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Project - Supply - Chain - Management - at - Wal - Mart Sukanya 20212MLS0040
Project - Supply - Chain - Management - at - Wal - Mart Sukanya 20212MLS0040
Project - Supply - Chain - Management - at - Wal - Mart Sukanya 20212MLS0040
PROJECT REPORT
ON
SUPPLY CHAIN MANAGEMENT AT WAL-MART
By
SUKANYA BASAVARAJ
I also declare that this study is the outcome of my own efforts and that it has not
been submitted to any other university or Institute for the award of any other degree
or Diploma or Certificate.
A fruitful work is incomplete without paying a word of thanks to all the people who
are directly or indirectly involved in its completion. We feel immense pleasure and
privilege in expressing our deepest and most sincere gratitude to our supervisor DR.
Aurobindo KS, for his excellent guidance throughout project. His kindness,
dedication, hard work and attention to detail have been a great inspiration to us. My
heartfelt thanks to you sir for the unlimited support and patience you have shown to
us. I would particularly like to thank his for all his help in patiently and carefully
correcting all our manuscripts.
I would like to extend my gratitude to several persons who helped to conduct the
research directly or indirectly. These people have extended their valuable help,
support, and cooperation.
The study has indeed helped me to explore more knowledgeable avenues related to
my topic and I am sure it will help me in my future.
SUKANYA BASAVARAJ
20212MLS0040
INDEX
S.NO DESCRIPTION PAGE NUMBER
3. HISTORY-WALMART 6
7. LOGISTICS MANAGEMENT 11
8. INVENTORY MANAGEMENT 12
USED AT WAL-MART 13
12. CONCLUSION 19
Introduction to Supply Chain Management
Supply Chain Management is the discipline which encompasses the end to end
business activities carried out in any business, independent of the manufacturing or service
sectors. It is the synchronization of a network of facilities and distribution options that
performs procurement of materials, processing the materials into finished products, and
distribution of the products to customers. SCM is seen as involving five fundamental
processes. These include planning, sourcing, making, delivering, and returning.
Typical supply chain showing interrelations between all involved parties. [Source:
Auto-ID: Managing Anything, Anywhere, Anytime in the Supply Chain, Bose and Pal, ACM
August 2005]
SCM subsists in both service and manufacturing environments. A typical supply chain
consists of many interactions between suppliers, manufacturers, distributors, retailers,
with the vital goal of providing either a service or a product to customers. This also works
in reverse with the customer at the head of the process when returning a product.
Three Levels of SCM [Source: Auto-ID: Managing Anything, Anywhere, Anytime in the
Supply Chain, Bose and Pal, ACM August 2005]
Strategic SCM covenants with future planning than looking at market evaluation, capacity
issues, new products, and technology changes. This planning is addressing issues that may
be factors several years out. This is accomplished at the executive management level.
Tactical SCM involves a shorter planning cycle. It is more concerned demand planning,
inventory planning, and supply planning. This is determined at a less senior level than
Strategic SCM.
There are many decisions that are made while looking at SCM. They follow the categories as
discussed above. Strategic decisions are made over longer periods of time and linked to a
corporation s strategy. Operational decisions are more or less short term in nature and
look after day to day activities. Mainly Four major decisions are considered. They include
decisions on location, production, inventory, and transportation. A geographically strategic
placement of the production facilities is key to creating a successful supply chain. Decisions
on what products to be produced have to be made wisely and strategically. Also, where
these products (which locations) will be manufactured is very important to SCM. Inventory
decisions and management is critical. Some inventories are necessary to hedge against
uncertainty, but this comes with a cost. Managing these inventories proficiently will be of
benefit to the corporation. Transportation decisions include cost versus benefit. Air
transportation is costly, but fast and reliable. Other modes of transportation may be
cheaper, but the sacrifice has to hold inventories due to delays that may occur. If the above
decisions are made with careful and strategic thought as well as with concern for
integration, the supply chain should be efficient and successful.
The complete goal of SCM is to optimize supply chains in an endeavor to provide more
accurate and time sensitive information that can be used to improve process times and cut
costs. Supply chains have been around for decades and a constantly being improved. The
newest opportunity for improvement is the introduction of Radio frequency
identification (RFID) tags. RFID technology will provide real-time information that will
allow manufacturers to get better readings of customers and markets thus further
improving supply chains. RFID will help retailers provide the right products at the right
places at the right times. Finally, maximizing sales and profits.
Wal-Mart has been leading the charge with RFID technology. Having the largest retailer
adopt and begin to use RFID technology has given strong backing to the technology and will
only further and quicken the expansion of RFID. They have begun requiring all their major
suppliers to implement RFID technology on all products supplied to Wal-Mart.
One example of what Wal-Mart has done with SCM and its suppliers is that of its
relationship with Proctor & Gamble. These two have built a software system that
hooked Proctor & Gamble up to Wal-Mart s distribution centers. This system would then
monitor supply levels and when products run low, automatic alerts are sent out to require
the shipment of more products to that distribution center. Wal-Mart has taken this as far as
going to the individual store locations. The shelves are monitored in real time via satellite
links that send inventory messages whenever Proctor & Gamble products are scanned at a
register. This allows Proctor & Gamble to be fully aware of up to the minute product
inventories at the actual store locations and ship additional products as necessary. This
concept is a huge step in making SCM as efficient as it can be.
History-Wal-Mart
Wal-Mart is one of the leading Fortune 500 companies, which is spread across the globe. It
is perhaps the largest retail chain which deals with everything from food to consumer
electronics. In terms of the revenue generated, it leads the fortune 500 companies like GE
and Microsoft. Simply put, it has everything a homemaker can ever think of. Affordable
price range coupled with aggressive online and market strategy has led to wide acceptance
for Wal-Mart in towns and cities alike. Wal-Mart is probably the only largest fortune 500
corporations in the world, which directly services the common man.
Supply chain management has been the foundation to Wal-Mart s success and remains their
chief competitive advantage in the retail/department store industry. Their distribution
system is generally regarded as the most efficient and they have an approach to supply
chain management that has long emphasized visibility through the sharing of information
with their suppliers.
Operations
Wal-Mart Stores
SAM S CLUB
Wal-Mart International
Wal-Mart Stores segment is the largest segment, which accounted for approximately 67.3%
of their 2005 fiscal sales. This segment consists of three different retail formats, all of which
are located in the United States. This includes the following sections:
Super-centers, which average approximately 187,000 square feet in size and offer a
wide variety of products and a full-line supermarket;
Discount Stores, which average approximately 100,000 square feet in size and offer
a wide variety of products and a limited stock of food products; and
Neighborhood Markets, which average approximately 43,000 square feet in size and
offer a full-line supermarket and a limited variety of general merchandise.
SAM S CLUB segment consists of membership warehouse clubs in the United States which
accounted for approximately . % of 5 fiscal sales. SAM S CLUBs in the United States average
approximately 128,000 square feet in size.
Wal-Mart International operations are located in Argentina, Canada, Germany, South Korea,
Puerto Rico and the United Kingdom, the operations of joint ventures in China and
operations of majority-owned subsidiaries in Brazil and Mexico. This segment generated
approximately 19.7% of 2005 fiscal sales. Here, it operates several different formats of
retail stores and restaurants, including Super-centers, Discount Stores and SAM S CLUBs.
For the fiscal year ending January 31, 2005, Wal-Mart topped $10 billion in net income for
the first time in their history and added almost $29 billion in sales.
Business Model
A Business model is crucial to any successful business. Wal-Mart is no exemption. Wal-Mart
has always been revolutionizing and enlightening its business model to suite its
organizational goals and also meet customer requirements, and so has managed to stay on
top year after year. Wal-Mart has employed a mixed-business model for its business for the
same.
To understand the Business models used by Wal-Mart, firstly it is important to know the
factors, which go in defining those models, and how does it relate to Wal-Mart specifically.
Organizational Development
Wal-Mart has restructured its business into two parts to handle specific organizational
needs.
Specialty Division
Retail Division
Wal-Mart Stores
Super centers
SAM'S CLUBS
Neighborhood Market
Internationalwalmart.com
Wal-Mart has distribution centers in different geographical places in US. Wal-Mart s own
warehouses supplies about 80% of the inventory. Each distribution center is divided in
different groups depending on the quantity of goods received. The inventory turnover rate
is very high, about once every week for most of the items. The goods to be used internally
in US arrive in pallets & imported goods arrive in re-usable boxes.
The distribution centers ensured steady flow & consistent flow of products. Managing the
center is economical with the large-scale use of sophisticated technology such as Bar code,
hand held computer systems (Magic Wand) and now, RFID. Every employee has access to
the required information regarding the inventory levels of all the products in the center.
They make 2 scans- one for identifying the pallet, and other to identify the location from
where the stock had to be picked up. Bar codes & RFID are used to label different products,
shelves & bins in the center. The hand held computers guide employee to the location of the
specific product. The quantity of the product required from the center is entered in the
hand held computer, which updates the information on the main central server. The
computers also enabled the packaging department to get accurate information such as
storage, packaging & shipping, thus saving time in unnecessary paperwork. It also enables
supervisors to monitor their employees closely in order to guide them & give directions.
This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency of
distribution center management operations.
Logistics Management
This involves fast & responsive transportation system. More than 7000 company owned
trucks services the distribution centers. These dedicated truck fleets enables shipping of
goods from distribution centers to the stores within 2 days and replenish the store shelves
twice a week. The drivers hired are all very experienced & their activities are tracked
regularly through Private Fleet Driver handbook. This allows the drivers to be aware of
the terms & conditions for safe exchange of Wal-Mart property, along with the general code
of conduct.
For more efficiency, Wal-Mart uses a logistics technique called Cross Docking. )n this
system, finished goods are directly picked up from the manufacturing site of supplier,
sorted out and directly supplied to the customers. This system reduces handling & storage
of finished goods, virtually eliminating role of distribution centers & stores. Because of
cross-docking the system shifted from supply chain to demand chain which meant,
instead of retailers pushing the products into the system, the customers could pull the
products, when & where they required.
Inventory Management
Considering the rapid expansion of Wal-Mart stores, it was essential to have a very good
communication system. For this, Wal-Mart set up its own satellite communication system in
1983. This allowed the management to monitor each and every activity going on in a
particular store at any point of the day and analyze the course of action taken depending on
how the things went.
Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores
to manage their own stocks, thereby reducing pack sizes across many categories and timely
price markdowns. Wal-Mart makes full use of its IT infrastructure to make more
inventories available in case of items that customers wanted most, while reducing overall
inventory. By making use of Bar-coding & RFID technologies, different processes like
efficient picking, receiving & proper inventory control of the products along with easy
packing and counting of the inventories was ensured.
Wal-Mart owns the Massively Parallel Processor (MPP), largest & the most sophisticated
computer system in private sector, which enables it to easily track movement of goods &
stock levels across all distribution centers and stores. For emergency backup, it has an
extensive contingency plan in place as well.
Employees use Magic Wand, which is linked to in-store terminals through a Radio
frequency network, to keep track of the inventory in stores, deliveries and backup
merchandise in stock at the distribution centers. The order management and store
replenishment of goods is entirely executed with the help of computers through Point of
Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to forecast the
quantities of each item to be delivered, based on inventories in the store. A Centralized
inventory database allows the personnel at the store to find out the level of inventories and
location of each product at a given time. It also shows the location of the product like
distribution center or transit on the truck. When the goods are unloaded at the store, the
inventory system is immediately updated.
Competitive Advantage
Wal-Mart has been an undisputed leader in offering the markets lowest prices to
consumers. )t has always given a price match guarantee , and has challenged other stores to
offer lesser prices and has agrees to reimburse the difference, the difference of price if any.
No other store could meet this and Wal-Mart has been leading the pack for years.
Market Opportunity
Wal-Mart employs a combination of two Business Models viz.
B2B Single firm network Business Model – SAM S CLUB segment of Wal-Mart supports
small businesses. Its main focus in this segment is to create its own network of trusted
partners to coordinate supply chains and provide exceptional value on brand-name
merchandise at Members Only prices.
B2C E-Tailor Business Model– Wal-Mart uses clicks and bricks methodology to provide
millions of its customer s online version of its retail store, where customers can shop at any
hour of the day or night without leaving their home or office.
Wal-Mart employs Sales revenue model as it is mainly involved in sale of goods and
services.
These two models help Wal-Mart in achieving its business perspectives related to its firms
organizational needs and the second helps in its interaction with the customer and
manages goods and services offered by Wal-Mart to the end users.
RFID in Wal-Mart
Wal-Mart had initiated its plan to employ RFID technology in its supply chain in June 2003.
Subsequently Wal-Mart reinforced its plans and actively asserted on defining the RFID
standards it will be implementing.
The specification of the following RFID components was laid out in November 2003.
The TAG will carry the 96-bit serial number and will be field-programmable, that will allow
the suppliers to write serial numbers to the tags while being applied to the products.
Class1 provides the capability to the end users to write serial number on it
In addition, Wal-Mart is planning to enhance mobility to its existing RFID tag readers by
implementing RFID-enabled forklift. These readers will have the capability to read the tags
on the pallets and transmit data through the RFID network, which would help the users to
be better informed about the supply-chain data.
The various components of Supply Chain are: Procurement, Distribution, Logistics and
Inventory Management.
Since the core of Wal-Mart business is perpetual improvement in its Supply Chain
implementation, it believes in no-compromise on implementing an innovative )T
infrastructure and strong communication system as they are they the important links in the
chain for a smooth functioning of the complete system.
Wal-Mart tapped RFID technology with an aim to increase the efficiency of its supply chain.
This is because RFID implementation will enhance transparency of their supply chain and
hence will help them minimize cost and labor and will strengthen inventory control.
According to Venture Development Corporation,
With Wal-Mart selling over $245 billion worth of goods in fiscal year 2003,
a 1% improvement in the out-of-stock issue could generate nearly $2.5
billion in very profitable sales.
In addition, a study by Cohen at Wharton chalks out the difference between the existing
inventory management and the RFID enabled supply chain.
)n current systems, you may know there are items on the shelf, and that
information is compiled in an enterprise planning software system. With
RFID, you know there are 10 items, their age, lot number, and expiration
date and warehouse origin. "It's like knowing there are 1,000 people in a
city," says Cohen. "With RFID, you know their names."
From the above studies it indicates that employing RFID technology will help in
implementing a seamless supply chain and hence yield profits.
The increase in their efficiency is evident from the news article at Breitbart.com, where it
states that implementation of RFID tags in Wal-Mart s inventory has helped boost sales by
keeping shelves better stocked. Usage of RFID has reduced out-of-stock merchandise by
16% at the stores that have implemented RFID tags for more than a year. The CIO at
WalMart stated that,
Wal-Mart has been able to restock RFID-tagged items three times as fast as non-
tagged items.
The recent studies show that 130 major suppliers ship merchandise to Wal-Mart
distribution centers with about 5.4 million tags. Wal-Mart expects to increase RFID
implementation by adding another 200 suppliers that are projected to supply to another
1000 stores.
Global standards: A single global RFID standard is highly unlikely to evolve. Like
barcodes, standards for RFID will probably vary between many regions of the
world. Multinationals like Wal-Mart may need to implement a variety of RFID
standards and technologies across their global organizations.
Cost: Any developing technology is associated with high costs and so is RFID, which is
highly expensive to implement. )ndividual tags cost about cents each; this will drop
to between one and five cents per tag once billions are being produced . And
depending on functionality, tag readers can cost anywhere from several hundred to
several hundred thousand dollars. The largest cost issues, however, reside in the
required size of the databases, their integration with a company s current systems
and the effective transmission of information. Associated costs can approach the
millions of dollars, but they are unavoidable if the full benefits of RFID are to be
realized.
Industry Standards: Many privacy advocates are insisting the companies to state
their intended use of the technologydue tolack of industry standards regarding the
use of personal information that could be encoded on the chips.
Privacy and civil liberties: One major confrontation for RFID technology would be
to deal with the threats to consumer privacy and civil liberties. RFID tags can be
embedded into/onto objects and documents without the knowledge of the
individual who obtains those items.
Must be programmed, applied and verified individually, and data synchronization is
usually required.
A final barrier to implementation that may need managing is employee acceptance,
particularly in light of potential job losses.
Merchants must not force their customers into accepting RFID tags in the products
they buy.
RFID must not be used to track individuals absent informed and written consent of
the data subject. Human tracking is inappropriate, either directly or indirectly,
through clothing, consumer goods, or other items.
RFID should never be employed in a fashion to eliminate or reduce anonymity. For
instance, RFID should not be incorporated into currency. Future of RFID
Conclusion-
What Should Wal-Mart Do?
Wal-Mart should redefine the scope of its RFID mandate by narrowing the scope of
products to those with limited amounts of metal and liquid. Suppliers would not be affected
with a narrower focus on high-priced products like prescription drugs, apparel, and DVDs
etc. It gives additional time for vendors and suppliers to perfect tag reliability for all
products. Forrester recommends that Wal-Mart use its influence to help create a buying
consortium, giving suppliers the collective power to cut tag costs .
Suppliers should use their initial knowledge to shape mandates by Wal-Mart and other
retailers. )n addition to addressing the challenges they are facing in implementing RF)D
with Wal-Mart, suppliers should create an internal RFID lead position with direct access to
the CEO .