Case study of the walmart company

Wal-Mart is a huge company all over the world. Sam Walton is the company’s founder. He was born in 1918 in Oklahoma. In 1940, Sam Walton worked a few years for the well-known retailer, J C Penney. Then Walton gave up his job and decided to start with his own retail store. He decided to purchase a store franchise in Arkansas. In his store Walton was offering huge discounts on prices compare to other stores, he became really successful quickly and acquired a second store in three years. This phenomenal growth of Wal-Mart stores is attributed to its reducing cost through efficient supply chain management practices and to continue focusing on customer needs.

By 1969, Walton had opened 18 Wal-Mart stores. In the beginning of the 1970s, Wal-Mart became the first companies of retail stores in the world to centralize its distribution system, starting the retail hub-and-spoke system. Under the system of Hub-and-Spoke, goods were ordered at the central, assembled at a huge warehouse, known as the distribution center (it means the Hub); from where they are dispatched to the individual stores (it means the spoke). The hub and spoke system help Wal-Mart to achieve maintaining high cost advantages by using the centralized purchasing of goods in big quantities, and also distributing them by its own logistics system to the specialized retail stores spread across the U.S. By the late 1970s, the retail chain had established an auto service center and a pharmacy center. In the 1980s, Wal-Mart continued to grow due to a big amount of number of customer demands in small towns. Wal-Mart was guarantee the customer satisfaction, offering low prices, and hours that were it was good for the way people wanted to shop. For example it is open all night for university students. In 1984, you could find 640 Wal-Mart stores in the USA. Wal-Mart suffered by a setback in 1992, when Walton died. But even if it were a setback it continued its growth in the 1990s, it was focusing on overseas stores. In 1992, Mexico, in 1994 Canada, then in 1997 Germany and Korea, Brazil, and so on. By the year 2000, Wal-Mart became the largest company in the world in terms of revenues.

Wal-Mart’s procurement is really important in its history. Wal-Mart pointed the need for reducing the purchasing costs and to offer the best price for the customer wallet. The company directly procured from manufacturers, there are no more intermediaries. Wal-Mart store finalizes a purchase deal when it is really confident that the products being bought are not available elsewhere at a lower price, try to get the cheaper price is really important. Wal-Mart spends a huge amount of time meeting vendors and to understand the cost structure from the vendors. The retailer can be sure that the manufacturers are doing their best to reducing costs by making the process clearly transparent. The computer systems of the suppliers were connected to those of Wal-Mart. EDI gave the solution to the suppliers to download purchase orders with store-to-store sales information relating to the products that were sold. Because of receiving information about the sales of various products, the suppliers sent the required goods directly to Wal-Mart’s distribution centers. Now I am going to talk about the logistics management. The distribution centers were serviced by more than 3500 company owned trucks. An important feature of Wal-Mart’s logistics is the infrastructure that was really fast and responsive transportation system. Wal-Mart thought that it just needed drivers who were dedicated to customer service. The company paid just experienced drivers who had driven more than 300,000 miles without having an accident, with no traffic violation. Cross-docking has been created to make its distribution process much more efficient, Wal-Mart made the use of a logistics technique called cross-docking. This system reduced the storage and handling of finished goods, is basically virtually to eliminate the role of the stores and distribution centers. Within this system, the finished goods were directly picked up from the manufacturing plant, sorted out and then directly supplied to the customers. The manufacturers directly sent the goods to a place that was called the staging area. The goods were assembled here according to the orders received from the different stores and after that sent to the respective customers.

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Wal-Mart invested hardly in communication systems and IT to effectively track merchandise inventories and sales in stores across the country. With the quick expansion, it was really important that to have a good communication system. Wal-Mart set up its own satellite communication system in 1983. Wal-Mart was able to reduce easily the unproductive inventory using the stores to manage their own stocks, timely price markdowns, and reducing pack sizes in many product categories. Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most instead of cutting the inventory across the board, while reducing the overall inventory levels. Employees at the stores had the Magic Wand, it is basically a hand-held computer linked to in-store terminals by using a radio frequency network. These helped them to keep track of the inventory in deliveries, stores, and to backup merchandise in the stock at the distribution centers. The order of the management and also for the store replenishment of goods was fully executed with the help of computers passing by the Point-of-Sales (POS) system. Using this system, it was now possible to monitor and follow the sales and merchandise stock levels on the store shelves. Since the size floor area of every Wal-Mart stores varied from 40,000 to 200,000 square feet, movement of the goods in the store was a really important part of the logistics operations. Wal-Mart made huge investments in IT to quickly and safely locate and replenish every goods at the stores. The company asked to its suppliers to send the goods in store like ready to be display, it was called pretty darn quick (PDQ) displays. Goods were packed in pretty darn quick displays and like that arrived at the stores ready to be put on the different shelves. Wal-Mart’s employees were able to directly replace the empty shelves at the stores with new packed shelves, instead of refilling each and every item at the shelves. In 1991, Wal-Mart had invested more than $4 billion to build a retail link system. Around 10 000 Wal-Mart retail suppliers were using the retail link system in order to monitor the sales of their goods at stores and to be able to replenish inventories. The details of daily transactions, it mean almost 10 million per day, were processed through this system. Retail Link put together Wal-Mart’s EDI network by using an extranet, accessible easily by a lot of Wal-Mart’s suppliers. The suppliers were able to find out how their product was doing face to face competitors’ products in a product category. Wal-Mart owned the most sophisticated and the largest computer system in the private sector. All the information that was related with the sales and inventories was passed on through an very advanced satellite communication system.

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In middle of the 1990s, the Retail Link had emerged into an Internet-enabled supply chain management system whose functions were not at first to confine the inventory management by itself, but also to cover collaborative planning, forecasting and replenishment (CPFR). In CPFR, Wal-Mart worked with its key suppliers on a real-time basis by using the Internet to determine together the product wise demand forecast. CPFR is defined like a business practice for business all the partners to share your forecasts and your results data passing by the Internet, to reduce inventory costs while at the same time, increasing product availability in the supply chain. Now let introduce the radio frequency identification technology. In order to implement some new technologies to reduce the costs and to increase the efficiency, in 2003, Wal-Mart asked to its top 100 suppliers to be RFID compliant in 2005. Wal-Mart was planning to change bar-code technology by RFID technology. The company believed that this change would help to reduce its supply chain management costs and increase efficiency. Because of the implementation of RFID, employees were no longer asking to really to scan the bar codes of goods entering to the stores and entering to the distribution centers; at first it saved a lot of time and labor cost. Wal-Mart waited that RFID would decrease the instances of stock-outs at the stores. Although Wal-Mart was really optimist about some benefits that RFID can have. To make themselves RFID compliant, the suppliers needed to incur around $20 Million. Of this, almost 50% would be spent in making modifications in the supply chain software and integrating the system.

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The main competitors of Wal-Mart are Carrefour, Tesco, and Metro AG, but they are indirect competitors. The system of the supply chain of Wal-Mart is quite different than this on with the company Seven Eleven Japan. First in terms of transportation, with the Seven Eleven’s system some trucks bring the goods often during the day (2 or 3 deliveries per day), there is no real stock. Seven Eleven has deliveries every day, than Wal-Mart has every 2 days. Compare to Wal-Mart where there is a stock in the back of each stores, there are no missing goods on shelves. Both of them use the bar codes, but Wal-Mart has a satellite system. Also both of them have distribution center in their supply chain.

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