Walmart: 3 Keys to Successful Supply Chain Management any Business Can Follow
When someone hears the company name “Walmart” several things come to mind from a pop culture standpoint. From the bullying of getting small town business out of business, to the famous “People of Walmart,” to the general low approval rating by consumers. However, one thing that should come to mind is the prowess of the retail giant’s supply chain excellence. Walmart would not have the ability to provide such low prices and have consistent inventory in the over 5,000 stores in the United States and over 1.3 million employees without a focus on good supply chain management.
This “invisible” part of Walmart’s business is a logistical and supply chain management and the practices they employ should give supply chain managers pause to take a bit out of their day and inspect what Walmart is doing in order to mimic into the supply chain manager’s own practice. Not only has Walmart excelled over the decades in traditional supply chain management but with recent news as of late, Walmart is also focused on continuous improvement by investing more into emerging technologies to capture more of the e-commerce market as well as a focus on sustainability.
When it comes to e-commerce initiatives by Walmart, the Wall Street Journal recently wrote:
Wal-Mart Stores Inc. is one of a growing number of big-box retailers building out their supply chains with distribution centers designed to meet the demands of online shopping. The company expects to open four such giant facilities this quarter, as it aims to triple online sales by 2018, to $35 billion from $12 billion last year.
And on the subject of sustainability, SCDigest.com covered Walmart’s 2015 Sustainability report:
Walmart, the world’s largest corporation, is fresh out with its 2015 sustainability report, the eighth such document it has produced. The 2015 document is quite remarkable, with Walmart more aggressively than ever redefining its corporate mission from delivering quality products at everyday low prices to making the world itself a better place, in almost missionary terms.
“For years we’ve also been thinking in broader terms about what an item actually costs society to produce and deliver – from the bottom to the top of the supply chain – the “true” cost of a product.” Walmart states early on. “The net true cost considers issues such as waste-to-landfill, greenhouse gas emissions, economic mobility, worker safety and food safety. These are all examples of the effects production may have on the environment, in local communities, or on the people who grow and make what we sell.” It adds: “We believe a business should strive for not just the lowest prices, but the lowest true cost for all. Low prices benefit customers, but low true costs benefit everyone.”
As an example of this change in tone for 2015, Walmart says one of its missions is to create “economic opportunity for our associates, suppliers and people who work in retail and retail supply chains beyond Walmart.” Yes, Walmart now is taking on the task of improving the lives of retail workers generally, whether or not they are employed at Walmart or some other chain. It says it will do that by “clarifying retail career paths, better pre-employment training, more innovative and relevant on-the-job and supplemental training and credentials that employers will accept for advancement.”
The Key’s To Walmart’s Supply Chain Management Excellence over the Year
Walmart’s Supply Chain Forged Over Decades
Riding a rising five-year trend, retail juggernaut Walmart® grossed $476 billion in the fiscal year that ended in January 2014, up from $408 billion in fiscal 2010, according to The Wall Street Journal’s MarketWatch. Put another way, Walmart’s revenue comes to 81% of what the National Restaurant Association says the entire U.S. restaurant industry made in 2013. That income was generated by more than 4,100 stores and fed by a sprawling supply chain, ranked 14th in 2014 by research and analyst company Gartner. Walmart has held a place among Gartner’s top 20 supply chains since 2010. In detailing its 2014 rankings, Gartner called Walmart a “perennial supply chain powerhouse” and said the company that the National Retail Federation ranks as the world’s top retailer in 2014 based on global sales has a “mature supplier collaboration process” supported by technology. Walmart uses its mammoth purchasing power to shape suppliers’ behavior which also drives down costs, Gartner said. The evolution of Walmart’s supply chain includes three elements, according to a 2012 article from Arkansas Business: distribution practices, operating its own fleet of trucks, and technology. Benefits from its supply chain efficiency result in time savings, more cost-effective inventory management and improved product forecasting, the article said.
Decades in the Making
The retailer started dealing directly with manufacturers in the 1980s, giving suppliers the job of managing inventory in its warehouses, the Arkansas Business article said. The result was something called vendor managed inventory, or VMI, that smoothed irregularities of inventory flow which helped ensure products were always available on store shelves. The process involved cooperation and collaboration with suppliers that produced a more efficient supply chain with technology connecting everything. Walmart was tapping technology even before it developed VMI when in 1975 the company started using a computer system for inventory control in its distribution centers and warehouses, according to a timeline of Walmart’s history from Supply Chain Digest. Walmart’s inventory management now funnels information from stores such as point-of-sale data, warehouse inventory and real-time sales into a centralized database. The data is shared with suppliers who know when to ship more products. By 1987, Walmart had its own satellite system that allowed voice and data communication between all segments of the company, according to CIO Online, a website for chief information officers. By 1989, Walmart saw the benefits of its supply chain management when its distribution costs were 1.7% of its sales, or less than half Kmart’s cost and just under a third of what Sears was spending at the time, according to Arkansas Business.
Walmart’s SCM process is not based entirely on technology. The company has a sprawling network of nearly 160 distribution centers covering almost 120 million square feet and all within 130 miles of the stores it supplies, according to MWPVL International, a supply chain and logistics consulting company. About 81% of Walmart merchandise passed through those centers in 2013, the website said. The retailer also instituted cross-docking at its warehouses, a method that moves inventory directly from arriving or departing trucks. Products are taken from an arriving truck and packed in a truck bound for a store without lengthy storage in the warehouse, said inventory management software company TradeGecko. The result is lower costs for inventory storage, reduced transportation costs, and products spend less time in transit, TradeGecko said. Walmart also uses its own trucking fleet and drivers, maintaining high minimum standards for its thousands of drivers, including three years and 250,000 miles of driving experience and no preventable accidents in three years, according to TruckersLogic.
Components of Supply Chain Management (SCM)
Walmart’s overall methods of supply chain management differ little from the main components of most supply chains: purchasing, operations, distribution, and integration. But the retailer has refined the methods. A supply chain begins with purchasing managers who determine which products will sell, find vendors and arrange deals for the products. The operations portion of a supply chain focuses on demand planning, forecasting, and inventory management. Forecasts estimate consumer demand for a product based on historical data, external drivers such as sales and promotions and changes in trends or competition. Demand planning is used to create accurate forecasts, a critical step toward effective inventory management. Forecasts are compared to inventory levels to ensure warehouses have enough, but not too much, inventory to meet demand. Moving the product from warehouses or manufacturing plants to stores and ultimately to customers is the distribution function of the supply chain. Supply chain integration connects the flow of work and information among all links in the supply chain to maximize efficiencies. For Walmart, its SCM methods yield lower costs for products and inventory, better control over selection in its stores and the ultimate result of lower prices that can be passed to customers, TradeGecko said.
Disclaimer: This research has been done on behalf of the University of San Francisco Online. Any names, logos, and other trademarks that have been referenced belong to their respective trademark owners, who are not affiliated with, nor endorse or sponsor, the institution, its programs, or its materials.
- “Annual Financials for Wal-Mart Stores Inc.” marketwatch.com. MarketWatch, Inc. Last Ref. Oct. 9, 2014.
- “Facts at a Glance.” restaurant.org. National Restaurant Association. Last Ref. Oct. 9, 2014.
- “The Gartner Supply Chain Top 25 for 2013.” gartner.com. Gartner, Inc. May 22, 2013. Last Ref. Oct. 9, 2014.
- Aronow, Stan. “The Gartner Supply Chain Top 25 for 2014.” gartner.com. Gartner, Inc. Last Ref. Oct. 9, 2014.
- “Top 100 Retailers Chart 2014.” nrf.com. National Retail Federation. Last Ref. Oct. 9, 2014.
- Traub, Todd. “Wal-Mart Used Technology to Become Supply Chain Leader.” arkansasbusiness.com. Arkansas Business Limited Partnership, July 2, 2012. Last Ref. Oct. 9, 2014.
- Gilmore, Dan. “50 Years of Walmart’s Supply Chain.” scdigest.com. Supply Chain Digest, July 26, 2012. Last Ref. Oct. 9, 2014.
- Wailgum, Thomas. “45 Years of Wal-Mart History: A Technology Time Line.” cio.com. CXO Media, Oct. 17, 2007. Last Ref. Oct. 9, 2014.
- “The Walmart Distribution Center Network in the United States.” mwpvl.com. MWPVL International, Inc. Last Ref. Oct. 9, 2014.
- Lu, Clara. “Incredibly Successful Supply Chain Management: How Does Walmart Do It?” blog.tradegecko.com. TradeGecko Inventory Management, May 7, 2014. Last Ref. Oct. 9, 2014.
- Spencer. “Walmart Trucking Jobs.” truckerslogic.com. Truckers Logic, March 23, 2014. Last Ref. Oct. 9, 2014.