1. Supply Chain of Wal-mart Members: Members: Chan Man Ching Chan Mong Tik Chui Wai Ka Lam Fei Fei Man Ka Yu

2. Agenda  Background Information of Wal- mart  Supply chain of Wal-mart Flow chat of the supply chain Flow chat of the supply chain Technology used in various stage of SC Technology used in various stage of SC  Impact of Wal-mart Wal-mart Background Wal-mart Supply Chain Impact of Wal-mart

3. Background of Wal-mart ~Well known retailer with heavy investment in IT  Types of industry: one stop shopping center  Founder: Sam Walton  Year of establishment: 1962  First store: in Arkansas Sam Walton

4. No. of stores: 5311 units globally Wal-Mart has expanded its business to 10 countries: U.S., Mexico, Brazil, Argentina,Germany,Puerto Rico,U.K., South Korea, Canada and China.

5. Rapid growth of Wal-mart Revenues: $315,654,000, 000 in 2005 Stock value from Aug 1972 to May 2006: Sourced from finance.yahoo.com

6. How well is Wal-mart doing? Wal-mart Sears Holdings Target Corp Costco No. of Employees 1,800,0001,330,001338,00060,500 Revenue 05' 312.65B49.12B52.62B55.68B Operating Margin 5.93%3.83%8.22%2.79% Profit Margin 3.60%1.75%4.58%1.93% Inventory Turnover 7.473.925.9811.54

7. Why can Wal-mart be so successful?  Supply chain plays an important role  Supply chain: a method of collaborating horizontally – among suppliers, retailers, and customers to create value

8. Wal-mart Supply Chain Flow Chat Manufacturer Retail Store Point of sale terminal Satellite system Bar code, RFID Radio, headphone Distribution center Company Headquarter

9. Distribution Center  108 centers in USA  Place that various goods are gathered, sorted and delivered to different store  About 80% of merchandises shipped from centers  24 hours operation

10. Manufacturer 1 Manufacturer 2 Manufacturer 3 Retail store 1 Retail store 2 Retail store 3 Manufacturer 3

11. Trucks outside Wal-mart  Past----written instructions  Now----radio and headphone English ? Spanish?

12. Trucks outside Wal-mart  Use both hands  Keep contact with the headquarter  Behind or ahead the expectation  Adjust to any sudden changes  Benefit: Cost

13. Minilift Trucks  Inside distribution centers  equipped with headphone  Computer give direction to driver in voice What merchandises to transport What merchandises to transport Where the merchandises should be carried to Where the merchandises should be carried to Which truck the merchandises be loaded Which truck the merchandises be loaded  Report progress, ahead or behind schedule Benefit: productivity and efficiency

14. Bar Code System  Standardized bar code system applied by every supplier applied by every supplier Helps facilitating large scale operation Helps facilitating large scale operation  Pallets passed through conveyor belt are scanned automatically  Product codes are transferred to centralized computer system

15. Bar Code System  Matching with the computer database and generate useful information What it is. What quantity it is. Which packing compartment and truck to go. Which store to go What it is. What quantity it is. Which packing compartment and truck to go. Which store to go  Processes take place simultaneously  Save time and labour sorting merchandises  Smooth logistic processes

16. RFID  Radio Frequency Identification System  Use radio waves to identify objects  Tags with microchip and antenna built in Store data (type, quantity, manufacturer, expired date…) Store data (type, quantity, manufacturer, expired date…) Generate HF signal to transfer data Generate HF signal to transfer data  Allow Wal-mart to keep track of pallets at various stage of supply chain

17. RFID  Sensors in the distribution center detect and receive information from chips  Locate where the pallet is and the condition of it temperature temperature Humidity Humidity  Automatic senser – avoid scanning codes one by one

18. RFID Gen1 and Gen2 Generation 1 Generation 1 Generation 2 Generation 2 HF signal HF signal UHF signals Difficult to penetrate through liquid and metals Improve reception (Work with various materials) Improve reception (Work with various materials) Costly (up to $200 per chip in Costly (up to $200 per chip in early stage) early stage) Cost drops to US$0.15 within Cost drops to US$0.15 within near future near future Basic function Additional functions ( Better security, programmable…)

19. RFID  Further improve logistics efficiency  Save time identifying merchandises  Convenience in checking inventory  Information pre-stored in the chips = convenience of data processing

20. Point-of-sale terminals  Invested in 1983  Simultaneously rang up sales and tracked inventory deductions for rapid re-supply.  Electronic scanning of Uniform Product Codes (UPC) - to price-mark merchandise - to price-mark merchandise - to ensure accurate pricing - to ensure accurate pricing  Self-labeling system  The merchandise replenishment process

21. Large-scale satellite system  Installed in 1987  to improve communication between stores  Link all of the stores to headquarter, giving Wal-Mart’s central computer system real-time inventory data.  Allow sales data to be collected and analyzed daily, and enable managers to adjust immediately.  Daily information of individual store can be compared.

22. CPFR Program  A Collaborative Planning, Forecasting, and Replenishment program.  Just-in-time inventory program began.  Advantage: To reduce carrying costs. To reduce carrying costs. Less excess inventory. Less excess inventory. Cost of goods is estimated to be 5 to 10 percent less. Cost of goods is estimated to be 5 to 10 percent less.

23. Tailored-made store management  Wal-Mart merchandise is tailored to individual markets and individual stores.  Store managers choose which products to display and allocate shelf space.  A store devote only 10% of its square footage to inventory.  Wal-Mart’s culture stress the key role of associates.  Information and ideas are shared at individual stores.

24. Suppliers = Partners  As Wal-Mart grew, its relationships with some suppliers evolved into partnerships  Sharing information electronically to improve performance.  How do they share information?

25. Information sharing  Open its databases  Retail Link private extranet system: - to see exactly how its products are selling and when it might need to up its production - to see exactly how its products are selling and when it might need to up its production - to give more than 2000 suppliers computer access to point-of-sale data - to give more than 2000 suppliers computer access to point-of-sale data  Advantages: - Gain more information about the customers. - Gain more information about the customers. - Shelves will always be stocked with the right items at the right time. - Shelves will always be stocked with the right items at the right time.

26. Electronic data interchange (EDI)  Enabled an estimated 3600 suppliers (about 90% of Wal-Mart’s dollar volume) to receive orders and interact with Wal- Mart electronically.  Later expanded to include forecasting, planning, replenishing, and shipping applications.

27. Vendor-managed inventory systems  to replenish stocks  Wal-Mart transmitted sales data, orders of products, delivery plan and reports of warehouse inventory status to them daily  to plan inventory levels, generate purchase orders, and ship exactly what was needed  both benefited from reduced inventory costs and increased sales

28. Business planning packets  Each Wal-Mart department developed computerized, annual strategic business planning packets for its suppliers  including: department’s sales, profitability, and inventory targets, macroeconomic and market trends, and Wal-Mart’s overall business focus department’s sales, profitability, and inventory targets, macroeconomic and market trends, and Wal-Mart’s overall business focus  Wal-Mart’s expectations on them  Suppliers’ recommendations

29. How Wal-mart affects suppliers  Domestic Suppliers:  Wal-mart imported 18 billion worth of goods from 5,000 Chinese suppliers in 2004  Ranked as China’s 8 biggest trading partner ahead of Russia, Australia and Canada  Used power to squeeze domestic suppliers’ profit

30. How Wal-mart affects suppliers  Wal-mart Defense :  If all of supplier were squeezed dry  Wal-mart no suppliers  Wal-mart no suppliers  Suppliers found ways to survive  do better at what they did before

31. How Wal-mart affects suppliers  Wal-mart not only selling foreign imported goods, also encourage the use of domestic American products  “ Buy American Program “  Retained over 1.7 billion in retail purchases that produced offshore.

32. How Wal-mart affects dometic workers  Domestic workers :  Face keen competition from overseas markets,  offshore manufacturing  Close down of factories  Loss of jobs  Competition with Wal-mart  Competitors cut labor’s health care benefits and wages

33. How Wal-mart affects dometic workers How Wal-mart affects dometic workers  Wal-mart Defense:  Insist not responsible for the off-shoring of manufacturing  Example :  Sanyo ( TV sets producers ) planned to close the plant and move Mexico and Asia.  Wal-mart buys the TV sets from Sanyo if they don’t move  Eventually stay in US

34. How Wal-mart affects dometic workers  Destructive Creation  Shrinking of manufacturing and labor intensive sectors  Technical changes substitute unskilled labor  Create new jobs and expansion in services and technology sector  Estimation : 225,000 job loss by outsourcing in the next 15 years < 1.5% of the job available in 2002

35. How Wal-mart affects dometic workers  Unemployment is a structural problem,rather than a cyclical problem  Mismatch of job skills with the market demand  Unskilled labors cannot match with increasing skilled labor demand  Not loss of job, but cannot find a job matches with their skills

36. How Wal-mart affects economy  Reallocation of capital and technology to the foreign markets  Less to employ domestic workers and invest in local economy  Decline in labor productivity and real incomes of the country

37. How Wal-mart affects economy  may not necessarily imply a decrease in real income and productivity  For example,  Globalization and lower technology cost,  Lead to higher American productivity growth  added $230 billion extra GDP between 1995 and 2002  added $230 billion extra GDP between 1995 and 2002  Equivalent to extra 0.3% points of growth a year

38. Wal-mart Q & A