Systems and Operations Management: Wal-Mart

Wal-Mart
Company overview using key concepts from Managing Business Process Flows As on 2007

Wal-mart FACTS
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founded by Sam Walton in 1962 the largest retailer in the world and the second largest corporation in the world (behind Exxon Mobil based on revenue as of 2006)

the largest private employer in the United States and Mexico

the largest grocery retailer in the United States the largest toy seller in the United States For the fiscal year ending January 31, 2006, Wal-Mart reported net income of $11.2 billion on $313 billion of sales revenue (3.5% profit margin)

Wal-mart & the COMPETITION

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To sustain competitive advantage, a firm must ensure that its competition finds it hard to imitate its chosen position. COMPANY INDUSTRY AVG. Wal-mart TARGET KOHLS DOLLAR GENERAL BIG LOTS SALES (MIL)
FY2006

39,992 312,427 55,363 14,247 8,941 4,534

Wal-mart & the COMPETITION

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Responsiveness

A
B

operations frontier

High

Low

Price

Wal-martS PRODUCT ATTRIBUTES

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What are the 4 key product attributes??? .product cost, product delivery-response time, product variety, product quality Wal-marts product cost? Low

Wal-marts product delivery-response time? Low

Wal-marts product variety? High Wal-marts product quality? Low - Medium

Wal-mart Strategy
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WAL-MART STRATEGY & OPERATIONS STRUCTURE

Enable everyday low prices and above average profitability by procuring, distributing, and selling products, when and where needed, at lower costs than any competitor.

Operations Strategy
Short Response Times Low Inventory Level

Operations Structure Fast Transportation System Cross Docking Retail Link RFID

Process Flow Measures: Wal-Mart

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Process Flow Measures Flow Time (T) total time spent by a flow unit within process boundaries Flow Rate number of flow units that flow through a specific point in the process, per unit of time

Inventory (I) total number of flow units present within process boundaries
Throughput (R) average flow rate or average number of flow units that flow through the process, per unit of time

Littles Law: Average Inventory (I) = Throughput (R) x Average Flow Time (T) or I=RxT
Inventory Turns or Turnover Ratio number of times inventory is sold and replaced during a specific period, R/I

Process Flow Measures: Wal-Mart

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Wal-Mart is extremely efficient with low flow times, high flow rates, and low inventory. As of January 31, 2006: Inventory as a percentage of the Balance Sheet was 23.3%, down from 40.1% in 1997 Inventory Turnover was 7.8, up from 5.3 in 1997 Days Inventory was 46.8, down from 69.6 in 1997

Flow-Time Analysis: Wal-Mart

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Wal-Marts merchandise replenishment cycle is no more than 48 hrs.

Customer made a purchase Point-of-sale system captures data in real-time Data is transmitted to warehouses for Inv. Mgmt. Orders are generated from previous-day sales Merchandise is loaded onto trucks using cross-docking Merchandise is delivered to the store The store will restock the shelves with merchandise

Retail Link transmits data to supplier

Merchandise is manufactured based on historical and real-time data

Merchandise is shipped to warehouses

Retail Link real-time point-of-sales (POS) data transmission Cross Docking Fleet of 7,000 trucks in US

Flow-Time Analysis: Wal-Mart

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Walmarts Centralized Hub-andSpoke System of Warehouses and Distribution Centers

250 mile radius

Flow-Time Analysis: Cross Docking

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Cross docking: take a finished good from the manufacturing plant and deliver it directly to the retail store with little or no handling in between.

Flow-Time Analysis: Advantages of Cross Docking

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Reduces operating costs. Increases throughput.

Reduces inventory levels.

Helps in increase of sales space.

Eliminates unnecessary handling and storage of product.

Reduces product damages and product obsolescence.

Supplier Management: Retail Link

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Retail Link is a decision support system It is a bridge between Wal-Mart and its suppliers

It is an address you can visit via Internet to retrieve the sales data, inventory data, information on its development

Inventory Management
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Customer made a purchase

Point-of-sale system captures data in real-time

Data is transmitted to warehouses for Inv. Mgmt.

Orders are generated from previous-day sales

Merchandise is loaded onto trucks using cross-docking

Merchandise is delivered to the store

The store will restock the shelves with merchandise

Retail Link transmits data to supplier

Merchandise is manufactured based on historical and real-time data

Merchandise is shipped to warehouses

Inventory Management:
Reducing critical activity times Eliminating non-value-adding activities Moving work from critical to non critical activities Redesigning the process to replace sequential with parallel processing

Inventory Management: RFID

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Radio Frequency Identification

Automated Data collection based on an electronics not a barcode Tag can be imbedded in the product or stuck on the exterior case or pallet Reader instead of a barcode scanner Allows fully automated data collection with the use of portals Can read many ID tags at a time

Inventory Management: How does an RFID work?

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Inventory Management: RFID

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Wal-mart is the most famous retailer implementing RFID in its supply chain management system in January 2005.

It required its top 100 suppliers to use RFID technology at the pallet and case level by January 2005, 200 by January 2006, 300 by January 2007, and so on

Inventory Management: RFID Read Points

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WAL-MART STORE READ POINTS

Inventory Management: Why RFID?

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Reduce the possibility of inventory shrinkage and out-of-stock situation.

Improve fulfillment rates.

Improve the customer service.

Reduce inventory and labor cost.

Eliminate many manual process and improve the operation efficiency.

Inventory Management: RFID Study?

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Reducing out of stock?

8% of all items are out of stock (at any point of time) Estimated potential lost sales:
Retailers: 3.4% Suppliers: 2.6%

26% improvement from no RFID to full RFID

Thank you!
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THANK YOU! QUESTIONS???