9.40 Wal-mart Stores, Inc.

Wal-mart Stores, Inc. is the world's largest retailer with $466 billion in sales for the 2012 fiscal year. {13} Wal-mart Stores, Inc. includes Wal-mart Supercenters, discount stores, Neighborhood Markets and SAM'S Club warehouses. Wal-mart employs more than 2.1 million associates from 9230 retail units under 60 different banners in the United States, Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the UK. In 2007, Wal-mart became No. 1 on the Fortune 500 List and in 2003 and 2004 Wal-mart was named 'Most Admired Company in America' by Fortune Magazine. {13}

Wal-mart grew from quiet beginnings in Sam M. Walton's Ben Franklin variety store in Newport, Arkansas in 1945 and brother James L. Walton's similar store in Versailles, Missouri in 1946. In 1962, Sam Walton started Wal-mart's first discount store, but faced stiff competition from Kmart and Target, opening only another 14 stores by the close of the decade. Expansion became rapid in the 70s, however, to 276 stores in 11 states, when a public offering provided the necessary capital infusion. By the 80s Wal-mart was one of the most successful retailers in America. Annual sales grew from $1 billion in 1980 to $26 billion by 1989. The company acquired 122 Woolco stores from Woolworth, Canada in 1994, to become, three years later, the largest volume discount retailer in Canada and Mexico. By 2002, acquisitions in Germany, Brazil and South Korea had enabled Wal-mart to become the world's largest company in revenue terms. Not all ventures were successful, however: the UK, south America and China operations continue to be rewarding but Wal-mart pulled out of Germany and South Korea with heavy losses. {1} {13} Wal-mart was facing bribery charges in Mexico in 2012, {14} and there were complaints that US staff cuts had impacted on shelf-stocking. {16}.

Walmart's Supply Chain Management

Wal-mart is often credited with starting the practice of digitally sharing sales data with major suppliers, allowing the company to supply a wide range of products at the lowest cost and shortest delivery times. Wal-mart's supply chain management was not simply an IT system, however, but involved company control and efficiencies in every aspect of its operations. {2}

Pricing and Procurement Strategy

Bulk purchasing allows Wal-mart to:

1. Negotiate large discounts with suppliers.
2. Enter into long-term agreements.
3. Deal directly with manufacturers, eliminating middlemen markups.
4. Insist on agreements prohibiting suppliers from underpricing to other customers.
5. Achieve economies of scale.

Product/Process Knowledge Sharing

1. Wal-mart's policy was a virtuous circle for customers: low prices increased sales and so allowed Wal-mart to negotiate ever-increasing discounts from suppliers.
2. Wal-mart suppliers' access to Wal-mart sales figures (and to its technology) encouraged openness of the part of suppliers too: both Wal-mart and suppliers benefited.

Supply Chain Partnerships

1. Partnerships with companies like Proctor & Gamble became mutually beneficial, allowing both partners to plan ahead efficiently.
2. Wal-mart could require timesaving devices from supplies, e.g. RFID tags with Electronic Product Codes on pallets and cases by the end of 2006.

Distribution

1. Wal-mart has centralized its distribution, shipping 80% of merchandise from 121 US distribution centers. The remaining 20% is shipped direct from suppliers.
2. Wal-mart owns 40 general merchandise distribution centers, 38 grocery distribution centers, 7 apparel and shoes distribution centers, 12 professional services and specialty distribution centers, 2 import distribution centers and 3 distribution centers that support Walmart.com. Wal-mart also has 126 distribution facilities outside the US that serve its international stores.
3. Wal-mart distributes more of its (80,000) item products from its own warehouses than do its competitors, allowing replenishment to average 2 days rather than the usual 5 days of competitors.
4. Wal-mart delivery to warehouses is in standardized containers or pallets.
5. Wal-mart employs advanced barcode technology. Hand-held devices allow employees to identify the contents of pallet/container, the quantities, location of storage in the warehouse and where picked up from. The devices fed that information into the central supply chain management system.
6. The system is quicker, less open to error and eliminated unnecessary paperwork. .

Logistics Management

1. Wal-mart runs its own fleet of delivery vehicles (3,500 trucks at one time).
2. Distribution centers has food, sleeping and recreation areas for drivers.
3. Drivers are subject to strict control and qualifications: e.g. 300,000 accident free miles and no major traffic violations.

Cross Docking

1. Cross-docking ensures that orders placed at Wal-mart stores are monitored throughout their passage from warehouse to customer.
2. The system triggers automatic warehouse replenishment and so orders with suppliers. The whole process is customer-led.

Inventory Management

1. Wal-mart standardizes space and layout in its stores and warehouses.
2. Warehouse are automatically replenished to optimal levels through continuous cooperation with suppliers.
3. Sums spent on these systems are considerable: shown by Wal-mart's own satellite communication system set up in 1983, US$ 4 billion investment into a retail link system in 1991, upgrade and Internet-enablement by Atlas Commerce in 2001, and then advanced satellite communication systems, Massively Parallel Processor computer systems (MPP) and extensive disaster recovery planning in the years following.

Labor Relations

1. Wal-mart has traditionally been a low salary payer. Basic training is given, but staff turnover at Wal-mart stores is high. Trade union membership is discouraged.
2. Nonetheless, an academic study by Vedder and Cox {10} found much to admire in Wal-mart practices towards staff and local communities.

Current Threats

Not all has gone smoothly, particularly outside the USA. {8}

1. Wal-mart has not always adapted to local market and service expectations. In October 2006, Wal-mart sold its stores in South Korea and Germany. Losses in Germany alone were US$1 billion, aggravated by an extended court battle over predatory pricing.
2. Extensions to Wal-mart's supply chain management (retail applications from HP and Oracle, and contracts with the social networking company, Bazaarvoice) have not brought anticipated benefits. Wal-mart's online presence has fallen behind competitors like Amazon and Target. Wal-mart's systems may be victims of their initial success, i.e. no longer 'state of the art' and expensive to upgrade.
3. Wal-mart has generally won its many court actions over alleged infringements of labor laws, pricing policies, health insurance and unfair competition, but arrival of a Wal-mart store is still seen as a mixed blessing: increased employment opportunities but competition that many local businesses cannot survive without major restructuring.

Points to Note

1. Supply chain management (here more a private industrial network) requires changes throughout a company.
2. Wal-mart's obsessive commitment to lowest prices.
3. Continuing profitability of Wal-mart. Net income has risen steadily in the last five years. {9}

Questions

1. Provide a short history of Wal-mart.
2. What is the overall business aim of Wal-mart? How is this achieved?
3. Describe the Wal-mart supply chain management system.
4. Why has Wal-mart occasionally been less successful outside the USA?

Sources and Further Reading

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