions (~10 million
per day) were processed through thisper day) were processed through this
system.system.

33. 3333
Inventory ManagementInventory Management……
((retail link systemretail link system))
 Retail Link connected Wal-Mart’s EDIRetail Link connected Wal-Mart’s EDI
network with an extranet, accessiblenetwork with an extranet, accessible
to Wal-Mart’s thousands of suppliers.to Wal-Mart’s thousands of suppliers.
 The suppliers could find out howThe suppliers could find out how
their product was performing vis-a-their product was performing vis-a-
vis competitors’ products in avis competitors’ products in a
particular product category.particular product category.

34. 3434
Inventory ManagementInventory Management……
((retail link systemretail link system))
 Wal-Mart owned the largest and mostWal-Mart owned the largest and most
sophisticated computer system in thesophisticated computer system in the
private sector.private sector.
 The company used Massively ParallelThe company used Massively Parallel
Processor (MPP) computer system to trackProcessor (MPP) computer system to track
the movement of goods and stock levels.the movement of goods and stock levels.
 All information related to sales andAll information related to sales and
inventories was passed on through aninventories was passed on through an
advanced satellite communication system.advanced satellite communication system.

35. 3535
CPFRCPFR
 By the mid 1990s, Retail Link hadBy the mid 1990s, Retail Link had
emerged into an Internet-enabledemerged into an Internet-enabled
SCM system whose functions wereSCM system whose functions were
not confined to inventorynot confined to inventory
management alone, but also coveredmanagement alone, but also covered
collaborative planning, forecastingcollaborative planning, forecasting
and replenishment (CPFR).and replenishment (CPFR).

36. 3636
CPFRCPFR
 InIn CPFRCPFR, Wal-Mart worked together with, Wal-Mart worked together with
its key suppliers on a real-time basis byits key suppliers on a real-time basis by
using the Internet to jointly determineusing the Internet to jointly determine
product-wise demand forecast.product-wise demand forecast.
 CPFRCPFR is defined as a business practice foris defined as a business practice for
business partners to share forecasts andbusiness partners to share forecasts and
results data through theresults data through the InternetInternet, in, in
order to reduce inventory costs while atorder to reduce inventory costs while at
the same time, enhancing productthe same time, enhancing product
availability across the supply chain.availability across the supply chain.

37. 3737
CPFR: Hard to implementCPFR: Hard to implement
 Though CPFR was a promising supplyThough CPFR was a promising supply
chain initiative aimed at a mutuallychain initiative aimed at a mutually
beneficial collaboration between Wal-Martbeneficial collaboration between Wal-Mart
and its suppliers, its actual implementationand its suppliers, its actual implementation
required huge investments in time andrequired huge investments in time and
money.money.
 A few suppliers with whom Wal-Mart triedA few suppliers with whom Wal-Mart tried
to implement CPFR complained that ato implement CPFR complained that a
significant amount of time had to be spentsignificant amount of time had to be spent
on developing forecasts and analyzingon developing forecasts and analyzing
sales data.sales data.

38. 3838
VAN EDI vs Web-EDIVAN EDI vs Web-EDI
 In October 2002, Wal-Mart asked itsIn October 2002, Wal-Mart asked its
14,000 suppliers to switch over from the14,000 suppliers to switch over from the
existing Value Added Networks (VAN) EDIexisting Value Added Networks (VAN) EDI
to web enabled EDI.to web enabled EDI.
 VANs route and manage EDI messages forVANs route and manage EDI messages for
their customers.their customers.
 By implementing web-EDI, Wal-Mart canBy implementing web-EDI, Wal-Mart can
save millions of dollars in the form ofsave millions of dollars in the form of
license fees to the private VANs.license fees to the private VANs.

39. 3939
VAN EDI vs. Web-EDIVAN EDI vs. Web-EDI

40. 4040
RFID TechnologyRFID Technology
(Radio Frequency Identification)(Radio Frequency Identification)
 In efforts to implement new technologiesIn efforts to implement new technologies
to reduce costs and increase theto reduce costs and increase the
efficiency, in July 2003, Wal-Mart asked itsefficiency, in July 2003, Wal-Mart asked its
top 100 suppliers to be RFID compliant bytop 100 suppliers to be RFID compliant by
January, 2005.January, 2005.
 Wal-Mart planned to replace bar-codeWal-Mart planned to replace bar-code
technology with RFID technology.technology with RFID technology.
 The company believed that thisThe company believed that this
replacement would reduce its supply chainreplacement would reduce its supply chain
management costs and enhancemanagement costs and enhance
efficiency.efficiency.

41. 4141
RFID TechnologyRFID Technology
(Radio Frequency Identification)(Radio Frequency Identification)
 Because of the implementation of RFID,Because of the implementation of RFID,
employees were no longer required toemployees were no longer required to
physically scan the bar codes of goodsphysically scan the bar codes of goods
entering the stores and distributionentering the stores and distribution
centers, saving labor cost and time.centers, saving labor cost and time.
 Wal-Mart expected that RFID wouldWal-Mart expected that RFID would
reduce the instances of stock-outs at thereduce the instances of stock-outs at the
stores.stores.

42. 4242
RFID TechnologyRFID Technology
(Radio Frequency Identification)(Radio Frequency Identification)
 Although Wal-Mart was optimistic aboutAlthough Wal-Mart was optimistic about
the benefits of RFID, analysts felt that itthe benefits of RFID, analysts felt that it
would impose a heavy burden on itswould impose a heavy burden on its
suppliers.suppliers.
 To make themselves RFID compliant, theTo make themselves RFID compliant, the
suppliers needed to incur an estimatedsuppliers needed to incur an estimated
$20 Million.$20 Million.
 Of this, an estimated %50 would be spentOf this, an estimated %50 would be spent
on integrating the system and makingon integrating the system and making
modifications in the supply chain software.modifications in the supply chain software.

43. 4343
RFID Applications for TrackingRFID Applications for Tracking
InventoryInventory
VideoVideo