1. International Sales & Distribution Management
Project Report
On
'Distribution Channel System followed by Wal-Mart'
Submitted to: Submitted By:
Prof. Sachin Sinha Shubham Suman

2. FT-IB-11-344
WAL-MART
slogan: “Low prices. Every day. On everything”
Wal-Mart Stores, Inc.(branded as Walmart) is an American public corporation that runs a chain of
large, discount department stores. In 2008 it was the world’s largest public corporation by revenue,
according to the Fortune Global 500 for that year. Wal-Mart is the largest majority private employer
and the largest grocery retailer in the United States. It also owns and operates the Sam’s club retail
warehouse in North America.
Wal-Mart’s operations are organized into three divisions: Wal-Mart Stores U.S., Sam’s Club,
and Wal-Mart International. The company does business in nine different retail formats:
supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry
stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants.
Wal-Mart enjoyed a 50 percent market share position in the discount retail industry with its
nearly 3,000suppliers. Though Wal-Mart may have been the top customer for consumer product
manufacturers, it deliberately ensured it did not become too dependent on any one supplier; no single
vendor constituted more than 4 percent of its overall purchase volume.

3. The current ratio in the last 5 years is below 1, between 0,8 and 0,9 (Walmart, annual report
2009). This is typical of strong distribution companies that pay their suppliers in 1,2 or 3 months but
they cash immediately from customers. They use this lag as a financial source.
Distribution channel system:
A distribution channel is the method a company uses to get its products into the marketplace for
consumer use. The traditional channel goes from supplier, manufacturer, distributor, wholesaler and
retailer. Two types of distribution channels exist: indirect and direct.
 Indirect Channel
The indirect channel is used by companies who do not sell their goods directly to consumers.
Suppliers and manufacturers typically use indirect channels because they exist early in the supply
chain. Depending on the industry and product, direct distribution channels have become more
prevalent because of the Internet
 Direct Channel
A direct distribution channel is where a company sells its products direct to consumers. While direct
channels were not popular many years ago, the Internet has greatly increased the use of direct
channels. Additionally, companies needing to cut costs may use direct channels to avoid middlemen
markups on their products.
The Importance of Distribution channel system
Most producers use intermediaries to bring their products to market. They try to develop
a distribution channel system to do this. A distribution channel system is a set of interdependent
organizations that help make a product available for use or consumption by the consumer or business
user. Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or
retailers who help move a product from the producer to the consumer or business user.
A company’s channel decisions directly affect every other marketing decision. Place decisions, for
example, affect pricing. Marketers that distribute products through mass merchandisers such as Wal-

4. Mart will have different pricing objectives and strategies than will those that sell to specialty stores.
Distribution decisions can sometimes give a product a distinct position in the market. The choice of
retailers and other intermediaries is strongly tied to the product itself. Manufacturers select mass
merchandisers to sell mid-price-range products while they distribute top-of-the-line products through
high-end department and specialty stores. The firm’s sales force and communications decisions
depend on how much persuasion, training, motivation, and support its channel partners need.
Whether a company develops or acquires certain new products may depend on how well those
products fit the capabilities of its channel members.
Some companies pay too little attention to their distribution channels. Others, such as FedEx, Dell
Computer, and Charles Schwab have used imaginative distribution systems to gain a competitive
advantage.
 Functions of Distribution Channels
Distribution channels perform a number of functions that make possible the flow of goods from the
producer to the customer. These functions must be handled by someone in the channel. Though the
type of organization that performs the different functions can vary from channel to channel, the
functions themselves cannot be eliminated. Channels provide time, place, and ownership utility.
They make products available when, where, and in the sizes and quantities that customers want.
Distribution channels provide a number of logistics or physical distribution functions that increase
the efficiency of the flow of goods from producer to customer. Distribution channels create
efficiencies by reducing the number of transactions necessary for goods to flow from many different
manufacturers to large numbers of customers. This occurs in two ways. The first is called breaking
bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only
one or a few at a time to many different customers. Second, channel intermediaries reduce the
number of transactions by creating assortments—providing a variety of products in one location—
so that customers can conveniently buy many different items from one seller at one time. Channels
are efficient. The transportation and storage of goods is another type of physical distribution
function. Retailers and other channel members move the goods from the production site to other
locations where they are held until they are wanted by customers. Channel intermediaries also
perform a number of facilitating functions, functions that make the purchase process easier for
customers and manufacturers. Intermediaries often provide customer services such as offering credit
to buyers and accepting customer returns. Customer services are oftentimes more important in B2B
markets in which customers purchase larger quantities of higher-priced products.
Some wholesalers and retailers assist the manufacturer by providing repair and maintenance
service for products they handle. Channel members also perform a risk-taking function. If a retailer
buys a product from a manufacturer and it doesn’t sell, it is ―stuck‖ with the item and will lose
money. Last, channel members perform a variety of communication and transaction functions.
Wholesalers buy products to make them available for retailers and sell products to other channel
members. Retailers handle transactions with final consumers. Channel members can provide two-
way communication for manufacturers. They may supply the sales force, advertising, and other
marketing communications necessary to inform consumers and persuade them to buy. And the
channel members can be invaluable sources of information on consumer complaints, changing tastes,
and new competitors in the market.
 The Internet in the Distribution Channel

5. By using the Internet, even small firms with limited resources can enjoy some of the same
competitive advantages as their largest competitors in making their products available to customers
internationally at low cost. E-commerce can result in radical changes in distribution strategies. Today
most goods are mass-produced, and in most cases end users do not obtain products directly from
manufacturers. With the Internet, however, the need for intermediaries and much of what has been
assumed about the need and benefits of channels will change. In the future, channel intermediaries
that physically handle the product may become largely obsolete. Many traditional intermediaries are
already being eliminated as companies question the value added by layers in the distribution channel.
This removal of intermediaries is termed disintermediation, the elimination of some layers of the
distribution channel in order to cut costs and improve the efficiency of the channel.
'Distribution Channel System followed by Wal-Mart'
About 85 percent of all the merchandise sold by Wal-Mart was shipped through its distribution
system to its stores. Wal-Mart used a ―saturation‖ strategy for store expansion. The standard was to
be able to drive from a distribution center to a store within a day. A distribution center was
strategically placed so that it could eventually serve 150-200 Wal-Mart stores within a day. Stores
were built as far away as possible but still within a day’s drive of the distribution center; the area
then was filled back (or saturated back) to the distribution center. Each distribution center operated
24 hours a day using laser-guided conveyer belts and cross-docking techniques that received goods
on one side while simultaneously filling orders on the other. The company owned a fleet of more
than 3,000 trucks and 12,000 trailers. (Most competitors outsourced trucking.) Wal-Mart had
implemented a satellite network system that allowed information to be shared between the
company’s wide network of stores, distribution centers, and suppliers. The system consolidated
orders for goods, enabling the company to buy full truckload quantities without incurring the
inventory costs.
 The key to Wal-Mart’s supply chain
Wal-Mart is committed to improving operations, lowering costs and improving customer
service. But the key to retailer Wal-Mart’s success is its ability to drive costs out of its supply
chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-
driven company that also has retail stores. Wal-Mart’s company philosophy is to be at the leading
edge of logistics, distribution, transportation, and technology. The Wal-Mart business model
would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any
private company in the world) and supply chain(Wal-Mart has made significant investments in
supply chain management).
 Wal-Mart’s business model and competition
Wal-Mart’s business model is based on a low price strategy and low transportation costs
allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low
Price Strategy), Wal-Mart’s suppliers – both large and small – either break even or make profit
supplying at Wal-Mart’s stores. But the real winners are Wal-Mart’s customers (approximately
175 million every week) who save thousands of dollars buying at low prices. Since Wal-Mart
stores began selling groceries almost three dozen regional grocery suppliers have struggled to
match or simply run out of business. Last year (2007), Wal-Mart’s annual sales were $350 billion

6. and it had more than 7,000 stores, 120 distribution centres and operations spanning 15
countries. Nearly two million employees at Wal-Mart focus on cost, customers and continuous
improvement on a daily basis.
 Wal-Mart’s one-store-at-a-time, RFID and just-in-time distribution
approach
Every Wal-Mart store operates like a small company. Store managers are trained
to manage one store at a time, one department at a time, and one customer at a time.
Decisions are made by store teams to make the individual stores operate at its best with
superior in-store execution. With established vendor partnerships with top manufacturers,
Wal-Mart has implemented advanced logistics solutions like RFID (radio frequency
identification). RFID solutions help maintain lower costs, identify out-of-stocks and
increase sales. Distribution centres instead of warehouses, automated replenishment
and cross-docking technology also reduce inventory carrying costs.(“Why Wal-Mart´s
supply chain is so successful?”, http://supply-chain-case-studies.blogspot.com/)
 Monitoring supply chain risk
In 2008 Wal-Mart introduced Supply Risk Monitoring (SRM)service as a requirement
to Wal-Mart’s supplier community. This after Wal-Mart made an agreement with Strategic
Forecasting, Inc. (Stratfor) to assess and rank security risk for countries in its global supply
chain.
Stratfor is a leading private intelligence company and its serviceswill enable Wal-Mart to
identify risks with supply chain infrastructure in countries (ranked as high, medium or
low) within its supply chain using a unique analytical methodology. The countries will be
assessed on risks associated with terrorism, insurrection, crime, the political and regulatory
environment, natural disasters, including various other factors related to supply chain
infrastructure. This will help Wal-Mart to produce a quantifiable measure of the actual risk to
a nation’s supply chain and thereby determine appropriate supply chain security counter-
measures. It can thus quickly warn of emerging threats and prevent disruption of deliveries of
goods to major markets around the world.
Consolidation Strategy in Wal-Mart
 Remixing the Inbound Channel
Shippers are always on the lookout for ways to speed product from source through supply
chains to the consumer, and Wal-Mart’s ―Remix‖ distribution strategy is going to give its
vendors a new way to reach the goal whether they’re ready for it or not.
 Remix is Wal-Mart’s name for a vendor transportation consolidation
program on a colossal scale.
Between 2006 and 2007, Wal-Mart plans to transform its distribution system of 120
company warehouses fed by thousands of vendors moving 2 billion cases of food and 2.7 billion
packages of other merchandise to 3,700 U.S. stores annually. The Bentonville, Ark.-based chain
is forging a two-track inbound logistics system that will separate high-turnover goods from
slower-selling products to reduce stock-outs, especially in its fast-growing grocery stores.

7. To do that, Wal-Mart is leaning on its vendors to work with transportation and logistics providers
to consolidate less-than-truckload deliveries into truckload freight before it reaches a store. If
successful, the system will change the way vendors and supply chain partners move goods to
Wal-Mart, and because of the company’s size and reach, set an example other high-volume
competitors will be hard-pressed not to follow.
It will also sharply expand Wal-Mart’s distribution channels through certain gateways in ways
that will ripple across strategies for handling and moving imported goods well beyond Wal-
Mart’s own operations
The largest shippers have the expertise, resources and technology to move beyond a simple role
as a buyer of goods. They want to dictate not only when shipments are delivered, but how and
where, whether to a third-party warehouse or the company’s own, or direct to the store.
For Wal-Mart, the Remix strategy also means a realignment of supply chain relationships.
The shipper asserts more control in this case by encouraging vendors to coordinate their LTL
shipping schedules with logistics providers and carriers so they arrive as full truckloads at
stores. Inventory management becomes more the responsibility of the vendor and logistics
provider. Investments may have to be made in technology to support a much more complex
loading of trucks and other transport modes. Many of these costs will be borne by the vendor or
third-party provider.
―I’ve heard the argument,‖ said Tyler Ellison, vice president, global client group for Schneider
National. ―But what I would contend is that Wal-Mart’s Remix initiative at the end of the day
eliminates waste and cost from the supply chain. … Even if we have to add costs in some areas,
the cost of being out of stock is higher.‖
At its heart, Remix is about avoiding stock-outs of popular, fast-moving items, from paper towels
and toothpaste to laundry detergent and fresh food.
Stock-outs became an issue for Wal-Mart after the mass merchandiser ramped up its in-store grocery
units in the 1990s. At the same time, Wal-Mart turned from its focus on American-made goods to
becoming a huge importer, particularly from Asia, lowering the cost of the goods but adding
complexity and cost to a supply chain now built on inbound logistics.
The initiative aims to free distribution workers from the need to sort manually on receiving docks the
higher-velocity items from slower-moving goods, thus slowing replenishment of both.
Wal-Mart wanted more and smaller deliveries faster, something of a challenge when goods are
coming from overseas in bulk.
That would mean vendors sending more LTL shipments, which would push up their transportation
costs. Instead, Wal-Mart suggested vendors partner with carriers and logistics providers to have their
LTL freight consolidated into truckloads at third-party distribution centers. Systems were also
encouraged to pack freight for optimal unloading and distribution at stores to reduce overlapping or
redundant delivery stops.

8. The company offers its online Retail Link software for vendors to enter and review purchase orders,
make carrier appointments and get data on consolidated loads. It compiles vendor scorecards to
assess on-time performance and other metrics.
Remix relies heavily on technology. CaseStack has what Sanker called a consolidation engine
installed into a combined transportation and warehouse management system to make truckloads
easier to pack, and a transportation optimizer that reviews roughly 1,000 carriers for the best routes
and price.
“You have to be able to move really fast in a consolidation program,‖ Sanker said. ―Instead of two
pallets of three products, you might have five cases, two pallets, six boxes, which means a lot more
picking. The system has to be able to kick out the right information and instructions to everyone in
the warehouse. … If you tried to do it manually, you’d be buried.‖
Late or missed deliveries are intolerable in an environment without safety stock. As a result, he said,
―We’re always one day away from a Wal-Mart distribution center. … The probability of a service
failure is reduced dramatically the fewer miles you have to drive.‖
To support Remix, more logistics providers and carriers are turning to barcode-enabled mobile
computers to update inventory databases on the fly. Accurate, near-real time data from vendors and
warehouses feeds higher-level systems Wal-Mart needs to fine-tune its new distribution system.
“Once you know what you’re selling and how fast,‖ McNerney said, ―you can work on your demand
forecast.”
For those who send the products to the shelves, the judgment is more complicated.
Although he wouldn’t name names, Conover said vendor reaction to the new program breaks down
into roughly two camps. ―There’s a concern because vendors see the increase in supply chain costs.
Their view is that they have to bear the expense of it,‖ he said. ―The other camp also looks at the
increased costs to their supply chain, but recognizes if they do it right they will see their sales
increase,‖ and they may enjoy an advantage over non-participating competitors.
As results accumulate, the ripple effects of Remix will spread from gateways to points deeper in
supply channels, observers said.
―As Wal-Mart pushes back inventory, that’s going to force vendors to relocate distribution centers
and such closer to the retailers own distribution facilities and stores,‖ said Barry Hibbard, vice
president of real estate at Tejon Ranch, a 426-square-mile multi-use development in Southern
California’s Inland Empire. Those relocations will in turn have ripple effects on the distribution
networks of vendors to other retailers.
―Wal-Mart’s focus on the end customer is what makes them great,‖ he said. Reducing the biggest
merchandiser’s cash-to-cash cycle, as Remix is expected to do, will benefit not only the retailer but
eventually its partners, as new efficiencies help each move other clients’ freight on the same swift
schedules. Keeping Wal-Mart’s shelves stocked keeps customers, but also focuses the company’s
supply chain partners in ways that benefit their other clients.