Wal-Mart's Supply Chain Excellence
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ScribdTranslationsWal-Mart's Supply Chain Excellence
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ScribdTranslationsWAL-MART CASE.
Excellence in SCM
Wal-Mart Stores, Inc.1
In the early years of Wal-Mart, Procter & Gamble (P&G) imposed the quantity of
product that I was willing to sell you and I set the conditions of price and delivery.
Over time, the electronic reading of barcodes and the greater capacity of
data processing allowed distributors to have better information
about the consumption and rotation of stock in the different points of sale. This
fact, along with the emergence of new manufacturers competing for linear space,
it weakened P&G's dominant position. The first and most successful challenge to the
traditional practices of P&G was the Wal-Mart chain.
In this regard, Wal-Mart redefined its relationship with suppliers, avoiding agreements.
preferred, eliminated the manufacturers' representatives, centralized purchases and moved to
dictate the terms of the relationship and supply. She was reluctant to buy products.
that they did not carry barcodes and established the practice of collect calls to
the manufacturers. In 1993, no manufacturer accounted for more than 2.4% of their purchases. Without
embargo, at the beginning of the nineties, Wal-Mart began a cooperation strategy
with some large manufacturers (P&G, General Electric, and Rubbermaid), sharing
data on sales forecasting through interconnected computers, with the
hope that the manufacturer could anticipate their needs.
Background of the Wal-Mart model
Since the opening of the first store in 1963, Wal-Mart has implemented an aggressive policy in
price based on the fact that the customer prefers to pay less "every day" for a
brand product, instead of having to wait for the sale price. Its expansion to
through large establishments (2,300 square meters) in small communities
(3,000 inhabitants), with minimal margins, was ignored by the distributors.
established, which continued to focus on the competitors from the big cities. This
he forced him to build his own warehouses to be able to make large orders and obtain
volume discounts. On the other hand, it adopted a saturation policy that consisted of
in grouping the stores into areas of 500 square kilometers around the points of
distribution. In this way, he made a daily delivery of goods to the stores.
Around 80% of Wal-Mart's purchases were supplied from the 27 centers of
company distribution, compared to 5% of the competition. The rest was supplied
directly from the manufacturers to the stores and it was their responsibility to have the
merchandise available for shipment. For this, shipping platforms were incorporated.
direct transfer (cross-docking) from the manufacturer's truck to the vehicles
of Wal-Mart distribution. In 1994, almost 10% of deliveries were handled
through that system. With this operation, unlike the competition, Wal-Mart
it avoided the cost of intermediaries in distribution. Moreover, the proximity between the
different stores allowed him to maintain advertising costs of 0.6% of sales,
compared to the 2% or 3% of the competition.
The high productivity of employees, along with the most advanced technology, a
corporate shipping and transportation department, and an efficient fleet of trucks,
made the distribution system a fundamental quality of service tool for
the end customer. In this sense, each store receives a minimum of five trucks
weekly with merchandise, even if not all the truck's load is used, since a
The same route can serve multiple stores. The same trucks take advantage of the trip.
to collect returned merchandise and, in fact, new deliveries from some manufacturers. A
In the mid-90s, the fleet was made up of 2,000 trucks and 2,500 people. Each
store can choose from several options regarding the frequency and schedule of the
deliveries, which preferably are at night for more than half of the stores. In 1989,
More than 300,000 deliveries were made to the stores, with 99% of deliveries being on time.
The accuracy of the orders fulfilled in those deliveries exceeded 99%.
In this sense, Wal-Mart is valued as one of the 100 best companies to work for.
People want to work in the United States. With almost 600,000 employees (by the end of the
90's), 30% of which part-time, Wal-Mart reinforces responsibility of
these and their recognition, sharing ideas on how to improve the results and
sharing information about sales, profits, inventory turnover, etc.
In this regard, use incentives to motivate employees. For example, if a
store manages to keep losses below the company's target, all the
employees of that store receive a bonus. In 1999, it was estimated that their
drops were slightly above 1%, compared to the 2% average of
sector.
Change of strategy
P&G was the first supplier to connect with Wal-Mart's computers to
share sensitive information about sales and product turnover. It was the
result of a change in strategy by P&G, in seeking new ways to
service relationship that allowed Wal-Mart to improve its offer to the final consumer.
To this end, a dedicated team of 70 people was assigned to resolve it instantly.
the problems that could arise and look for opportunities for improvement. In reality, the
investments made by P&G were directly related to the needs of
information about Wal-Mart. In the late 90s, Wal-Mart was the main customer of P&G,
a total of 10% of the sales.
Initially, the electronic connection (EDI) allowed Wal-Mart to place orders with 3,600
suppliers, which accounted for 90% of their purchases. Gradually, the program
se fue ampliando para incluir aplicaciones relacionadas con las previsiones de demanda,
planning, restocking of goods and shipments, in addition to billing
electronics with 65% of manufacturers.
In its new line of action with some major manufacturers, Wal-Mart has renounced
manage the entire order process to allow manufacturers to determine the
quantities of their products in stores. With this, manufacturers acquired the
responsibility to decide what the appropriate number of units of each product was
that should be kept on the shelf according to the forecasted sales. In this way, Wal-
Mart would evaluate profitability by comparing inventory turnover and stockout rates.
of stocks. Companies that improved their results could renegotiate the
prices, while those that did not succeed would eventually be eliminated as
suppliers.
1
This case has been prepared from various sources, among which it is worth highlighting the
Pankaj Ghemawat's works (1999): Strategy and the Business Landscape, New York:
Addison-Wesley; and by David J. Frayer (1992): 'P&G meets Wal-Mart', in Strategic
Marketing Channel Management, New York: McGraw-Hill.
Web pages. Internet references to find recent information.
[Link]
[Link]
[Link]
Art, Giant of Distribution and the Great Idea of 'Uncle Sam'
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[Link]
Walmart is again the largest company in the world according to
fortune/prontus_df/2011-07-08/[Link]
Analytical questions about the readings from Wal Mart:
Is there any relationship between supply chain management and the promise?
service 'Always low prices'?
2. What role do suppliers play in Wal Mart's logistical model?
3. In addition to mere control and management of information, what benefits can it bring?
the implementation of technologies in the supply chain?
4. How has Wal Mart's distribution been organized since the 1990s?
What is your opinion on that way of conceiving channels?
5. What is your opinion on the decision made by Wal Mart to allow
that manufacturers decide how much product to display in their stores?
What advantages and what risks does this decision entail?
6. What do you believe are the reasons for a large chain like Wal Mart
has not penetrated the Colombian market, however, this country represents
great opportunities for growth and expansion in the large business
surface.
7. Will it be important for a company to have something like a ten-point code of rules?
Sam Walton? How do those thoughts materialize into logistical actions?
concrete aspects of daily life?
8. In your opinion, what is the main competitive advantage that Wal Mart has?
their competitors?
9. Wal Mart has been chosen by Fortune for the second year as the most
The 'great' of the world. Does the Supply Chain have anything to do with that success?
Yes–No, why?
10. How is the highest level of customer service achieved at the lowest financial cost?
operational? Isn't this a contradiction in Logistics?
Common questions
Powered by AIWal-Mart's adoption of technology, particularly the electronic reading of barcodes and data processing, provided enhanced insight into consumption and stock rotation. This enabled more effective stock management and reduced supplier dominance in negotiations. Additionally, interconnecting computers with major manufacturers allowed real-time data sharing, improving sales forecasting and reducing stockouts, thus optimizing the supply chain .
Allowing manufacturers to manage in-store inventory posed the trade-off of relinquishing some control over shelf stock levels, potentially increasing the risk of stockouts. However, it enabled manufacturers to use their expertise to optimize stock levels according to sales forecasts. This shift allowed Wal-Mart to focus resources on other efficiencies while potentially increasing sales and reducing excess inventory due to refined stocking practices .
Cross-docking allowed Wal-Mart to transfer products directly from manufacturer trucks to retail distribution vehicles, significantly reducing handling and storage costs. This approach streamlined logistics, differentiating Wal-Mart from competitors who bore the costs of longer storage times and additional handling. The implementation of cross-docking helped maintain lower overhead costs and increased delivery efficiency, providing a competitive edge in its logistics model .
Supplier collaboration was pivotal as Wal-Mart shared sales forecasts with key manufacturers like P&G, enabling them to anticipate demands and streamline inventory management. This partnership approach, initially started with electronic data interchange (EDI), evolved to allow manufacturers to manage inventory levels directly, which reduced the need for Wal-Mart to micromanage stocking and focused on improving turnover and profitability assessment .
Redefining supplier relationships empowered Wal-Mart to set terms that aligned with its operational and pricing strategies. By collaboratively sharing data for better stock management and profitability assessments, Wal-Mart managed to reduce product costs and enhance supply chain responsiveness. This innovation positioned Wal-Mart ahead of competitors, underlining its reputation as a cost leader and its commitment to everyday low pricing .
Centralizing purchases consolidated Wal-Mart’s negotiating power by allowing bulk buying, which attracted volume discounts and better pricing terms. This centralization dismantled traditional supplier-dictated terms, enabling Wal-Mart to dictate conditions regarding delivery and pricing, thereby reinforcing its low-price philosophy as an integral part of its competitive strategy .
Wal-Mart's strategy to focus on small communities with their large establishments allowed the company to operate with minimal margins, forcing them to build their own distribution infrastructure to take advantage of volume discounts. This approach was overlooked by established distributors who focused on urban competitors. As a result, Wal-Mart concentrated its stores around distribution centers to efficiently manage logistics, reducing intermediary costs and redefining supplier relationships by bypassing traditional practices .
The decision to eliminate intermediaries was driven by the need to reduce distribution costs, enhance pricing power, and improve efficiency. By controlling the supply chain end-to-end, Wal-Mart minimized dependency on third parties, leveraging direct sourcing to negotiate better terms and ensure greater control over product availability and pricing, thus ensuring sustained low operational costs .
Wal-Mart's distribution innovations, including centralized purchases, direct supplier relationships, and cross-docking, have significantly lowered operational costs, streamlined logistics, and improved delivery efficiency compared to other major retailers. These approaches enabled Wal-Mart to maintain lower prices, ensure high product availability, and maximize inventory turnover, thereby reinforcing its market dominance through a consistent low-price strategy .
The strategic partnerships with manufacturers such as P&G allowed Wal-Mart to redefine supply chain management by integrating sales and inventory data systems. This cooperation facilitated better demand forecasting and inventory turnover. P&G’s involvement extended to real-time problem solving and aligning logistics investments with Wal-Mart’s needs, enhancing supply chain efficiency and aiding in Wal-Mart becoming P&G’s primary customer .