Wal-Mart China: Sustainable

Operations Strategy

Ankur Vashishta (400807003 )

Arshleen Ahluwalia (501104001)
Atul Sharma (501104006 )

Manjot Singh (400807015)

Sumit Gupta (501104022 )

The China Sustainability

Challenge
Jens-Martin Fertsch, a German expatriate
moved to China in late 2005 to take up a
merchandizing position at the Wal-Mart China
Headquarters in Shenzhen.
12 year Wal-Mart veteran.
Appointed to the new position of senior
director for sustainability for Wal-Mart China
(retail) and Global Procurement.
Reporting to both Shawn Gray (VP of
operations for Wal-Mart China) and Edwin
Keh (COO, Global Procurement).

 Ferstch was preoccupied with ensuring that

Wal-Mart Chinas five Strategic Value
Networks (SVNs) continued to build
momentum in ways that would lead to
broader acceptance among the various
shareholders.
SVNs were tasked with leading sustainability
change within the organization and now
directly involving some 140 associates.
Hundreds of possible projects have been
suggested but Ferstch and his SVN leaders
needed to cull this to a handful of projects.

 Innovative solutions that could both cut costs as

well as lead to more sustainable operations were
the need of the hour.
Projects that could communicate real value
within the Chinese context, a market known for
its high price sensitivity, had to be selected and
cogent case for each project was needed for the
Wal-Marts first sustainability summit in China.
The summit was to be presided over by Lee
Scott, the global CEO who would address the
gathering of 1000 senior representatives from
global and domestic partners to discuss the
notion of sustainability.

Wal-Marts 2005 Sustainabilty

Vision
By the fall 2005, Wal-Mart exceeded annual
worldwide revenues of US $280 billion.
From a humble beginning in Bentonville,
Arkansas, Wal-Mart became a retail
operation spanning 13 countries with over
7,000 stores, 68000 suppliers and 2 million
associates.
This was achieved in just over 4 decades
and was built around an unwavering
commitment to low price and great service
that comprised the foundation of Wal-Marts
culture.
Excel

Our customers are the reason were in

business, so we should treat them that way.
We offer quality merchandise at the lowest
prices, and we do it with the best customer
service possible. We look for every
opportunity where we can exceed our
customers expectations. Thats when were
at our very best.
-Sam Walton

 Wal-Mart had been drawing an increasing

amount of public criticism and legal battles
ranging from contention over low health
benefits for its workers to accusations of
gender discrimination when it came to internal
promotions.
Company was the largest private user of
electricity in the United States.
Supercenter (SC) electricity consumption
averaged 1.5 million kilowatt-hours per year
per store.

 Due to massive growth and increasing public

concern CEO Lee Scott decide to bring the
paradigm shift for the company as well as its
stakeholders.
He felt there was no intrinsic contradiction in
reducing the companys ecological footprint.
In November 2005, Scott earmarked $500
million towards sustainability projects.

 Scott set the following goals:

Increase the efficiency of its vehicle fleet by
25% over the next 3 years and double
efficiency in 10 years.
Eliminate 30% of the energy used in stores.
Reduce solid waste from U.S. stores by
25% in 3 years.

 Wal-Mart organized its efforts in U.S. into

SVNs that included categories such as
store operations, electronic products and
packaging.
The company put the networks together by
giving top-performing managers the
responsibility of integrating the
sustainability initiatives alongside their
current workload.

 Ideas were categorized in 3 ways:

Quick Wins: Projects that the business and
stakeholders could begin immediately. They
could be quickly understood and the project
would result in a short-to-immediate payback
period.
Innovation Projects: Projects that were to
combine recently available technologies and
methodologies that would result in payback
periods ranging from 1-3 years.
Game Changers: Projects that would be pursued
on an ongoing basis and were paradigm shifts
intended to result in radical departures from
traditional business practice.

 By 2007, significant changes had occurred throughout the

company.
Wal-Mart became the largest seller of organic milk and the
largest purchaser of organic cotton.
They partnered with GE to sell over 110 million compact
fluorescent lighting (CFL) units in the United States that
year, in effect cannibalizing their incandescent product
sales.
Greater efficiencies and longer bulb life meant that WalMarts customers would save well over $3 billion, conserve
55 billion tons of coal and keep 1.1 billion incandescent light
bulbs out of landfills.
But Wal-Mart Chinas stakeholders were a bit different.
These initiatives would not necessarily result in immediate
wins.

An Oriental Mission
First store in the southern city of Shenzhen in 1996
Initial rate of expansion was slow due to lengthy
processes and location restrictions
Significant strategy changes were necessitated due to
new operating environment

Consumer Survey
90

80

70

60
Product Price
Relative Price
Promotions
Product Variety
Product Quality

50

40

30

20

10

0
Industry Average

Wal-Mart

Carrefour

Wu-Mart

Chinese Consumer Mindset

Highly cost sensitive
Priority of customer satisfaction contributors:
Highly significant- Perceived value, Image,
Merchandise and Shopping Environment
Less significant- Service, check-out process and
store policy
Effect of convenience- dubious

Household Disposable Income In

China

Y-axis: Cumulative
% of Households

Chinas Retail Landscape

Location restrictions were very problematic
Success in Chinas smaller cities was
uncertain
Wal-Mart intended to use future WTO
agreements to ease location restrictions

Wal-Marts China Sustainability

Framework
Sustainability part of Wal-Marts DNA

Original 14 Strategic Value Networks

(SVNs) were converted into Chinas 5
SVNs

1. Sustainable Stores and

Operations
Wide Scope

Goals- higher efficiency and lower cost

Energy efficient lighting

2. Sustainable Products
4 primary categories

Food, Electronics, Textiles and Product

Packaging

Example- Organic Cotton, milk

3. Supply Chain Compliance and

Standards
Standards set by Wal-Mart and local
Governments
Standards related to products and
manufacturing processes
Projection of local standards to worldwide
adoption

4. Supply Chain Efficiency

Compliance to standards is not enough

Overall improvements in terms of

efficiency, cost and footprint
Example- Fleet Management

5. Communication
Implementation of best practices

Transparency

Critical test- October 2008 Beijing meeting

HUB AND SPOKE SYSTEM

Under the system, goods were centrally ordered, assembled at a
massive warehouse, known as distribution center (hub), from
where they were dispatched to the individual stores (spoke).
The hub and spoke system enabled Wal-Mart to achieve
significant cost advantages by the centralized purchasing of
goods in huge quantities.
and distributing them through its own logistics
infrastructure to the retail stores spread across the U.S.

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Lowes distribution center strategy

Set up a network of nine distribution centers for its current 850
stores.
Each distribution center is designed to serve approximately 100
to 125 stores.
The products are scanned by barcode and then placed in a
specific location in the warehouse.
There are more than 100 outgoing truck docks per distribution
center. Each store the distribution center serves receives from
two to eight truckloads of product per week.
Lowes says it receives a 5 percent to 10 percent savings on the
cost of each product.
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BENEFITS
The small number of routes generally leads to
more efficient use of transportation resources. For
example, aircraft are more likely to fly at full
capacity, and can often fly routes more than once a
day.
Complicated operations, such as package sorting
and accounting, can be carried out at the hub,
rather than at every node.
Spokes are simple, and new ones can be created
easily
26

DRAWBACKS
Because the model is centralized, day-to-day operations may
be relatively Inflexible.
Route scheduling is complicated for the network operator.
The hub constitutes a bottleneck or single point of failure in
the network.
Cargo must pass through the hub before reaching its
destination, requiring longer journeys than direct point-topoint trips.
Two trips are required to reach most of the destinations.
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Challenges Facing a Foreign Retailer's Supply

Chain
Regionalism in China
Appropriate technology levels
Nontariff trade barriers
Financial matters
LTL and private, nationwide parcel delivery
Perseverance pays off

28

Wal-Marts Procurement
Wal-Mart emphasized the need to reduce purchasing costs and offer the
best price to the customer.
The company directly procured from manufacturers, by passing all
intermediaries.
Wal-Mart finalizes a purchase deal only when it is fully confident that
the products being bought is not available else where at a lower price.
Wal-Mart spends a significant amount of time meeting vendors and
understanding their cost structure.
By making the process transparent, the retailer can be certain that the
manufacturers are doing their best to cut down costs.
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Merchandizing Operations
Chinese law required that companies be licensed for
either import/export or merchandizing operations.
Large Chinese suppliers had yet to test foreign
markets.
Mechandising group dint have to involve supply
chain group in making decisions.

30

DISTRIBUTION CENTER
OPERATION
New distribution center was specifically designed by
GEZLEY.
Tianjin DC participated in standard sustainability practices
such as helping associates conserve fuel.
Only 40% of wal mart chinas sales were supplied by its DCs.
Outsourced a standardized trucking fleet for all its dc-dc and
dc-sc shipments.
Incoming shipments arrived in a diverse range of trucking and
and loading configurations.
31

Using EDI for Procurement

The computer systems of Wal-Mart were connected to those of
its suppliers.
EDI enabled the suppliers to download purchase orders along
with store-to-store sales information relating to their products
sold.
On receiving information about the sales of various products,
the suppliers shipped the required goods to Wal-Marts
distribution centers.

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Logistics Management
An important feature of Wal-Marts logistics infrastructure
was its fast and responsive transportation system.
The distribution centers were serviced by more than 3500
company owned trucks.
Wal-Mart believed that it needed drivers who were committed
and dedicated to customer service.
The company hired only experienced drivers who had driven
more than 300,000 accident-free miles, with no major traffic
violation.
33

Cross-docking
In this system, the finished goods were directly picked up from
the manufacturing plant, sorted out and then directly supplied
to the customers.
The system reduced the handling and storage of finished
goods, virtually eliminating the role of the distribution centers
and stores.
The manufacturer directly forwarded the goods to a place
called the staging area.
The goods were packed here according to the orders received
from different stores and then directly sent to the respective
customers.
34

Inventory Management
Wal-Mart set up its own satellite communication system in
1983.
Wal-Mart was able to reduce unproductive inventory by
allowing stores to manage their own stocks, reducing pack
sizes across many product categories, and timely price
markdowns.
Instead of cutting the inventory across the board, Wal-Mart
made full use of its IT capabilities to make more inventories
available in the case of items that customers wanted most,
while reducing the overall inventory levels.

35

Inventory Management
(quick replenishment)
Since the floor area of any Wal-Mart store varied
between 40,000 to 200,000 square feet, movement of
goods within the store was an important part of
logistics operations.
Wal-Mart made significant investments in IT to
quickly locate and replenish goods at the stores.

36

Inventory Management
(pretty darn quick displays)
The company asked its suppliers to ship goods in
store-ready displays called pretty darn quick (PDQ)
displays.
Goods were packed in PDQ displays that arrived at
the stores ready to be boarded on the racks.
Wal-Marts employees could directly replace the
empty racks at the stores with fully packed racks,
instead of refilling each and every item at the racks.

37

Inventory Management
(retail link system)
More than 10,000 Wal-Mart retail suppliers used the retail
link system to monitor the sales of their goods at stores
and replenish inventories.
Details of daily transactions (~10 million per day) were
processed through this system.
Retail Link connected Wal-Marts EDI network with an
extranet, accessible to Wal-Marts thousands of suppliers
The company used Massively Parallel Processor (MPP)
computer system to track the movement of goods and
stock levels
38

Voice-based Order Filling (VOF)

Each person responsible for order picking was provided with a
microphone/speaker headset, connected to the portable (VOF)
system that could be worn on waist belt.
They were guided by the voice to item locations in the
distribution centers.
The VOF system also verified quantities picked, and could
respond to a variety of requests such as providing product detail
(type, price, barcode number, etc.)

39

CPFR
In CPFR, Wal-Mart worked together with its key suppliers on
a real-time basis by using the Internet to jointly determine
product-wise demand forecast.
CPFR is defined as a business practice for business partners to
share forecasts and results data through the Internet, in order
to reduce inventory costs while at the same time, enhancing
product availability across the supply chain.

40

RFID Technology
(Radio Frequency Identification)
In efforts to implement new technologies to reduce costs
and increase the efficiency, in July 2003, Wal-Mart asked
its top 100 suppliers to be RFID compliant by January,
2005.
Wal-Mart planned to replace bar-code technology with
RFID technology.
The company believed that this replacement would reduce
its supply chain management costs and enhance efficiency.

41

SUSTAINABILITY
TO WALMART
To combine value and service of its innovative operational
strategies involve 14 SVNS made Wal-mart became the largest
organic seller and the largest organic cotton purchaser.
Also through its integration of supply chain and ROHS
compliance which including supplier or vendor selected and
scored to achieve business sustainable aims.

42

 To WAL Mart China

The strategy of sustainable store and operation can help WalMart China reduce cost and decrease Wal-Mart Chinas
footprint of operations
To develop sustainable products such as food, electronic
textiles and product packaging extend its business
sustainability supply chain and compliance.
To make a good communication with its stakeholders is
another critical issue of its business

43

 Current and potential customers

T5 light bulbs can save 20 to 30 percent energy per day in
warehouse areas and resting places and to use solar energy and
wind power generator can 7,300 kilowatt hours per year.
Wal-Mart Chinas merchandizing group still continuing builds
sustainability measure tools for supplier selection and some on
going evaluation of purchase quantities .
Although the sustainability products price might higher than
others, it still have some advantages such as reduce cost of
electronic, long time for use and non pollution.
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Competitive advantage
Low cost distributor and merchandiser of basic
goods
Highly efficient distribution system
Economies of scale
Non uniform workforce keeps cost lower

45

Distinguishing features of
distribution system
Sustainable logistics centers.
Outsourced a standardizes trucking fleet.
Centralized management of returning products.

46

Sustainability in the process of

selection and evaluation
of suppliers/vendors
Enterprise should offer the requests of sustainability, and then try
to find the suppliers or vendors who have production techniques
of sustainability.
Wal-Mart adopt ROHS regulation standard in some of its
operations including supplier selection and product selection.
Wal-mart China also created a initiative sustainable objective
which called P2E2 program allowed suppliers to quickly and
inexpensively equip their factories with cost saving equipment.
47

Improved sustainability in
Wal-Marts distribution and retail
operations

Energy efficient lighting

Less waste of air conditioning and heat recycling system
Alternative energy
Outsourced third party logistics
Reusable shopping bags
Offer two energy efficient bulbs
Batteries placed
Packaging reduction

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CONCLUSION
It is not necessary that cost of sustainability is
always high. Walmart believed that
ecologically friendly policies and products
would ensure long term loyalty of their
customers.
Communication to the stakeholders is very
important especially to the general public at
large. In this regard, Wal-Mart has to take care
of not committing mistakes of earlier noncompliant and misleading companies.

Recommendation
Try to use appropriate Chinese cultural
heritage and past successes in the
communication to the stakeholders. This would
lead to an emotional connect with the subject
matter of the communication.
To appease to business oriented mindsets the
future prospects of better sustainability can be
used. An important example would be in the
field of green energy.
Target domestic and foreign stakeholders
attending the summit with dealings suited to
attract them in the best possible way.

REFERENCES

www.google.com
wikipedia
www.wal-martchina.com
www.chinabusinessreview.com

THANK YOU