Walt – Mart Supply Chain

SUPPLY CHAIN MANAGEMENT AT WAL-MART Due Date December 1, 2009 Orlando, FL 32816 INDEX 2. Introduction 3. Supply Chain at Walt-Mart Inc 4. Importance of the supply chain the strategic 5. Identification of the supply chain strategies a. Negotiation with many supplier b. Long Term partnering c. Vertical Integration d. Keiretsu Network e. Suppliers on an as need basis 6. Issues in Wal-Mart supply chain 7. Opportunities in Wal-Mart supply chain 8. Data Analysis 9. Conclusion 10. Recommendations 2. INTRODUCTION Wal-Mart Stores, Inc. (Wal-Mart) was the largest retailer. Wal-Mart was able to achieve a leadership status in the retail industry because of its efficient supply management practices. This supply chain, a key enabler of its growth from its beginnings in rural Arkansas, was long considered by many to be a major source of competitive advantage for the company. Wal-Mart developed a supply chain base on pricing, where they started sourcing products globally. Wal-Mart was thought to have around 90,000 suppliers. Those suppliers have several dozen employees working full-time to support the Wal-Mart business. Wal-Mart always emphases the need to reduce its purchase cost and offers the best price to its costumers. Distribution is another characteristic of the Wal-Mart supply chain developed. The company procured god directly from manufactures, avoiding intermediaries. This negotiation let then to offer lower prices in their product. In addition, Wal-Mart invested in a central database, store-level point-of-sale systems, and a satellite network to support this inventory management effort, supplier analysts worked closely with Wal-Mart’s supply chain personnel to co-ordinate the flow of products from suppliers’ factories and resolved any supply chain issues, receiving and transmitting point-of-sale data, also provided senior management with the ability to broadcast video messages to the stores Centralization was apply by Wal-Mart. They believed that it had numerous benefits, such as, lower costs and improved communications between different divisions. Another key to Wal-Mart’s ability to enjoy low operating costs was the fact that it was non-union. Without difficult to handle labor agreements, management could take advantage of technology to drive labor costs down and make operational changes quickly and efficiently. In 2006 Wal-Mart made two supply chain improvement initiatives included “Remix” , reduce the percentage of out-of-stock merchandise at stores by redesigning its network of distribution centers, and RFID (radio frequency identification tags), increase stock visibility as stock moved in trucks, through the distribution centers and on to the stores. Wal-Mart would be able to track promotion effectiveness within the stores while cutting out-of-stock sales losses and overstock expenses. In 2006, Wal-Mart continued to seek improvements to its supply chain. Although the company publicly declined to outline its targets for inventory reduction 3. SUPPLY CHAIN AT WAL-MART Sam Walton owned a successful chain of stores under the Ben Franklin Stores banner, a franchisor of variety stores in the United States. He was able to selectively purchase merchandise in bulk from new suppliers and then transport these goods to his stores directly. When Walton realized that a new trend, discount retailing — based on driving high volumes of product through low-cost retail outlets — was sweeping the nation, he decided to open up large, warehouse-style stores in order to compete. To stock his new warehouse-style stores, initially named “Wal-Mart Discount City,” Walton needed to step up his merchandise procurement efforts. As none of the suppliers were willing to send their trucks to his stores, which were located in rural Arkansas, self-distribution was necessary. 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. Wal-Mart's company philosophy is to be at the leading edge of logistics, distribution, transportation, and technology. Wal-Mart was the world’s largest retailer with more than 6,500 stores worldwide, including stores in all 50 states as well as international stores. Wal-Mart’s strategy was to provide a broad variety of quality merchandise and services at everyday low prices and was best known for its discount stores, which offered variety merchandise, such as, food, electronics, so on and so forth. Also, the everyday low prices (EDLP) environment, demand was smoothed out to reduce the “bullwhip effect. ” Because of its EDLP policy, Wal-Mart did not need to advertise as frequently as did its competitors and was able to channel the savings back into price reductions. Wal-Mart in the 1980s, it had built up the most efficient logistics network of any retailer. Logistics division and its information systems division included the largest private truck fleet employee base of any firm. Shipments were generally cross-docked, or directly transferred, from inbound to outbound trailers without extra storage. Wal-Mart started sourcing products globally, opening the first of these offices in China in the mid-1980s. Wal-Mart’s international purchasing offices worked directly with local factories to source Wal-Mart’s private label merchandise. Wal-Mart wielded enormous power over its suppliers. Stores were located in low-rent, suburban areas, close to major highways. The average distance from distribution centre to stores was approximately 130 miles. Implement and improve upon standard delivery procedures, coordinating and deploying the entire fleet as necessary. As Wal-Mart distribution centers had close to real-time information on each store’s in-stock levels, the merchandise could be pushed to stores automatically. In addition, store-level information systems allowed manufacturers to be notified as soon as an item was purchased. Each Wal-Mart store aimed to be the “store of the community,” tailoring its product mix to appeal to the distinct tastes of that community. Thus, two Wal-Mart Stores a short distance apart could potentially stock different merchandise In the mid-1980s, Wal-Mart invested in a central database, store-level point-of-sale systems, and a satellite network. Combined with one of the retail industry’s first chain-wide implementation of UPC bar codes, store-level information could now be collected instantaneously and analyzed. By combining sales data with external information such as weather forecasts, Wal-Mart was able to provide additional support to buyers, improving the accuracy of its purchasing forecasts. In the early 1990s, Wal-Mart developed Retail Link Wal-Mart gave its suppliers access to real-time sales data on the products they supplied, down to individual stock-keeping items at the store level. In 1990, Wal-Mart became one of the early adopters of collaborative planning, forecasting and replenishment (CPRF), an integrated approach to planning and forecasting by sharing critical supply chain information, such data on promotions. In addition to managing short-term inventory and discussing product trends, Wal-Mart worked with suppliers on medium- to long-term supply chain strategy including factory location, co-operation with downstream raw materials suppliers and production volume forecasting. Wal-Mart believed that centralization had numerous benefits, including lower costs and improved communications between different divisions. Another key to Wal-Mart’s ability to enjoy low operating costs was the fact that it was non-union. Without cumbersome labor agreements, management could take advantage of technology to drive labor costs down and make operational changes quickly and efficiently. Wal-Mart operated approximately 3,900 stores in the United States and 2,600 stores in 13 other countries in 2006. At store level, the company stocked more than 100,000 SKUs. Two of Wal-Mart’s key supply chain improvement initiatives included “Remix” and RFID (radio frequency identification tags). Remix, which was started in the fall of 2005 and targeted for completion in 2007, aimed to reduce the percentage of out-of-stock merchandise at stores by redesigning its network of distribution centers. On the other hand, the objective of RFID is to increase in-stock rates and reduce tracking costs. RFID tags would allow Wal-Mart to increase stock visibility as stock moved in trucks, through the distribution centers and on to the stores. Wal-Mart would be able to track promotion effectiveness within the stores while cutting out-of-stock sales losses and overstock expenses. In the past few years, Wal-Mart’s internal goal had called for cutting its inventory growth rate to half of its sales growth rate but they have not met that objective. Competitors such as Target Stores and Costco seemed to be catching up, growing comparable store sales faster than Wal-Mart

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