SUPPLY CHAIN MANAGEMENT OF

WALMART
Submitted on: 23rd October 2010

Sub
mitted By:

Elizabeth Cherian
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Supply Chain Management (SCM) is the management of a network of

interconnected businesses involved in the ultimate provision of product and service packages
required by end customers (Harland, 1996). Supply Chain Management spans all movement and
storage of raw materials, work-in-process inventory, and finished goods from point of origin to point
of consumption.

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT

Organizations increasingly find that they must rely on effective supply chains, or networks, to
compete in the global market and networked economy. In Peter Drucker's (1998) new management
paradigms, this concept of business relationships extends beyond traditional enterprise boundaries
and seeks to organize entire business processes throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing and information technology have enabled
many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative
supply networks in which each specialized business partner focuses on only a few key strategic
activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new
form of organization. However, with the complicated interactions among the players, the network
structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of
performance impacts different supply network structures could have on firms, and little is known
about the coordination conditions and trade-offs that may exist among the players. From a systems
perspective, a complex network structure can be decomposed into individual component firms
(Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs
and outputs of the processes, with little concern for the internal management working of other
individual players. Therefore, the choice of an internal management control structure is known to
impact local firm performance (Mintzberg, 1979).

In the 21st century, changes in the business environment have contributed to the development of
supply chain networks. First, as an outcome of globalization and the proliferation of multinational
companies, joint ventures, strategic alliances and business partnerships, significant success factors
were identified, complementing the earlier "Just-In-Time", "Lean Manufacturing" and "Agile
Manufacturing" practices.[8] Second, technological changes, particularly the dramatic fall in
information communication costs, which are a significant component of transaction costs, have led
to changes in coordination among the members of the supply chain network (Coase, 1998).

Many researchers have recognized these kinds of supply network structures as a new organization
form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global
Production Network", and "Next Generation Manufacturing System". In general, such a structure
can be defined as "a group of semi-independent organizations, each with their capabilities, which
collaborate in ever-changing constellations to serve one or more markets in order to achieve some
business goal specific to that collaboration" (Akkermans, 2001).

The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC
28001 and related standards published jointly by ISO and IEC.

SUPPY CHAIN MANAGEMENT OF WALMART

ABOUT WALMART

Wal-Mart Stores, Inc. is an American public corporation that runs a chain of large discount
department stores and a chain of warehouse stores. In 2010 it was the world's largest public
corporation by revenue, according to the Forbes Global 2000 for that year. 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. Wal-Mart, headquartered in Bentonville, Arkansas, is the largest
majority private employer and the largest grocery retailer in the United States. In 2009, it
generated 51% of its US$258 billion sales in the U.S. from grocery business. It also owns and
operates the Sam's Club retail warehouses in North America.

Wal-Mart has 8500 stores in 15 countries, with 55 different names. The company operates under its
own name in the United States, including the 50 states. It also operates under its own name
in Puerto Rico. Wal-Mart operates in Mexico as Walmex, in the United Kingdom as Asda ("Asda Wal-
Mart" in some branches), in Japan as Seiyu, and in India as Best Price. It has wholly-owned
operations in Argentina,Brazil, and Canada. Wal-Mart's investments outside North America have
had mixed results: its operations in the United Kingdom, South America and China are highly
successful, while it was forced to pull out of Germany and South Korea when ventures there were
unsuccessful.

PROCECUREMENT AND DISTRIBUTION

Walmart always bought directly from the manufacturers eliminating all the intermediaries. They
always made sure that they bargained well for the prices and will finalize a deal when the know
that they aren’t going to get a lower price from any other manufacturers. Walmart spends a lot of
time understanding their vendors and their cost structure. Making the process transparent, retailer
could know that the manufacturers are doing their best to reduce cost. Once satisfied, it builds long
lasting relationships with the manufacturer. It does not believe in going to big manufacturers like
P&G. They prefer local and regional vendors and suppliers.
Walmart has over 40 distribution centers at various geographical locations in US. More than 80,000
items are stored here. Walmart’s warehouses directly supply 85% of the inventory. Roughly
Walmart will be able to replenish in 2 days. Its shipping cost is 3% compared to 5% of competitors.
Each distribution centre is divided into different sections. The inventory turnover rate is very high,
about 2 weeks for most of the items. The goods arrive in pallets while imported goods arrive in re-
usable boxes or cases. Items such as automotive and drugs are directly delivered to the store.
About 85% of the items are passed through the distribution centre to the store.
The distribution centre uses barcode technology and hand held computer systems. This helps in
identifying the products and avoids a lot of paper work.

LOGISTICS MANAGEMENT
Another important feature of Walmart’s SCM is its fast and responsive transportation. The
distribution centres are serviced by more than 3500 trucks. These trucks ensure that the goods will
reach from the distribution center to the store in 2 days. They also replenish the stores twice a
week. The company hires only dedicated, careful and committed drivers that they hire only drivers
that have drove a record of 300,000 accident free miles.
These trucks generally move from merchandise-loaded trailers from distribution centers to the
retail store under each distribution centre. To make the distribution process more efficient Walmart
used a technique called cross docking. In this system the finished goods were directly picked from
the manufacturers, sorted and directly supplied to the customers. The system eliminated storage
and distribution centres. To gain maximum out of cross docking, Walmart made fundamental
changes in its managerial approach. Traditionally, decisions about merchandising, pricing and
promotions had been highly centralized and were generally taken at the corporate level. The cross
docking system shifted the focus from supply chain to demand chain which meant instead of
retailer pushing products to the system, customers could pull products when and where they
require. This approach placed a premium on frequent, informal cooperation among stores,
distribution centres and suppliers with far less centralized control than earlier.

INVENTORY MANAGEMENT
Walmart had developed an ability to cater to individual needs of its stores. Stores could choose
from a number of delivery plans. For instance, there could be an accelerated delivery system by
which stores located within a certain distance of a geographical center could receive and replenish
within a day.
Walmart invested heavily in IT and communication system. It was able to reduce unproductive
inventory by allowing stores to manage their own stocks, reducing pack sizes across different
product categories, and timely price markdowns. Instead of cutting inventory across the board,
Walmart made full use of its IT capabilities to make more inventories available in the case of items
that customers wanted most, while reducing overall inventory levels. Walmart also networked its
suppliers through computers. It would identify if the inventory for a product was low and the
supplier would be notified. Then the supplier could send the product to one of the distribution
centres or directly to the store.
The employees at the store had a “magic wand”, a hand held computer which was linked to in
store terminals through radio frequency network. This helped them to keep track of the inventory
in stores, deliveries and backup merchandise in the distribution centres. The order management
and store replenishment of goods were entirely executed with the help of computers at point of
sales.

BENEFITS REAPED
• The savings they made from the prices offered from the manufacturers were passed down to
customers by adding value at every stage and process.
• They also enjoyed benefits of a low transportation costs since it had its own transportation for
delivering good from the distribution centre to the stores.
• They also bought in large quantities which ensured better bargaining power. Thus Walmart
priced its goods economically and prices varied day to day. This ensured that the sales
volume was high and consistent
• The SCM reduced lead time, faster inventory turnover, accurate forecasting of inventory
turnover and increased warehouse space.
• It also resulted in increased efficiency in operations and better customer service. It
eliminated old stock and maintained quality of goods.