WAL-MART

PROJECT-SUPPLY CHAIN MANAGEMENT AT WAL-MART

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A

PROJECT REPORT

ON

SUPPLY CHAIN MANAGEMENT AT WAL-MART

PRESENTED BY

GROUP-H1

HRLP

ANKUR SEHGAL



INDEX

S.NO DESCRIPTION PAGE NUMBER

1. INTRODUCTION TO SUPPLY CHAIN MANAGEMENT 3

2. LEVELS OF SUPPLY CHAIN MANAGEMENT 4-5

3. HISTORY-WALMART 6

4. WAL-MART INTRODUCTION AND ITS BUSINESS PROCESSES 7-8

5. SUPPLY CHAIN MANGEMENT AT WAL-MART 9

6. PROCUREMENT AND DISTRIBUTION 10

7. LOGISTICS MANAGEMENT 11

8. INVENTORY MANAGEMENT 12

9. COMPETITIVE ADVANTAGE AND BUSINESS MODELS

USED AT WAL-MART 13

10. RFID IN WAL-MART 14

11. EFFICENCY IN SUPPLY CHAIN WITH RFID 15-18

12. CONCLUSION 19

13. LIST OF REFERENCES 20-21



Introduction to Supply Chain Management Supply Chain Management is the discipline which encompasses the end to end business

activities carried out in any business, independent of the manufacturing or service sectors.

It is the synchronization of a network of facilities and distribution options that performs

procurement of materials, processing the materials into finished products, and distribution

of the products to customers. SCM is seen as involving five fundamental processes. These

include planning, sourcing, making, delivering, and returning.

Typical supply chain showing interrelations between all involved parties. [Source:

Auto-ID: Managing Anything, Anywhere, Anytime in the Supply Chain, Bose and Pal, ACM

August 2005]

SCM subsists in both service and manufacturing environments. A typical supply chain

consists of many interactions between suppliers, manufacturers, distributors, retailers,

with the vital goal of providing either a service or a product to customers. This also works

in reverse with the customer at the head of the process when returning a product.

SCM is used as a means to assimilate planning, purchasing, manufacturing, distribution, and

marketing organizations that normally do not work together to achieve a common goal.

Each works toward goals specific to their own organization that accomplish narrow

objectives. SCM is a way of integrating these varying functions so that they work together

to make best use of the benefits for all involved.



There are three levels of SCM: strategic, tactical, and operational

Three Levels of SCM [Source: Auto-ID: Managing Anything, Anywhere, Anytime in the

Supply Chain, Bose and Pal, ACM August 2005]

Strategic SCM covenants with future planning than looking at market evaluation, capacity

issues, new products, and technology changes. This planning is addressing issues that may

be factors several years out. This is accomplished at the executive management level.

Tactical SCM involves a shorter planning cycle. It is more concerned demand planning,

inventory planning, and supply planning. This is determined at a less senior level than

Strategic SCM.

Operational SCM is current planning activities measured in at most weeks. Operational

SCM involves the mainstream of the operations. It includes demand fulfillment, scheduling,

production, transport, and monitoring.

There are many decisions that are made while looking at SCM. They follow the categories

as discussed above. Strategic decisions are made over longer periods of time and linked to

a corporation’s strategy. Operational decisions are more or less short term in nature and

look after day to day activities. Mainly Four major decisions are considered. They include

decisions on location, production, inventory, and transportation. A geographically strategic

placement of the production facilities is key to creating a successful supply chain.

Decisions on what products to be produced have to be made wisely and strategically. Also,

where these products (which locations) will be manufactured is very important to SCM.

Inventory decisions and management is critical. Some inventories are necessary to hedge

against uncertainty, but this comes with a cost. Managing these inventories proficiently

will be of benefit to the corporation. Transportation decisions include cost versus benefit.

Air transportation is costly, but fast and reliable. Other modes of transportation may be

cheaper, but the sacrifice has to hold inventories due to delays that may occur. If the above



decisions are made with careful and strategic thought as well as with concern for

integration, the supply chain should be efficient and successful.

The complete goal of SCM is to optimize supply chains in an endeavor to provide more

accurate and time sensitive information that can be used to improve process times and cut

costs. Supply chains have been around for decades and a constantly being improved. The

newest opportunity for improvement is the introduction of Radio frequency

identification (RFID) tags. RFID technology will provide real-time information that will

allow manufacturers to get better readings of customers and markets thus further

improving supply chains. RFID will help retailers provide the right products at the right

places at the right times. Finally, maximizing sales and profits.

Wal-Mart has been leading the charge with RFID technology. Having the largest retailer

adopt and begin to use RFID technology has given strong backing to the technology and will

only further and quicken the expansion of RFID. They have begun requiring all their major

suppliers to implement RFID technology on all products supplied to Wal-Mart.

One example of what Wal-Mart has done with SCM and its suppliers is that of its

relationship with Proctor & Gamble. These two have built a software system that

hooked Proctor & Gamble up to Wal-Mart’s distribution centers. This system would then

monitor supply levels and when products run low, automatic alerts are sent out to require

the shipment of more products to that distribution center. Wal-Mart has taken this as far

as going to the individual store locations. The shelves are monitored in real time via

satellite links that send inventory messages whenever Proctor & Gamble products are

scanned at a register. This allows Proctor & Gamble to be fully aware of up to the minute

product inventories at the actual store locations and ship additional products as necessary.

This concept is a huge step in making SCM as efficient as it can be.



History-Wal-Mart

1962: Company founded with opening of first Wal-Mart in Rogers, Ark. 1967: Wal-Mart's 24 stores total $12.6 million in sales. 1970: Wal-Mart opens first distribution center and home office in Bentonville, Ark. 1977: Wal-Mart makes first acquisition, 16 Mohr-Value stores in Michigan and

Illinois. 1978: Hutcheson Shoe Company acquired 1981: Wal-Mart makes its next acquisition with 92 Kuhn's Big K stores. 1983: U.S. Woolco Stores acquired. 1990: Wal-Mart becomes nation's No. 1 retailer.1990McLane Company of Temple,

Texas acquired. 1997: Wal-Mart replaces Woolworth on the Dow Jones Industrial Average. 2003: Wal-Mart named by FORTUNE magazine as the most admired company in

America.



Wal-Mart Introduction and its Business Processes Wal-Mart is one of the leading Fortune 500 companies, which is spread across the globe. It

is perhaps the largest retail chain which deals with everything from food to consumer

electronics. In terms of the revenue generated, it leads the fortune 500 companies like GE

and Microsoft. Simply put, it has everything a homemaker can ever think of. Affordable

price range coupled with aggressive online and market strategy has led to wide acceptance

for Wal-Mart in towns and cities alike. Wal-Mart is probably the only largest fortune 500

corporations in the world, which directly services the common man.

Supply chain management has been the foundation to Wal-Mart’s success and remains

their chief competitive advantage in the retail/department store industry. Their

distribution system is generally regarded as the most efficient and they have an approach

to supply chain management that has long emphasized visibility through the sharing of

information with their suppliers.

Operations

Wal-Mart operations are comprised of three business segments:

Wal-Mart Stores

SAM’S CLUB

Wal-Mart International

Wal-Mart Stores segment is the largest segment, which accounted for approximately 67.3%

of their 2005 fiscal sales. This segment consists of three different retail formats, all of which

are located in the United States. This includes the following sections:

Super-centers, which average approximately 187,000 square feet in size and offer a

wide variety of products and a full-line supermarket;

Discount Stores, which average approximately 100,000 square feet in size and offer

a wide variety of products and a limited stock of food products; and

Neighborhood Markets, which average approximately 43,000 square feet in size and

offer a full-line supermarket and a limited variety of general merchandise.

SAM’S CLUB segment consists of membership warehouse clubs in the United States which

accounted for approximately 13.0% of 2005 fiscal sales. SAM’S CLUBs in the United States

average approximately 128,000 square feet in size.

Wal-Mart International operations are located in Argentina, Canada, Germany, South Korea,

Puerto Rico and the United Kingdom, the operations of joint ventures in China and

operations of majority-owned subsidiaries in Brazil and Mexico. This segment generated

approximately 19.7% of 2005 fiscal sales. Here, it operates several different formats of

retail stores and restaurants, including Super-centers, Discount Stores and SAM’S CLUBs.



For the fiscal year ending January 31, 2005, Wal-Mart topped $10 billion in net income for

the first time in their history and added almost $29 billion in sales.

Business Model

A Business model is crucial to any successful business. Wal-Mart is no exemption. Wal-Mart

has always been revolutionizing and enlightening its business model to suite its

organizational goals and also meet customer requirements, and so has managed to stay on

top year after year. Wal-Mart has employed a mixed-business model for its business for the

same.

To understand the Business models used by Wal-Mart, firstly it is important to know the

factors, which go in defining those models, and how does it relate to Wal-Mart specifically.

Market Strategy of Wal-Mart

Wal-Mart stresses primarily on their Everyday Low prices (“EDLP”) pricing philosophy, in

which they price items at a low price every day that builds & maintains customers trust in

their pricing. Since they employ both the “clicks and bricks” and “bricks and mortar”

methods to market their products, consumers get to choose their products either the

traditional way or online anytime of the day. Though Wal-Mart has not advertised in

Advertising, as many of its competitors do, the trust people have built on the Wal-Mart

brand has taken them far from their competitors.

Organizational Development

Wal-Mart has restructured its business into two parts to handle specific organizational

needs.

Specialty Division

Tire & Lube Express

Wal-Mart Optical

Wal-Mart Pharmacy

Wal-Mart Vacations

Wal-Mart's Used Fixture Auctions

Wal-Mart Alaska Bush Shopper

Retail Division

Wal-Mart Stores Super centers SAM'S CLUBS Neighborhood Market Internationalwalmart.com

http://www.walmartstores.com/wmstore/wmstores/Mainabout.jsp?BV_SessionID=@@@@0435119815.1127931458@@@@&BV_EngineID=cccjaddfdldmdkjcfkfcfkjdgoodglh.0&pagetype=about&template=DisplayAllContents.jsp&categoryOID=-9221&catID=-8242








Supply Chain Management at Wal-Mart Supply chain management at Wal-Mart can be described in 3 sections.



Procurement and Distribution

Wal-Mart’s process of procurement involves reducing its purchasing costs as far as possible

so that it can offer best price to its customers. The company procures goods directly from

the manufacturers, bypassing all intermediaries.

Wal-Mart has distribution centers in different geographical places in US. Wal-Mart’s own

warehouses supplies about 80% of the inventory. Each distribution center is divided in

different groups depending on the quantity of goods received. The inventory turnover rate

is very high, about once every week for most of the items. The goods to be used internally

in US arrive in pallets & imported goods arrive in re-usable boxes.

The distribution centers ensured steady flow & consistent flow of products. Managing the

center is economical with the large-scale use of sophisticated technology such as Bar code,

hand held computer systems (Magic Wand) and now, RFID. Every employee has access to

the required information regarding the inventory levels of all the products in the center.

They make 2 scans- one for identifying the pallet, and other to identify the location from

where the stock had to be picked up. Bar codes & RFID are used to label different products,

shelves & bins in the center. The hand held computers guide employee to the location of the

specific product. The quantity of the product required from the center is entered in the

hand held computer, which updates the information on the main central server. The

computers also enabled the packaging department to get accurate information such as

storage, packaging & shipping, thus saving time in unnecessary paperwork. It also enables

supervisors to monitor their employees closely in order to guide them & give directions.

This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency of

distribution center management operations.



Logistics Management

This involves fast & responsive transportation system. More than 7000 company owned

trucks services the distribution centers. These dedicated truck fleets enables shipping of

goods from distribution centers to the stores within 2 days and replenish the store shelves

twice a week. The drivers hired are all very experienced & their activities are tracked

regularly through “Private Fleet Driver handbook”. This allows the drivers to be aware of

the terms & conditions for safe exchange of Wal-Mart property, along with the general code

of conduct.

For more efficiency, Wal-Mart uses a logistics technique called “Cross Docking”. In this

system, finished goods are directly picked up from the manufacturing site of supplier,

sorted out and directly supplied to the customers. This system reduces handling & storage

of finished goods, virtually eliminating role of distribution centers & stores. Because of

“cross-docking” the system shifted from “supply chain” to “demand chain” which meant,

instead of retailers ‘pushing’ the products into the system, the customers could ‘pull’ the

products, when & where they required.



Inventory Management

Considering the rapid expansion of Wal-Mart stores, it was essential to have a very good

communication system. For this, Wal-Mart set up its own satellite communication system

in 1983. This allowed the management to monitor each and every activity going on in a

particular store at any point of the day and analyze the course of action taken depending on

how the things went.

Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores

to manage their own stocks, thereby reducing pack sizes across many categories and timely

price markdowns. Wal-Mart makes full use of its IT infrastructure to make more

inventories available in case of items that customers wanted most, while reducing overall

inventory. By making use of Bar-coding & RFID technologies, different processes like

efficient picking, receiving & proper inventory control of the products along with easy

packing and counting of the inventories was ensured.

Wal-Mart owns the “Massively Parallel Processor (MPP)”, largest & the most

sophisticated computer system in private sector, which enables it to easily track movement

of goods & stock levels across all distribution centers and stores. For emergency backup, it

has an extensive contingency plan in place as well.

Employees use “Magic Wand”, which is linked to in-store terminals through a Radio

frequency network, to keep track of the inventory in stores, deliveries and backup

merchandise in stock at the distribution centers. The order management and store

replenishment of goods is entirely executed with the help of computers through Point of

Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to forecast the

quantities of each item to be delivered, based on inventories in the store. A Centralized

inventory database allows the personnel at the store to find out the level of inventories and

location of each product at a given time. It also shows the location of the product like

distribution center or transit on the truck. When the goods are unloaded at the store, the

inventory system is immediately updated.



Competitive Advantage

Wal-Mart has been an undisputed leader in offering the markets lowest prices to

consumers. It has always given a “price match guarantee”, and has challenged other stores

to offer lesser prices and has agrees to reimburse the difference, the difference of price if

any. No other store could meet this and Wal-Mart has been leading the pack for years.

Market Opportunity

Wal-Mart employs a combination of two Business Models viz.

B2B Single firm network Business Model – SAM’S CLUB segment of Wal-Mart supports

small businesses. Its main focus in this segment is to create its own network of trusted

partners to coordinate supply chains and provide exceptional value on brand-name

merchandise at “Members Only” prices.

B2C E-Tailor Business Model– Wal-Mart uses “clicks and bricks” methodology to provide

millions of its customer’s online version of its retail store, where customers can shop at any

hour of the day or night without leaving their home or office.

Wal-Mart employs Sales revenue model as it is mainly involved in sale of goods and

services.

These two models help Wal-Mart in achieving its business perspectives related to its firms

organizational needs and the second helps in its interaction with the customer and

manages goods and services offered by Wal-Mart to the end users.



RFID in Wal-Mart Wal-Mart had initiated its plan to employ RFID technology in its supply chain in June 2003.

Subsequently Wal-Mart reinforced its plans and actively asserted on defining the RFID

standards it will be implementing.

The specification of the following RFID components was laid out in November 2003.

EPC (Electronic Product Code) specification

Type of Chip that would be installed

The Distribution centers that will accept RFID tagged products

After the defining phase, Wal-Mart specified the RFID requirements to its suppliers that

they should comply with:

EPC: 96-bit with a Global Trade Identification number

TAGS: Should operate in UHF spectrum (868 MHz to 956 MHz)

The TAG will carry the 96-bit serial number and will be field-programmable, that will allow

the suppliers to write serial numbers to the tags while being applied to the products.

EPC –compliant tags in UHF band consists of two main parts:

EPC data format on the chip

Class0 or Class1 communication protocol

Class0 is a factory programmable tag

Class1 provides the capability to the end users to write serial number on it

Wal-Mart planned to implement Class1 Version2, a globally accepted protocol that

incorporates both specification of Class0 and Class1.

In addition, Wal-Mart is planning to enhance mobility to its existing RFID tag readers by

implementing RFID-enabled forklift. These readers will have the capability to read the tags

on the pallets and transmit data through the RFID network, which would help the users to

be better informed about the supply-chain data.



Efficiency in Supply Chain with RFID

The various components of Supply Chain are: Procurement, Distribution, Logistics and

Inventory Management.

Since the core of Wal-Mart business is perpetual improvement in its Supply Chain

implementation, it believes in “no-compromise” on implementing an innovative IT

infrastructure and strong communication system as they are they the important links in the

chain for a smooth functioning of the complete system.

Wal-Mart tapped RFID technology with an aim to increase the efficiency of its supply chain.

This is because RFID implementation will enhance transparency of their supply chain and

hence will help them minimize cost and labor and will strengthen inventory control.

According to Venture Development Corporation,

“With Wal-Mart selling over $245 billion worth of goods in fiscal year 2003,

a 1% improvement in the out-of-stock issue could generate nearly $2.5

billion in very profitable sales.”

In addition, a study by Cohen at Wharton chalks out the difference between the existing

inventory management and the RFID enabled supply chain.

“In current systems, you may know there are 10 items on the shelf, and that

information is compiled in an enterprise planning software system. With

RFID, you know there are 10 items, their age, lot number, and expiration

date and warehouse origin. "It's like knowing there are 1,000 people in a

city," says Cohen. "With RFID, you know their names."

From the above studies it indicates that employing RFID technology will help in

implementing a seamless supply chain and hence yield profits.

The increase in their efficiency is evident from the news article at Breitbart.com, where it

states that implementation of RFID tags in Wal-Mart’s inventory has helped boost sales by

keeping shelves better stocked. Usage of RFID has reduced out-of-stock merchandise by

16% at the stores that have implemented RFID tags for more than a year. The CIO at Wal-

Mart stated that,

“Wal-Mart has been able to restock RFID-tagged items three times as fast as

non-tagged items.”

In addition to improving the availability of in-stock merchandise, Wal-Mart aims to reduce

the practice of manually placing the order and has achieved 10% reduction in the case.



The recent studies show that 130 major suppliers ship merchandise to Wal-Mart

distribution centers with about 5.4 million tags. Wal-Mart expects to increase RFID

implementation by adding another 200 suppliers that are projected to supply to another

1000 stores.

At present, Wal-Mart is at a nascent state of implementing RFID. In addition to

strengthening the Supply Chain, the largest retailer is also looking into different

dimensions where RFID can be helpful. As a pilot test, Wal-Mart is working on the data

collected by RFID to analyze the consumer behavior.

According to Venture Development Corporation, the major implementation milestones of

RFID at Wal-Mart are to expand Regional and domestic implementation of RFID throughout

2005. These include Regional Distribution Centers, Grocery Distribution Centers and Sam’s

Club Distribution Centers in Texas. And, by 2006, Wal-Mart aims to mandate RFID

implementation for all its suppliers.

Limitations and Challenges of RFID Many issues still exist about the implementation of RFID that even Wal-Mart may have

trouble addressing despite their decision to move forward with the new technology.

Current challenges in RFID implementation are:

Global standards: A single global RFID standard is highly unlikely to evolve.

Like barcodes, standards for RFID will probably vary between many regions of

the world. Multinationals like Wal-Mart may need to implement a variety of RFID

standards and technologies across their global organizations.

Technology problems: Problems such as signal distortion, reader accuracy and

speed, and tag transmission capabilities persist making RFID still not practical

for widespread use. Some of the major technical limitations are:

1. Read-range distances are not sufficient to allow for consumer

surveillance: Most of the RFID tags currently in use have read ranges of

fewer than 5 feet. The read range of the RFID tags depends on the antenna

size, transmission frequency, and whether they are passive or active.

2. Limited information contained on tags: Although some researchers on

RFID support this aspect of the technology by pointing out that the tags

associated with most consumer products will contain only a serial number.

However, this number can reveal a lot of information, which is generally used

as a reference number that corresponds to information contained on one or

more Internet-connected databases. This means that the data associated with



that number is theoretically unlimited, and can be augmented as new

information is collected.

3. Defective and poorly performing RFID tags: RFID tag manufacturers

continue to produce faulty tags. Failure rates in early RFID pilots have been

as high as 30%. Unfortunately, "relatively high reliability" is unacceptable if

an RFID mandate calls for a 100% read rate.

4. Damaged RFID tags: Since tag reading happens automatically without line

of sight and no human interaction, it can be difficult to know when certain

tags are not read. This becomes a serious issue for business applications built

around RFID if 100% read rates are implicit as part of the core business

application design.

Data management: Lack of development of right information management tools to

manage the data effectively, is making it difficult to realize the full potential of RFID

in generating a wealth of information. “Companies planning to adopt RFID face

technical concerns related to effective data capture (or reading), and to data volume

(in database management and transmission)”.

Cost: Any developing technology is associated with high costs and so is RFID, which

is highly expensive to implement. “Individual tags cost about 30 cents each; this will

drop to between one and five cents per tag once billions are being produced”. And

depending on functionality, tag readers can cost anywhere from several hundred to

several hundred thousand dollars. The largest cost issues, however, reside in the

required size of the databases, their integration with a company’s current systems

and the effective transmission of information. Associated costs can approach the

millions of dollars, but they are unavoidable if the full benefits of RFID are to be

realized.

Industry Standards: Many privacy advocates are insisting the companies to state

their intended use of the technologydue tolack of industry standards regarding the

use of personal information that could be encoded on the chips.

Privacy and civil liberties: One major confrontation for RFID technology would be

to deal with the threats to consumer privacy and civil liberties. RFID tags can be

embedded into/onto objects and documents without the knowledge of the

individual who obtains those items.

Must be programmed, applied and verified individually, and data synchronization is

usually required.

A final barrier to implementation that may need managing is employee acceptance,

particularly in light of potential job losses.



RFID Practices that should be prohibited:

Merchants must not force their customers into accepting RFID tags in the products

they buy.

RFID must not be used to track individuals absent informed and written consent of

the data subject. Human tracking is inappropriate, either directly or indirectly,

through clothing, consumer goods, or other items.

RFID should never be employed in a fashion to eliminate or reduce anonymity. For

instance, RFID should not be incorporated into currency.

Future of RFID



Conclusion-

What Should Wal-Mart Do?

Wal-Mart should redefine the scope of its RFID mandate by narrowing the scope of

products to those with limited amounts of metal and liquid. Suppliers would not be affected

with a narrower focus on high-priced products like prescription drugs, apparel, and DVDs

etc. It gives additional time for vendors and suppliers to perfect tag reliability for all

products. “Forrester recommends that Wal-Mart use its influence to help create a buying

consortium, giving suppliers the collective power to cut tag costs”.

What Should Suppliers Do?

Suppliers should use their initial knowledge to shape mandates by Wal-Mart and other

retailers. “In addition to addressing the challenges they are facing in implementing RFID

with Wal-Mart, suppliers should create an internal RFID lead position with direct access to

the CEO”.



List Of References-

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http://www.scribd.com/doc/36046815/Walmart-GroupG

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