Module code: NBS8053

Information System Management

Individual assignment: Case study for Wal-Marts

supply chain management[L1]

Name: Li Yunyun
Student Number: 120229121
Word Limit: 1960
Hand-In Date: 17.05.2013

Name: Li Yunyun

Student number: 120229121

Case study for Wal-Marts supply chain management

Wal-Mart Store, Inc., as the largest retailer in the world, kept holding its top position in
fiscal 2012 (Walmart, 2012). With $446,950 million revenues, it ranked the third in the
Global Fortune 500 List (CNNMoney, 2012). From 1962, when the first Wal-Mart store
was opened by Sam Walton in Rogers, Ark to 2012, Wal-Mart runs over 10,000 retail
outlets in 27 countries, the company has experienced a dramatic growth (Walmart,
2012). This growth can, more often than not, be attributed to its efficient supply chain
management initiatives

[L2](Traub,

2012). It was estimated that Wal-Marts distribution

costs constituted about 1.7% of its cost of sales, which was far less than the figure for its
certain competitors, say, Kmart (3.5%) and Sears (5%)(Johnson, 2006). This study will
attempt to demonstrate that information system/technology does of importance in the
success of supply chain management at Wal-Mart through analysing Wal-Marts
competencies, problems, information technologies used to facilitate its supply chain
management and certain metrics of the happy results.

Background of Wal-Mart Stores, Inc.:

Wal-Mart, like most of top retailers, has both online and offline businesses. According
to the annual report, its revenues are mainly generated by physical stores that can be
generally divided into five different types, including discount store, Sams club
(membership-only stores), supercentres (the combination of discount and grocery
stores) and some smaller outlets such as Neighbourhood Market and Walmart Express.
Also, the fact that Wal-Mart owns over 10,000 retail outlets determines that the
company is characterised by its huge number of associates, exceeding 2 million
(Walmart, 2012; Johnson, 2006).

Moreover, the EDLP (Everyday Low Prices) pricing philosophy is of crucial

importance in the operation of the company. Almost every business process serves and
reinforces this clear principle, including supply chain management. To guarantee a
wide range of quality products and services provided at a relatively low price than most
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Name: Li Yunyun

Student number: 120229121

of retailers, Wal-Mart always follows EDLC (Everyday Low Costs) philosophy, which
means reducing costs while enhance productivity and efficiency throughout its supply
chain (Walmart, 2012).

Competencies possessed by Wal-Mart Stores, Inc.:

Wal-Mart is, doubtless, the largest retailer worldwide due to its huge revenue, which is
far more than other strong competitors. In terms of gross profit, Wal-Mart is as large as
more than four times compared with Target, its closest competitor (Figure 1)
(Abbaterusso, 2010).

Figure 1: Gross Profit Return on Investment of Competitors

Few can deny the reality that Wal-Marts efficient supply chain does gain competitive
edge for the company.

[L3]The

percentage of inventory directly supplied by its own

warehouse constitutes 85%; while for its competitors, this figure ranges from 50% to
65%. Also, the replenishment process only takes 2 days on average, compares with at
least 5 days for others. Additionally, both of Wal-Marts shipping costs and transport
costs stand at approximately 3%, of the total costs, while for its competitors, these two
percentages are about 5% (Chandran, 2003).

* Abbaterusso, 2010, p. 14.

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Name: Li Yunyun

Student number: 120229121

Another competitive advantage is that there are a great many powerful suppliers who
are willing to sell their merchandise to Wal-Mart regardless of the lower prices
provided by the company. The reason for this may be the strong purchasing power
possessed by Wal-Mart. It was estimated that sales to Wal-Mart comprised 17% of
P&Gs revenues and 13% of Gillettes revenues (Johnson, 2006).

Supply chain problems faced by Wal-Mart:

To ensure the right products reach the shelves at the right time and at a lower cost and
thus boost sales and profits is always the major challenge for almost all retailers;
Wal-Mart is no exception (Cottrill, 1997). According to Bill Simon, Wal-Mart US CEO,
the problem of keeping stores shelves stocked has lasted for two years and it is getting
worse, even can pose a threat to Wal-Mart. This issue stems from a decision made in
early 2011, which was to declutter stores and reduce the level of inventories in store.
Due to this change, Wal-Mart chose to discontinue carrying about 8,500 products.
However, the decision seemed to backfire. And many of Wal-Marts customers were
pushed to its competitors to buy merchandise that is not in-stock at Wal-Mart. Besides,
when attempting to reintroduce those 8,500 products, Wal-Mart has problems with
inventories currently i.e., vendors fail to get new items into outlets quickly while
existing products are out-of-stock, which has led to bare shelves at Wal-Mart (Supply
Chain Digest, 2013; Lundgren, 2013).

To enhance efficiency throughout supply chain, cooperation between Wal-Mart and its
suppliers is required. Thus, another challenge for this retail giant arises for two
reasons[L4]. Firstly, Wal-Mart owes 100.000 suppliers differing from company size and
product sales volume, to make all the vendors provide products needed at the lowest
price, a collaborative is necessary. But striking a balance of profit margin between
different parties is very difficult (Walmart, 2012; Chiles & Dau, 2005). Secondly,
because of the EDLP promise to customers, Wal-Mart is a tough negotiator when
purchasing items from manufactures. And the buyers of the company complete procure
process only when they feel customers cannot easily find lower prices for certain items
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Name: Li Yunyun

Student number: 120229121

from their competitors (Chandran, 2003). According to an article called Should you
just say no to Wal-Mart? written by Bowman (1997 cited in Bloom & Perry, 2001),
there are many suppliers feeling being squeezed and pressured by Wal-Mart by means
of lowering prices, shortening delivery time, offering special allowances and carrying
extra inventories.

Information system/technology works in Wal-Marts supply chain management:

This part will be introduced from three segments within supply chain, including
procurement and distribution, logistics and inventory management.

Procurement and distribution:

In order to comply with EDLC philosophy, Wal-Marts decided to go directly to

suppliers to procure items needed, eliminating all the intermediaries; moreover, the
buyers generally spend much time negotiating with manufactures, learning about their
cost structure and making purchasing forecasts before placing orders (Procurement
Insights, 2010; Chandran, 2003).

The retail giant has actually experimented central database, store-level point-of-sale
systems and satellite network since mid-1980s. When combining with the utilisation of
barcodes, it would be possible for staff acquiring and analysing real-time information in
stores. And the combination of sales information and certain external data, say, weather
forecast, enables Wal-Mart to help buyers making purchasing forecasts more accurate
(Johnson, 2006).

In terms of distribution, Wal-Marts distribution centres are geographically different

and each distribution centre could be divided into different sections according to the
quantity of goods and be managed in the same way for both cases and pallets. The
inventory turnover is frequent, roughly once two weeks for majority items. And the
percentage of goods sitting in distribution centres before being directly delivered to
stores by manufactures hit 85%. Thus, efficient management of distribution centres is
of crucial importance in ensuring steady and consistently flow of merchandise
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Name: Li Yunyun

Student number: 120229121

(Chandran, 2003).

The adoption of information technologies such as barcodes or currently RFID (Radio

Frequency Identification) might facilitate this process. Both of these two make it
possible for staff to acquire real-time information about all products stored in
distribution centres. However, RFID, as the next generation of traditional barcodes, can
better satisfy retailers needs and demands for three reasons. Firstly, boxes do not have
to be manually staged to obtain the line of sight necessary for bar coding reading,
which can help in saving handling costs (Tirchwell, 2004). Then, RF tags are able to
store more data than traditional bar codes i.e., it can identify an individual object
instead of an SKU only (Mitchell & Chappell, 2003; Booth-Thomas, 2003 cited in
Jones, et al., 2005). RF tags enables staff involved to get access to information such as
when and where the items was produced and its expiry date (Prater, 2005). Last but not
least, RFID technology aids in identifying and tracking inventory as it flows from
factories to warehouses to stores (Landy, 2004 cited in Jones, et al., 2005).

Logistics:

Wal-Marts logistics infrastructure is best characterised with its powerful transport

system. The number of trucks serving for distribution centres exceeds 3,500. These
truck fleets are capable of finishing goods shipment from distribution centres to stores
within two days and replenishing inventory every week (Chandran, 2003).

In order to boost efficiency of distribution, Wal-Mart adopted cross docking technique.

This system can sort and route products from manufacturers to Wal-Marts warehouses,
and then shipped to stores without sitting for long periods of time in inventory. And this,
can not only contribute to reduction in inventory, handling costs, distribution costs,
operating costs, but also can help in saving space (Ryder, 2013).

Nevertheless, the integration of REMIX technology, the global satellite system that has
benefited Wal-Mart greatly in recent years, seems to change the way used currently to
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Name: Li Yunyun

Student number: 120229121

distribute high velocity products (bread, lettuce, etc.) that are cross docked in smaller
warehouses and have lower level of automation throughout the supply chain. Instead,
this technology enables one distribution centre to serve a cluster of retail outlets so that
to add food distribution centres handling high velocity products (Abbaterusso, 2010).

Inventory management:

The effective inventory management at Wal-Mart relies heavily on the adoption of

information system/technology.

By the use of IT capacities possessed, Wal-Mart can better control the level of inventory
i.e., storing more items that are popular among customers while reducing overall
inventory. Furthermore, computers can link Wal-Mart with the vendors. For instance,
Wal-Mart is cooperating with P&G to maintain inventories in retail outlets and build
reordering system linking all computers of P&G to the companys stores and
warehouses, the computer system would send message to P&G when identifying
certain product needs to be replenish, and then the system will send a replenishment
order to the nearest P&G before P&G delivers items demanded to distribution centre or
to stores (Chandran, 2003).

Another IT application installed for enhancing communication and cooperation

between players within supply chain is Retail Link. Wal-Mart developed Retail Link in
the early 1990s for three purposes: (1) to store data; (2) to share data with vendors; (3)
to help in shipment routing assignment (Chiles & Dau, 2005).

In 1990, Wal-Mart adopted collaborative planning, forecasting and replenishment

(CPRF) to plan and forecast more accurately through supply chain data sharing with its
vendors (Johnson, 2006).

Besides, Inforem and RFID can also facilitate inventory management. Inforem is a
system contributing to the automation of Wal-Marts replenishment process. This
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Name: Li Yunyun

Student number: 120229121

system can decide when to order and how many inventories to order, which renders
replenishment more accurate (Chiles & Dau, 2005). And the installation of RF
technology enables retailers to know the location and quantity of inventory accurately
without counting manually, which can be very time-consuming and prone to errors
(Dunne&Lusch, 2005). But a critical problem limiting the widespread experimentation
of RFID system is costs involved. In 2000, the cost of a single tag was roughly $1. In
2003, the average price of RF tags varied from 15 to 20 cents. But it is predicted that the
use of RFID would be widespread provided that only when the cost of each tag can
reach 5 cents or lower (Donovan, 2003 cited in Prater, et al., 2005).

Overall, Wal-Mart seems always adopts information technology for supply chain
management from mid-1980s to now, and the installation of these systems/technologies
does help in each link within a supply chain; also, these technologies aiding enhancing
core competencies have been kept changing and innovating.

Metrics:
Some claim that successful supply chain management (SCM) generally contributes to
lower product costs and highly competitive pricing for the buyer (University of San
Francisco, 2013). Thus, the happy end would be measured from these two aspects.

Price of goods can be used as a reliable indicator of the improvement of supply chain at
Wal-Mart. Over recent years, it does not guarantee the lowest price in the market, but it
can guarantee a relatively low overall price i.e., it is possible for other retailer to price
certain products lower than Wal-Mart at certain time, say, promotional activity (Chiles
& Dau, 2005).

Moreover, information technologies help Wal-Mart to reduce handling costs, labour

costs and warehouse and distribution costs. Take the installation of RFID technology as
an example. It is estimated that Wal-Mart could save $8.35 billion annually by using
RFID - mostly in labour costs from not having to manually scan the bar codes of
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Name: Li Yunyun

Student number: 120229121

incoming goods (Boyle, 2003, n.p. cited in Jones, et al., 2005). Besides, warehouse and
distribution costs can be reduced by 3 to 5 percent through adopting RF technology
(Wrolstad, 2004 cited in Jones, et al., 2005).

In conclusion, Wal-Mart, the largest retailer over the world, has held its top position
within retail sector for many years. It shows in the case that Wal-Marts competitive
advantages can be mostly attributed to its efficient supply chain (lower distribution
costs, less delivery time, etc.). And IT and communication systems have fully been used
and kept innovating for enhancing the productivity while reducing costs of Wal-Marts
supply chain since last century. Moreover, these systems/technologies can, to some
extent, help the retail giant solve problems faced through ensuring the accuracy and
efficiency of the whole supply chain and promoting communication and collaboration
between Wal-Mart and its partners within supply chain.

Referencing List:
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Name: Li Yunyun

Student number: 120229121

Abbaterusso, J., 2010. Supply Chain Management at Wal-Mart. [Case]

The University of Western Ontario: Ivey.

Bloom, P. N. & Perry, V. G., 2001. Retailer power and supplier welfare: The case of
Wal-Mart. Journal of Retailing, 77 (2001), pp. 379-396.

Chandran, P. M., 2003. Wal-Marts supply chain management practices. [Case]

Hyderabad: ICFAI Center for Management Research.

Chiles, C. R. & Dau, M. T., 2005. An Analysis of Current Supply Chain Best Practices
in the Retail Industry with Case Studies of Wal-Mart and Amazon.com. Master.
Massachusetts: Massachusetts Institute of Technology.

CNNMoney, 2012. Global 500. [Online]

Available

at:

http://money.cnn.com/magazines/fortune/global500/2012/full_list/

[Accessed 23 April 2013].

Cottrill, K., 1997. Reforging the supply chain, Journal of Business Strategy, 18 (6), pp.
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Dunne, P. M., & Lusch, R. F., 2005. Retailing. 5th ed. Mason, OH: South-Western.

Johnson, P. F., 2006. Supply chain management at Wal-Mart. [Case]

28 November 2006 version. Richard Ivey School of Business, the University of
Western Ontario: Ivey.

Jones, M.A. et al., 2005. The adoption of RFID technology in the retail supply chain.
The Coastal Business Journal, 4(1), pp. 29-42.

Lundgren, M., 2013. Supply Chain Issues Plague Walmart. [Online]

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Name: Li Yunyun

Available

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at:

http://www.resolvergrc.com/supply-chain-issues-plague-walmart/

[Accessed 24 April 2013].

Prater, E. et al., 2005. Future impacts of RFID on e-supply chains in grocery retailing.
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Procurement Insights, 2010. A Winning Strategy: Is Walmart Right To Delayer? (A

Guest Author Post by IACCMs CEO Tim Cummins). [Online]
Available

at:

http://procureinsights.wordpress.com/2010/03/09/a-winning-strategy-is-walmartright-to-%E2%80%98delayer%E2%80%99-a-guest-author-post-by-iaccms-ceo-t
im-cummins/ [Accessed 25 April 2013].

Ryder, 2013. Cross Docking. [Online]

Available

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http://www.ryder.com/supply-chain/solutions-by-capability/warehousing-and-dis
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at:

http://www.scdigest.com/ontarget/13-03-04-1.php?cid=6794&ctype=content
[Accessed 24 April 2013].

Tirchwell, P., 2004. Retailers raise the bar on logistics performance. The Journal of
Commerce, 5(3), 14-19.

Traub, T., 2012. Wal-Mart Used Technology to Become Supply Chain Leader. [Online]
Available

at:

http://www.arkansasbusiness.com/article/85508/wal-mart-used-technology-to-be
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come-supply-chain-leader?page=all [Accessed 23 April 2013].

University of San Francisco, 2013. Walmarts Keys to Successful Supply Chain

Management. [Online]
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at:

http://www.usanfranonline.com/wal-mart-successful-supply-chain-management/
[Accessed 25 April 2013].

Walmart, 2012. 50 years of helping customers save money and live better, 2012 Annual
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