WALMART’S SUCCESSFUL CHAIN MANAGEMENT

Executive summary on Walmart

Walmart is an American multinational retail corporation that runs chains of large discount department
stores. The company was founded by Sam Walton in 1962, incorporated on October 31,1969 and publicly
traded on the New York Stock Exchange in 1972. It is a family owned business, controlled by the Walton
family, who owns over 50 percent of Walmart. It is the world’s second largest public corporation,
according to the Fortune Global 500 list, the biggest private employer in the world withy over two million
employees, and is the largest retailer in the world. Walmart is based on a simple vision; pass on the
savings from buying in bulk on to the customer and earn profits through volume. The company utilizes a
cost leadership strategy in order to compete as a general merchandise. By having strong bargaining power
with suppliers, Walmart is able to offer a considerable value proposition to its customers.

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, Wal-Mart's annual
sales were $350 billion 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. Other major retailers like Target and Home Depot have emulated Wal-
Mart's logistics strategies and tactics

Walmart’s supply chain network and processes

Wal-Mart Supply Chain Network and Processes Wal-Mart operates 1478 Discount Stores in the US and
has a store presence in all 50 States. Wal-Mart’s US supply chain network has 90 distribution centers (DC)
total, with each holding particular product segments and product types. Wal-Mart utilizes a private fleet
for short-haul shipments, which include some inbound and all outbound Segmented Revenue by Business
Unit Revenue in $ billions Wal-Mart Stores, $174.20, 68% International, $47.60 , 19% SAM'S CLUB,
$34.50 , 13% Figure 1 Segmented Revenue by Business Unit (in millions) Chiles and Dau 5 of 14 Wal-
Mart Replenishment Process Overview transportation from DCs. According to Wal-Mart’s 10-K Form,
20% of shipments are made directly from vendors to Wal-Mart Stores and 80% of store replenishments go
through the DC process. When each Discount Store orders products from vendors, the orders are
aggregated by vendor in order to take advantage of risk pooling, allowing vendors to only forecast
aggregated store demand instead of individual store demand. Wal-Mart uses a system called Inforem to
automate their replenishment process for their retail stores. The following figure is a general overview of
the flow of products from vendors to Wal-Mart stores. After vendors receive orders from Wal-Mart, Retail
Link, a proprietary supply chain visibility tool, takes the vendor ship point information and determines a
routing schedule based on cost. If products are not being shipped directly to stores, the two possible
destinations are either to a Wal-Mart DC or to Wal-Mart centre points. Centre points are facilities that
deconsolidate full truck loads from vendors and aggregate those products with products from other
vendors for outbound distribution to Wal-Mart DCs. This is done to lower transportation costs and better
utilize assets through achieving scale on inbound and outbound transportation. From the DC, products are
then sent to Walmart stores. The three types of replenishment processes that Wal-Mart utilizes are
explained in more detail in the following section.

Walmart Replenishment processes: Warehouse, Assembly, Direct to store

In the warehouse replenishment process, products are first stored at the warehouse level and then
distributed to different retail stores. This is a relatively standard retail supply chain process, where vendors
deliver products to retailer warehouses, products are stored in inventory until requested by retail stores,
and orders to replenish stores are fulfilled from distribution centre inventory. The types of products that go
through the warehouse replenishment process are products that are in high demand and have high margins.
In other words, on-shelf availability for these products is very important to Wal-Mart, and thus safety
stock inventory is required. In the assembly replenishment process, products flow through the supply chain
via a modified form of crossdocking. Products arrive at the DC pre-allocated for specific stores and are
batched for delivery to those stores. In other words, the assembly process is similar to the warehouse,
except that the assembly process does not require that products are stored in inventory. The product types
that flow through the assembly replenishment process are products that are not highly demanded with low
price margins. With these characteristics, there is no need for a high safety stock level or a need to store a
staple stock of this inventory in the DC. Wal-Mart is currently evaluating initiatives to Figure 2 Wal-Mart
Replenishment Process Overview Chiles and Dau 6 of 14 extend the assembly process to a larger portion
of its product line, which is discussed later in this summary as a Wal-Mart supply chain initiative. The
following diagram shows how products flow through distribution centers via the assembly process. Figure
4 Wal-Mart Assembly Process The last replenishment process for Wal-Mart stores is shipments directly
from vendors to stores. Products that are shipped directly from vendors are done so for various reasons.
Generally, the products that flow through this type of replenishment process are products that are not easy
to store and are highly demanded. For example, dog food is highly demanded, requires significant shelf
space, and attracts rodents. This process allows Wal-Mart to better utilize DC storage space and allow high
velocity product to flow through the supply chain directly to retail stores. In order for this process to be
successful, Wal-Mart and its vendors must collaborate intimately with one another to ensure that all Wal-
Mart stores are stocked to meet customer demand.

Logistics and supply chain management of Walmart

Walmart began with the goal to provide customers with the goods they wanted, whenever and wherever
they wanted them. The company then focused on developing cost structures that allowed it to offer
everyday low pricing. Next, Walmart concentrated on developing a more highly structured and advanced
supply chain management strategy to exploit and enhance this competitive advantage and assume market
leadership position. Walmart is the largest retail distributors in the world. It is considered as one of the 9 th
wonders of the world, in terms of logistics and distribution systems. Logistics is one of the most
overlooked aspect and an important factor in the success of Walmart. According to Supply Chain Digest,
this global retail giant operates more than 11,700 stores under 59 company names, with 2.3 million
employees in 28 countries around the world while managing an average of $32 billion in inventory. And,
to ensure every aspect of the supply chain is able to function, it takes a fleet of 6,500 tractors, 55,000
trailers and more than 7,000 drivers to accomplish the task. The entire organization is committed to a
business model of driving costs out of supply chains to enable consumers to save money and live better.

Fewer links in supply chain:

Even in its early years, Walmart’s supply chain management contributed to its success. Walmart’s supply
chain innovation began with the company removing a few of the chain’s links, right from the very
beginning. Founder Sam Walton, who owned several Ben Franklin franchise stores before opening the
first Walmart in Rogers, Arkansas in 1962, selectively purchased bulk merchandise and transported it
directly to his stores.
Later, in the 1980s, Walmart began working directly with manufacturers to cut costs and more efficiently
manage the supply chain. Under a Walmart’s supply chain initiative – called Vendor Managed
Inventory (VMI) – manufacturers became responsible for managing their products in Walmart’s
warehouses. As a result, Walmart was able to expect close to 100% order fulfilment on merchandise.
In 1989, Walmart was named Retailer of the Decade, with distribution costs estimated at a mere 1.7% of
its cost of sales – far superior to competitors like Kmart (3.5%) and Sears (5%). The company’s supply
chain has only become more effective since then.

Walmart inventory innovation: Strategic vendor partnerships

Walmart has long practiced strategic sourcing to find products at the best price from suppliers who are in a
position to ensure they can meet demand. The company then establishes strategic partnerships with most
of their vendors, offering them the potential for long-term and high volume purchases in exchange for the
lowest possible prices.

Furthermore, Walmart streamlined supply chain management by constructing communication and

relationship networks with suppliers to improve material flow with lower inventories. The network of
global suppliers, warehouses, and retail stores has been described as behaving almost like a single firm.

When does Walmart restock? Cross-docking as an inventory tactic

Cross-docking is a logistics practice that is the centrepiece of Walmart’s strategy to replenish inventory
efficiently. It means the direct transfer of products from inbound or outbound truck trailers without the
need for extra storage, by unloading items from an incoming semi-trailer truck or railroad car and loading
these materials directly into outbound trucks, trailers, or rail cars (and vice versa), with no storage in
between.
Suppliers have been delivering products to Walmart’s distribution centres where the product is cross-
docked and then delivered to Walmart stores. Cross-docking keeps inventory and transportation costs
down, reduces transportation time, and eliminates inefficiencies. This strategy has reduced Walmart’s
costs significantly, allowing the company to pass those savings on to their customers with highly
competitive pricing.

Walmart’s supply chain management strategy has provided the company with several sustainable
competitive advantages, including lower product costs, reduced inventory carrying costs, improved in-
store variety and selection, and highly competitive pricing for the consumer. This strategy has helped
Walmart become a dominant force in a competitive global market. As technology evolves, Walmart
continues to focus on innovative processes and systems to improve its supply chain and achieve greater
efficiency.

Walmart also has its own transportation system, which helps in shipping goods from the warehouse to the
store. This allows Walmart to restock their stores more rapidly than their competitors. Easy access is
another component in Walmart’s marketing strategy. Having thousands of physical stores and online
storefronts throughout the world, Walmart is extremely accessible to its customers. Additionally, most of
its supermarket locations stay open 24 hours a day, 7 days a week.

Easy access offers more opportunities and more channels for potential business to reach out. As an
example, Walmart is expanding mobile access with Asda (a subsidiary supermarket brand of Walmart
based in Britain) through its Click & Collect initiative. Ease of access also assists customers to shop with
greater information and transparency.
 One of the reasons how Walmart is serve so many customers so perfectly is by hiring distribution experts,
not store managers, at the time when retail stores did not give much importance to logistics. For the job of
logistics, distribution, and supply chain, Walton hired a team of experts in relevant fields to spearhead this
division. Kmart, another similar retail business company that was, during the 1970s, larger than Walmart
and had a very different corporate culture than that of Walmart’s. Kmart has a strict policy of promoting
from within, as opposed to Walmart’s hire-the-best-guy mentality. Kmart was surpassed by Walmart in
terms of sales in the 1990s. Walton’s decision to outsource distribution and supply chain issues to the
experts is one of the most important factors to Walmart’s success.

References:
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