1. cmpm A00267ppmmJun93G- 1 - Wal-Mart: Supply Chain Management Background Business Process Redesign: Process, IT Implications: Process, IT

2. cmpm A00267ppmmJun93G- 2 - Wal-Mart Is the Largest and Fastest Growing Discount Department Store 1992 revenues totaled $43.9 billion: -Increased 35% from previous year, whereas competitors’ growth rates averaged only 10% Net income increased 25% to $1.6 billion Operations include growing chain of stores, including discount department stores, wholesale clubs, food stores, wholesale distributor of books and pre-recorded music, and grocery distribution services First discount department store chain to expand internationally: -Joint venture with CIFRA, Mexico’s largest retailer 18% market share of $250 billion discount department store industry: -KMart, the next largest competitor, has 13.8% -Analysts estimate that by the year 1995, Wal-Mart will drive all competitors, aside from KMart and Target, out of business WAL-MART: BACKGROUND Source:Annual report. Wal-Mart grows through volume and market share gains rather than margin expansions.

3. cmpm A00267ppmmJun93G- 3 - Stronger Competitors and More Powerful Suppliers Are Challenging Wal-Mart in Quickly and Effectively Responding to Customers WAL-MART: BACKGROUND Customer Demands: The right product In stock The best value Service and quality Improved operations Foreign competition Industry consolidation Intense price competition Competitors: TargetKMart Improved operations Powerful brand management Industry consolidation Suppliers: Wal-Mart

4. cmpm A00267ppmmJun93G- 4 - Customer Demands Critical Success Factors (CSF) Satisfying Customer Demands Depends on Five Critical Success Factors Quick responsiveness to market changes Low inventory Quick replenishment of inventory Effective human resource system Efficient distribution system Quick responsiveness to market changes Low inventory Quick replenishment of inventory Effective human resource system Efficient distribution system The right products In stock Best value Service and quality The right products In stock Best value Service and quality WAL-MART: BUSINESS PROCESS

5. cmpm A00267ppmmJun93G- 5 - Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors Customer demand “pulls” product through the supply chain Tracking product movement at individual stores by market traits (e.g., size, color) Investment in IT ensures timely analysis of sales/customer/market information and trends Formal and informal cooperation among stores, distribution centers, and suppliers Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System CSF WAL-MART: BUSINESS PROCESS

6. cmpm A00267ppmmJun93G- 6 - Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) Direct high-level and long-term relationship with suppliers enabled by high information sharing: -Some vendors directly manage distribution warehouse inventory of their products Efficient transportation system Investment in IT (e.g., EDI, Quick Response, Radio frequency terminals) CSF WAL-MART: BUSINESS PROCESS Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

7. cmpm A00267ppmmJun93G- 7 - All employees are considered “associates” Extensive training and support Stock-ownership program Profit-sharing “Employees are your biggest capital investment, so it makes sense to maintain them—their skills, their morale, and their participation.” CSF Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) WAL-MART: BUSINESS PROCESS Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

8. cmpm A00267ppmmJun93G- 8 - Highly automated distribution centers (e.g., laser-guided conveyor belts) A fleet of 2,000 company-owned trucks High leverage of supplier relationships: -Some suppliers ship goods “sales floor ready” CSF Wal-Mart Fulfills the Customer-Satisfaction Critical Success Factors (cont.) WAL-MART: BUSINESS PROCESS Quick Responsiveness to Market Changes Low Inventory Quick Replenishment Effective HR System Efficient Distribution System

9. cmpm A00267ppmmJun93G- 9 - The Traditional Supply Chain Includes Inefficient and Unnecessary Steps Select Tag/ Label Ship Pack Ship SelectPack Receive Ship Manufacturer (Supplier) Retailer Shipper Wholesaler ReceivePackSelectStorage Sell Order Individual Store Distribution Warehouse Order Make WAL-MART: BUSINESS PROCESS

10. cmpm A00267ppmmJun93G- 10 - Wal-Mart Simplified Its Supply Chain ShipReceive Select Ship Manufacturer (Supplier) Retailer Shipper Wholesaler ReceivePackSelectStorageSell Individual Store Distribution Center Tag/ Label PackMake WAL-MART: BUSINESS PROCESS Cross-docking in distribution centers results in product flow from inbound to outbound shipping docks within 48 hours. Deliver within 72 hours of order POS Order <48 hours

11. cmpm A00267ppmmJun93G- 11 - Wal-Mart Invests Heavily in Information Technology Inventory Tracking and Management System at distribution centers: -Identifies every product and its location in the warehouse -Integrated with some 8.5 miles of laser-guided conveyor belts -Lasers read the bar code on every product box and route them to appropriate loading dock Electronic Data Interchange (EDI): -For electronic transmission of POS data, purchase orders, invoices, advance shipment notice, etc. between Wal-Mart headquarters, suppliers, distribution centers, and individual stores Merchandising Artificial Intelligence System: -To adjust vendor merchandise assortments based on the need of each particular store -State-of-the-art satellite communication network which supports data, voice, and video WAL-MART: BUSINESS PROCESS

12. cmpm A00267ppmmJun93G- 12 - Wal-Mart Invests Heavily in Information Technology (cont.) Various Quick-Response (QR) systems (retail-link) to allow direct store-to- supplier ordering: “continuous replenishment” Wal-Mart Supplier POS Data Store Vendor-managed QR SupplierStore Wal-Mart-managed QR Order Wal-Mart SupplierStore Warehouse Just-in-Time System Distribution Center Distribution Center WAL-MART: BUSINESS PROCESS POS Data

13. cmpm A00267ppmmJun93G- 13 - Wal-Mart’s Inventory Management Improvements Have Resulted in Efficiencies Unmatched by the Competition WAL-MART: IMPLICATIONS Inventory-to-Sales Ratio 1:4.58 1:5.94 Sears Roebuck & Co.Wal-Mart Wal-Mart stores replenish inventory twice a week vs. industry standard of once every two weeks Wal-Mart has lowest cost of operations in the retail area, aside from wholesale clubs Selling and Operating Expenses of Sales KMartWal-Mart 15% 28% IT systems have improved Wal-Mart’s in-stock position and increased vendor responsiveness Inventory in System (Days) At Vendor At Warehouse In-Store 30 14 3 2 3 After New System Before New System

14. cmpm A00267ppmmJun93G- 14 - Lessons Learned: The Road to Success Is Paved by Technology and Better Use of People Economies of Sales: “Best Deals” Economies of Sales: “Best Deals” Strong Supplier Relationships Effective IT Systems Effective Distribution Systems Empowered Employees Reduced Cost of Sale Reduced Cost of Sale In-Depth Knowledge of Customer/ Market In-Depth Knowledge of Customer/ Market Stable Lower Prices Stable Lower Prices Predictable Sale Patterns Predictable Sale Patterns Decreased Chance of Out-of-Stock Decreased Chance of Out-of-Stock Increased Sales and Profits WAL-MART: IMPLICATIONS

15. DOCUMENT ID Comments: Prod. Date: Transparencies 44: B&W Pres 44 Pres. Date: Author: Template Lby Date: # of Pages: Archive Information Client Folder: Doc. Name: Doc. Folder: Location Other: 35mm Slides 44: Title: Project No.:Client Name: or