Wal-Mart Supply Chain Essay Example for Free

Wal-Mart Supply Chain EssayWal-MartExecutive SummaryWith over US$444 billion in 2012 sales from operations in 27 countries, Wal-Mart Stores, Inc. is the worlds largest retailer. Wal-Mart is the worlds third largest public corporation, according to the Fortune Global vitamin D come in 2012 and worlds biggest private employer with 2.2 million associates worldwide. Wal-Mart serves customers and members more(prenominal) than 200 million times per week. Wal-Mart operates under 69 variant banners. Wal-Marts provide r for each one, a fundamental enabler of its produce from its beginnings in rural Arkansas, has long considered by m some(prenominal) to be a major source of competitive receipts for the company. In fact, when Wal-Mart was voted retailer of the Decade in 1989, its dispersion costs were estimated at 1.7 per cent of its cost of sales, comparing favorably with competitors such as Kmart (3.5per cent of fall sales) and Sears (five per cent of total sales). Their distr ibution system is generally regarded as the most emphasized visibility done the sharing of nurture with their suppliers. Wal-Mart slipped to No. 2 in the Fortune 500 in 2011 after holding onto the top spot for cardinal years in a row. Wal-Marts international business continues to be a source of growth for the company revenues outside the U.S. rose by 13.1% last year, to $35.5 billion.IntroductionWal-Mart has come a long way since its inception and undergone many changes on the way. Sam Waltons initial strategy was to target low-income families in rural areas by offering significantly lower costs. Through use oftechnology in distribution and try set up logistics Wal-Mart has been able to cut costs and lower prices for end users. Wal-Mart is one of the best supply chain operators at the moment. Using a supply chain attention system that is progressively against its competitors and they dont even stop evolving. Pushing the limits of supply chain focussing, searching for and sup porting better technology that promises to elucidate its IT infrastructure more efficient. The company has 4 strategies driving its operations * Becoming a truly global company* Solving Business Challenges* Leading on social issues* Keeping its culture strongWal-Mart has overly taken various initiatives in its approach towards its operations. Some of them include following In 1992 Wal-Mart developed respectable sourcing program to verify the fruits they handle are produced in a way that provides dignity and respect for workers in the supply chain, while protecting the environment. For octet groovy years, Wal-Mart U.S. Logistics recordable injury rates have been below industry average. This year the entire Wal-Mart U.S. Logistics Network introduced an Enhanced Behavior Based Safety Program. Wal-Mart has implemented a supplier Development Program, in which the Ethical Sourcing Team works closely with suppliers to improve works conditions in factories.Background of Wal-Mart Inc Based in Bentonville, Arkansas and founded by the known Sam Walton, Wal-Mart is the worlds largest retailer with more than 8,500 transshipment centers worldwide, including stores in all 50 states as well as international stores in Argentina, Brazil, Canada, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Puerto Rico and the United Kingdom, as well as joint venture agreements in China and a stake in a leading Japanese retail chain. The company has over 2.2 million employees (known as associates). It was estimated that Wal-Mart served more than 200 million customers each week.Wal-Marts strategy is to provide a broad pastiche of quality merchandise and services at everyday low prices (EDLP) and is best known for its discount stores, which offered merchandise such as apparel, smallappliances, housewares, electronics and hardware, but also ran combined discount and food product stores (Wal-Mart Super Centers), membership- precisely warehouse stores (Sams Club), and s maller grocery stores (Neighborhood Markets). In the general merchandise area, Wal-Marts competitors include Sears and Target, with specialty retailers including flutter and Limited. Department store competitors included Dillard, Federated and J.C. Penney. Grocery store competitors included Kroger, Albertsons and Sa someay. The major membership-only warehouse competitor was Costco Wholesale.The Development of Wal-Marts Supply Chain ahead he started Wal-Mart Stores in 1962, Sam Walton owned a successful chain of stores under the Ben Franklin Stores banner, a franchisor of variety stores in the United States. Although he was under ratify to purchase most of his merchandise requirements from Ben Franklin Stores, Walton was able to selectively purchase merchandise in bulk from in the altogether suppliers and then transport these goods to his stores directly. When Walton realized that a new trend, discount retailing based on driving high stacks of product through low-cost retail out lets was sweeping the nation, he resolute to open up large, warehouse-style stores in sight 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 leaveing to enchant their hand trucks to his stores, which were located in rural Arkansas, self-distribution was necessary.The initial competitive advantage for Wal-Mart was its supply chain attention. As Wal-Mart grew in the 1960s to 1980s, it benefited from improved road infrastructure and the compressibleness of its competitors to react to changes in legislation, such as the removal of resale price maintenance, which had prevented retailers from discounting merchandise. A strong and efficient supply chain is the account to distribution and slide bying their customers well-to-do with the promise of Everyday Low Prices. Things within the supply chain in which Wal-Mart excelled at would include logis tics, purchasing, retail decisions, and limiting the overall bullwhip effect of the supply chain.The key attributes to Wal-Marts hugely developed logistics department are Cross docking or direct transfers from inbound or outbound trailers without extra storage, Working with suppliersto regulate case sizes and taging. The cross docking system was originated by Wal-Mart, this innovation allows a distribution center to direct incoming shipments straight to a cross-docking system, products are delivered to a warehouse on a continual basis, where they are stored, repackaged, and distributed to stores without sitting in muniment. Goods cross from one loading dock to another, usually in 24 hours or less. While working with suppliers on labeling will increase efficiency in transporting goods from distribution centers to retail stores.PurchasingAs his purchasing efforts increased in scale, Walton and his of age(p) management team would make trips to buying offices in New York City, cutti ng out the middleman (wholesalers and distributors). Wal-Marts U.S. buyers, located in Bentonville, worked with suppliers to ensure that the correct sashay of staples and new items were holy ordered. Over time, many of Wal-Marts largest suppliers had offices in Bentonville, staffed by analysts and managers supporting Wal-Marts business. In addition, Wal-Mart started sourcing products globally, opening the first of these offices in China in the mid-1980s. Wal-Marts international purchasing offices worked directly with local factories to source Wal-Marts private label merchandise. Private label sales at Wal-Mart, first developed in the 1980s, were believed to account for 20 per cent of 2005 sales. Private label products appealed to customers since they were often priced at a significant discount to brand name merchandise for Wal-Mart, the private label items generated higher margins than did the suppliers branded products.Every quarter, buyers met in Bentonville to review new mercha ndise, exchange buying notes and tips and review a fullymerchandised prototype store, located within a warehouse. In order to gather field intelligence, buyers toured stores two or three days a week, working on the sales floors to help associates stock and sell merchandise. Wal-Mart wielded enormous power over its suppliers. For example, observers noted that increased bargaining clout was a contributing factor in Procter Gambles (PG) acquisition of promontory rival Gillette. Prior to the acquisition, sales to Wal-Mart accounted for 17 per cent of PGs revenues and 13 per cent of Gillettes revenues. On the other hand, these two suppliers combined accounted for about eight per cent of Wal-Marts sales. Some viewed Wal-Marts close co-operation withsuppliers in a negative light.Wal-Mart dictates that its suppliers must accept payment entirely on Wal-Marts terms, tract information all the way back to the purchasing of raw materials. Wal-Mart controls with whom its suppliers speak, how a nd where they can sell their goods and even encourages them to support Wal-Mart in its political fights. Wal-Mart all but dictates to suppliers where to frame their products, as well as how to design those products and what materials and ingredients to use in those products. When negotiating with its suppliers, Wal-Mart insisted on a single invoice price and did not pay for cooperative advertising, discounting or distribution. Globally, Wal-Mart is believed to have around 90,000 suppliers, of whom 200 such as Nestle, PG, Unilever and Kraft are key global suppliers. With Wal-Marts expectations on sales data analysis, category management responsibilities and external research specific to their Wal-Mart business, it was not uncommon for a supplier to have several dozen employees working full-time to support the Wal-Mart business.All these step have allowed Sam Waltons empire to increase its companys relationship with suppliers by using a collaboration planning, forecasting, and rep lenishment model. This will coincidently, on with the income smoothing of having everyday low costs, reduce the bullwhip effect, lower costs, increase capacity utilization, and improve customer service levels. The income smoothing concept is since Wal-Mart uses resourceful use of collaborative planning, forecasting, and replenishment it will comfortablely lower the bullwhip effect.This effect is caused by slight demand variables which are magnified as information moves back upstream from consumer back the raw materials in the supply chain. Another benefit of reducing the bullwhip effect and successful in its supply chain management techniques is reducing the uncertainty and lowering the amount of roll needed in house. Uncertainty will have the negative effects of lateness and incomplete orders between Wal-Marts distribution centers. However in having a sufficient supply chain management system in place it will lower the amount of inventory needed in house and insure against suppl y chain uncertainty.Inbound LogisticsWal-Mart recognized the importance of controlling inbound logistics and expended considerable efforts in mastering this function. The companyacknowledged the tally of controlling the inbound logistics, make it a company- wide mission, developed the technology required and teams were formed specifically to implement the mission. Today Wal-Mart has almost total inbound control of all DC-to-store shipments. Wal-Mart has decided to take this to next level by asking its vendors to directly ship to Wal-Mart DCs. On implementation, this will provide Wal-Mart with greater control over the management of the logistics and more efficiency by taking over the vendor-to- DC leg and use those savings to further reduce prices. This will further help in better matching of demand and supply.DistributionWal-Marts store openings were driven directly by its distribution strategy. Because its first distribution centre in the primeval 1970s was a significant investm ent for the firm, Walton insisted on saturating the area within a days driving duration of the distribution centers in order to gain economies of scale. Over the years, competitors copied this hub-and-spoke design of high volume distribution centers serving a cluster of stores. This distribution-led store expansion strategy persisted for the next two decades as Wal-Mart added thousands of U.S. stores, expanding across the nation from its headquarters in Arkansas. Stores were located in low-rent, suburban areas, close to major highways. In contrast, key competitor Kmarts stores were lightly spread throughout the United States and were located in prime, urban areas. By the time the rest of the retail industry started to take notice of Wal-Mart in the 1980s, it had built up the most efficient logistics network of any retailer.Wal-Marts 75,000-person logistics division and its information systems division included the largest private truck fleet employee base of any firm 7,800 drive rs, who delivered the majority of merchandise sold at stores. Wal-Marts 114 U.S. distribution centers, located throughout the United States, were a mix of general merchandise, food and soft goods (clothing) distribution centers, processing over five billion cases a year through its entire network. Product was picked up at the suppliers warehouse by Wal-Marts in-house trucking division and was then shipped to Wal-Marts distribution centers. Shipments were generally cross-docked, or directly transferred, from inbound to outbound trailers without extra storage. To ensure that cases moved efficiently through the distribution centers, Wal-Mart worked with suppliersto standardize case sizes and labeling. The average distance from distribution centre to stores was approximately 130 miles. Each of these distribution centers was profiled in a store-friendly way, with similar products red-hot together. Merchandise purchased directly from factories in offshore locations such as China or India was processed at coastal distribution centers before shipment to U.S. stores.On the way back from stores, Wal-Marts trucks generated back-haul revenue by transporting unsold merchandise on trucks that would be otherwise empty. Wal-Marts backhaul revenues its private fleet operated as a for-hire carrier when it was not busy transporting merchandise from distribution centers to stores were more than US$1 billion per year. Because its trucking employees were non- organized and in-house, Wal-Mart was able to implement and improve upon standard actors line procedures, coordinating and deploying the entire fleet as necessary. Uniform operating standards ensured that miscommunication between traffic coordinators, truckers and store level employees was minimized. Wal-Mart improve the efficiency of its private fleet by almost 69 percent in 2012 compared to its 2005 baseline. Throughout their network they delivered 65 million more cases, while driving 28 million fewer miles, by increase t heir pallets per trailer and managing their routes.The heavier loads have minimal impact on their provide efficient equipment, which includes an average tractor age of three years and the addition of more than 13,000 skirted trailers. The network efficiency improvement equates to avoiding n archaean 41000 metric tons of CO2 emissions, the equivalent of taking about 7900 cars off the road. Continued enhancements in routing and scheduling software, mate with advancements in GPS and mobile technologies are helping in better management of routes. Wal-Mart has also shown improved efficiency by focusing on the problem of backhauls. In 2011 alone with focusing on backhauls, the practice of picking up a load from a vendor and delivering to the distribution centers, rather than running an empty truck between the store and distribution center, saved more than 56000 trips. From 2005 to 2008 Wal-Mart increase the fuel efficiency in the private fleet by 38%.Much of this fuel efficiency was ach ieved through technology and the use of more aerodynamic trucks. They looked at qualifynative fuels, auxiliary power units and aerodynamic fairings on both tractors and trailers. Wal-Mart not only uses the technology to track the location of the rigs, they track the fuelburn and monitor the drivers right foot, gear selection and other driver decisions. reparation driver behavior is the next frontier of driving more fuel efficiency. Wal-Marts published goal is to double the truck fleet efficiency by October of 2015, so in 5 years they expect to almost double what they achieved between 2005 and 2008. Theres many ways to skin the fuel efficiency cat. One capable methodology is to run fewer empty miles. According to Wal-Marts own press their efforts to reduce empty miles and optimizing how merchandise is stacked in the trailers the private fleet logged 87 million fewer miles in 2008 while transporting 161,000 more cases, allowing the company to save 15,000,000 gallons of diesel fuel. Investments in GPS-based routing applications, strong load optimization tools for load planning and engine block utilization, developing new loading practices, all will help improve costs. Reducing package size and increasing value density helps reduce miles. Wal-Mart is working hard to reduce packaging by 5% by 2013. But packaging does not even touch on the impact of improved value density. As the product mix changes and the cost of products continue to decline, Wal-Mart is challenged to get even more product into less space, not only of transport, but for warehousing and store space. Detergent formulations that reduce the water content, package redesigns that change the shape of the cartons to increase the count loaded onto the truck, carton designs that reduce the dead space around the product but sill provide the protection needed, all of these efforts will directly reduce transit cost and carbon footprint.Retail StrategyWal-Marts first stores were make full with merchandise t hat had been bought by Walton in bulk, as he was convinced that a new trend discounting merchandise off the suggested retail price was here to stay. In the 1960s, Wal-Mart grew rapidly as customers were attracted by its assortment of low-priced products. Over time, the company copied the merchandise assortment strategies of other retailers, mostly through observation as a result of store visits. To generate additional volume, Wal-Mart buyers worked with suppliers on price rollback campaigns. Price rollbacks, each lasting about 90 days, were funded by suppliers, with the goal of increasing product sales between 200 and 500 per cent. The company also ensured that its store-level operations were at least as efficient as its logisticsoperations. The stores were simply provide and constructed using standard materials. Efforts were made to continually reduce operating costs.For example, light and temperature settings for all U.S. stores were controlled centrally from Bentonville. As Wa l-Mart distribution centers had close to real-time information on each stores 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. In anticipation of changes in demand for some items, associates had the authority to manually input orders or override impending deliveries. In contrast, most of Wal-Marts retail competitors did not confer merchandise responsibility to entry-level employees as merchandising templates were sent to stores through head office and were expected to be followed precisely.To ensure that employees were kept up-to-date, management shared detailed information about day/week/month store sales with all employees during daily 10-minute-long standing meetings. The display of merchandise was suggested by a storewide template, with a unusual template for each store, indicating the layout of Wal-Marts various departments. This templat e was created by Wal-Marts merchandising department, after analyzing historical store sales and community traits. Associates were free to alter the merchandising template to fit their local store requirements.Shelf space in Wal-Marts different departments from shoes to household appliances to automotive supplies was divided up, each spot allocated to specific SKUs. 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 contrast, most other retailers made purchasing decisions at the district or regional level. In order to harness the knowledge of its suppliers, key category suppliers, called category captains, were introduced in the late 1980s, and they provided input on shelf space allocation.Information SystemsWalton had always been interested in gathering and analyzing information about his company o perations. As early as 1966, when Walton had 20 stores, he attended an IBM school in upstate New York with the heading of hiring the smartest person in the class to come to Bentonville to computerize hisoperations. Even with a growing network of stores in the 1960s and 1970s, Walton was able to personally visit and keep track of operations in each one, due to his use of a personal airplane, which he used to observe new construction development (to determine where to place stores) and to monitor customer traffic (by observing how full the parking lot was). 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 industrys first chain-wide implementation of UPC bar codes, store-level information could now be collected instantaneously and analyzed. By combination sales data with external information such as weather forecasts, Wal-Mart was able to provide additional support to buyers, improvi ng the accuracy of its purchasing forecasts. In the early 1990s, Wal-Mart developed Retail merge. At an estimated 570 terabytes which Wal-Mart claimed was larger than all the fixed pages on the Internet Retail Link was the largest civilian database in the world. Retail Link contained data on every sale made at the company during a two-decade period. Wal-Mart gave its suppliers access to real-time sales data on the products they supplied, down to private stock-keeping items at the store level.In exchange for providing suppliers access to these data, Wal-Mart expected them to proactively monitor and replenish product on a continual basis. 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, inventory levels and daily sales.15 Wal-Marts vendor-managed inventory (VMI) program (also known as continuous replenishment) required suppliers to manage inventory levels at the companys distribution centers, based on agreed-upon service levels. The VMI program started with PG diapers in the late 1980s and, by 2006, had expanded to include many suppliers and SKUs.16 In some situations, particularly grocery products, suppliers owned the inventory in Wal-Mart stores up to the point that the sale was scanned at checkout.To support this inventory management effort, supplier analysts worked closely with Wal-Marts supply chain personnel to co-ordinate the flow of products from suppliers factories and resolved any supply chain issues, from routine issues such as ensuring that products wereready for pickup by Wal-Marts trucks, and set for the return of defective products, to last-minute issues such as managing sudden spikes in demand for popular items. When Wal-Mart buyers met, on a frequent basis, with a suppliers sales teams, two important topics of review were the suppliers out-of-stock rate a nd inventory levels at Wal-Mart, indications of how well replenishment was being handled. Suppliers were provided with targets for out-of stock rates and inventory levels. 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-Marts satellite network, in addition to receiving and transmitting point-of-sale data, also provided senior management with the ability to broadcast video messages to the stores. Although the bulk of senior management lived and worked in Bentonville, Arkansas, frequent video broadcasts to each store in their network kept store employees informed of the latest developments in the firm. In an effort to imitate Wal-Marts ability to share information with suppliers, Wal-Marts competitors relied on a system similar to Retail Link. Agentrics LLC, a sof tware service provider, developed, in mating with several of global retailers, a software platform called Retail Interface, which collectedstore level sales data which could then be shared with suppliers. Agentrics customer base included many of the worlds top retailers including Carrefour, Tesco, Metro, Costco, Kroger and Walgreens who were also investors in Agentrics.Human ResourcesBy visiting each store and by encouraging associates to open ideas, Walton was able to uncover and disperse best practices across the company in the 1960s and 1970s. To ensure that best practices were implemented as soon as possible, Walton held constant Saturday morning meetings, which convened his top management team in Bentonville. At 7 a.m. each Saturday, the weeks business results were discussed, and merchandising and purchasing changes were implemented. Store layout resets were managed on the weekend, and the renovated stores were ready by Monday morning. Walton and his management team often toured competitors stores, looking for new ideas to borrow. Wal-Mart believed that centralization had numerous benefits, including lowercosts and improved communications between different divisions.All of Wal-Marts divisions, from U.S. stores, International, Sams Club, to its logistics and information systems division were located in Bentonville, a town of 28,000 people in Northwest Arkansas. Regional managers and in-country presidents were the few executives who were stationed outside of Bentonville. Another key to Wal-Marts 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.Being non-union, however, had its drawbacks. As its store network encroached on the territory of unionized grocers, unions, such as the United Food and Commercial Workers Union, started to become more aggressive in their anti-Wal- Mart publicity campaigns, funding so-called grassroots groups whose goals were to undermine Wal-Marts expansion. Wal-Marts size also made it a target for politicians every stumble was magnified and played up in the press. Two of Wal-Marts key supply chain improvement initiatives included Remix and RFID (radio frequency identification tags).