Half a Century of Supply Chain Management

Walmart dominates the retailing industry in terms of its sales revenue, its customer base, and its ability to drive down costs and deliver good value to its customers. After all, the world’s largest corporation, employing 1.8 million associates worldwide, takes pride in having received numerous accolades for its ability to continuously improve efficiency in the supply chain while meeting its corporate mandate of offering customers everyday low prices. Walmart demonstrates how a physical product retailer can create and leverage a data asset to achieve world-class supply chain efficiencies targeted primarily at driving down costs. BACKGROUND OF THE COMPANY

Sam Walton opened the firs Walmart in 1962 in Rogers, Arkansas with the foundation being that it would offer “The Lowest Prices Anytime, Anywhere” (Walmart Corporate, 2014c), and by 1967 it had over 24 stores and $12.7 million in sales. By 1969, the company was officially incorporated and offered an initial public offering to raise funds to build a distribution center in Bentonville, Arkansas (Johnson & Mark, 2013, p. 3). Walmart grew in large part by leveraging information systems to an extent never before seen in the retail industry. Technology tightly coordinates the Walmart value chain from tip to tail, while these systems also deliver a mineable data asset that is unmatched in U.S. retail. Tight inventory management is legendary at Walmart through its just-in-time techniques that allow the firm to boast one of the best supply chains in the world.

Walmart has not only transformed its own supply chain, but also influenced how vendors throughout the world operate because the company has the economic clout to request changes from its vendor partners and to receive them. Recognized for its ability to obtain merchandise from global sources, Walmart also pioneered the strategy of achieving high levels of growth and profitability through its precision control of manufacturing, inventory, and distribution. Although the company is not unique in this regard, it is by far the most successful and most influential corporation of its kind and has put into practice various innovative techniques. To get a sense of the firm’s overall efficiencies, at the end of the prior decade a study found that Walmart was responsible for some 12% of the productivity gains in the entire U.S. economy. GOALS AND OBJECTIVES

When Walmart does something, it does it on a massive scale. Walmart’s computer system, for example, is second only to that of the Pentagon in storage capacity. Its information systems analyze more than 10 million daily transactions from point-of-sale data and distribute their analysis in real time both internally to its managers and externally via a satellite network to Walmart’s many suppliers, who use the information for their production planning and order shipment. Much of the popularity of supply chain management has been attributed to the success of Walmart’s partnership with Procter & Gamble (P&G). During the 1980s, the two collaborated in building one of the first Collaborative Planning, Forecasting, and Replenishment (CPFR) systems, a software system that linked P&G to Walmart’s distribution centers, taking advantage of advances in the world’s telecommunications infrastructure.

When a Walmart store sold a particular P&G item, the information flowed directly to P&G’s planning and control systems. When the inventory level of P&G’s products at Walmart’s distribution center got to the point where it needed to reorder, the system automatically alerted P&G to ship more products. This information helped P&G plan its production. Walmart was also able to track when a P&G shipment arrived at one of its distribution warehouses, which enabled it to coordinate its own outbound shipments to stores. Both Walmart and P&G realized savings from the better inventory management and order processing, savings that in turn were passed on to Walmart’s consumers through its everyday low prices. Should we move this content somewhere else or leave it here? KEY ISSUES

Walmart has pioneered many innovations in the purchase and distribution processes of the products it sells. Over 20 years ago, Walmart drove the adoption of Universal Product Code (UPC) bar codes throughout the retail industry; it also pioneered the use of Electronic Data Interchange (EDI) for computerized ordering from vendors. Its hub-and-spoke distribution network ensures goods are brought to distribution centers around the country and then directed outward to thousands of stores, each of which is within a day’s travel. Through the use of cross-docking, one of its best-known innovations, half the goods trucked to a distribution center from suppliers ship to stores within 24 hours. The other half, called “pull stock,” is stored at the distribution center until needed at stores. In addition, Walmart uses a dedicated fleet of trucks to ship goods from warehouses to stores in less than 48 hours, as well as to replenish store inventories about twice a week.

Thus, with flow-through logistics, the company speeds the movement of goods from its distribution centers to its retail stores around the world. Today the retail giant continues to push the supply chain toward greater and greater efficiency, prioritizing customer needs while employing new technologies and greener practices. One of the early adopters of Radio Frequency Identification (RFID) technology to increase efficiency in its supply chain, Walmart discovered the value of balancing vision with technology maturity levels after mandating its suppliers apply RFID tags to crates and pallets bound for its stores. Some companies thrived using the new technology. Others, including Walmart itself, ran into trouble. At the time of the mandate, RFID technology was in its infancy, and costs for planning, hardware, software, and training were prohibitive for many suppliers. Additionally the technology was new enough that the industry lacked best practices for implementation. Indeed, it lacked any examples that might help newcomers avoid pitfalls. Walmart repealed its edict, but continues to probe the usefulness of the technology.

In response to criticism from consumer groups, Walmart tackled environmental sustainability in its supply chain and, as is frequently the case because of the company’s size, became a trendsetter for other retailers. After vowing to reduce its greenhouse gas emissions by the equivalent of taking nearly 4 million cars off the roads for a year, Walmart directed its suppliers to think green throughout the full product lifecycle. Suppliers are required to pay for
sustainability efforts, a price most suppliers accept willingly to retain their relationship with Walmart. Many also recognize that reducing energy use will benefit them as energy costs rise. Harnessing energy, increasing recycling, reducing waste, and minimizing packaging and transportation all reduce cost in the supply chain in addition to appealing to today’s consumers and preserving global resources. In a third innovation, Walmart is consolidating its global sourcing. The new model focuses on increasing the percentage of products purchased directly from suppliers and buying from global merchandising centers rather than through individual countries.

Third-party procurement providers, who previously enjoyed a substantial business from the retail giant, will find themselves increasingly bypassed in the supply chain. In addition to eliminating the cost of a middleman, this effort may give Walmart increased control over inbound freight. Better control, in turn, can lower inventory costs. Thus Walmart’s continuous use of innovations leads to lower inventory and operating costs, which enables Walmart to keep its lean costs. EXTERNAL ANALYSIS

The external factors surrounding Walmart are important to discuss in order to better understand their impact on their stock price. Many external factors play a role in the price of stocks, therefore it is imperative to evaluate external factors continuously, and adjust internal factors to mitigate any negative implications. Economy

According to Exhibit 5, Walmart experienced extreme growth in stock price from 2003 to 2007. With the economic crisis in 2008, Walmart stock prices plummeted. Beginning in 2009, the Walmart stock price slowly began to rise and fall periodically. Exhibit 5 shows a slow growth over a period of 3 years from 2009 to 2012 (Johnson & Mark, 2013, p. 23). Customer Behavior

Sam Walton founded Walmart stores to be “big box” discount centers. He envisioned having the lowest prices steadily, such as Walmart’s slogan “Save Money. Live Better” and “Everyday Low Prices. Guaranteed” (Walmart, 2014). Customers bought into the Walmart idea, helping it become the number one retailer in the world (Johnson & Mark, 2013, p. 2). Technology

Walmart has certainly taken advantage of cutting edge technology. Walmart has implemented top of the line technology since installing computerized point-of-sale systems, Retail Link, online purchasing options, and Project One Touch. Each piece of technology was designed and implemented to increase productivity, increase sales, and decrease labor costs. As the largest retailer in the world, Walmart must remain advanced in their use of technology to continue to meet the needs along the supply chain and their customers. Politics & Legal Aspects

It is well known that Walmart has faced many political and legal actions in the past. As with any major corporation, politics and legal concerns are always at the forefront of maintaining a good global reputation. From taxes to lawsuits, Walmart must remain attentive to changes in laws, taxes, and more, not only in the United States, but globally. INTERNAL ANALYSIS

Walmart’s supply chain is known to be a key enabler of growth for the company, and an advantage against competitors (Johnson & Mark, 2013, p. 3). Walmart has implemented key processes throughout its supply chain which have made Walmart the largest retailer in the world. Furthermore, Walmart’s unique internal factors play a critical role in managing Walmart stock to compensate, if possible, for any negative external factors. It is imperative that we discuss and analyze the internal factors, strengths, and weakness in order to make sound financial decisions. Company Culture

Walmart’s culture says it all in their slogan, “Save Money. Live Better” (Walmart, 2014). Walmart aims to have everyday low prices that save people money by implementing EDLP, which adjusts the retail price to optimize gross margins. This is a broad strategy practiced by many retailers (Johnson & Mark, 2013, p. 3). They lend the idea that saving money means you will live better. They aim to reach various audiences through several of their different stores such as supercenters, supermarkets, grocery stores, and wholesale outlets; but the message is the same: “We’re committed to providing low prices every day. On everything. So if you find a lower advertised price on an identical product, tell us and we’ll match it. Right at the register” (Walmart Corporate, 2014a). Furthermore, Walmart attempts to provide a “community-like” store, by carrying products that community purchases most. Operations

Walmart’s store network is more than 10,000 retail centers strong in 27 countries, with more than 2.2 million employees globally (Walmart, 2014d). All stores are simple in furnishings, and use standard materials to reduce costs. Additionally, light and temperature settings in all U.S. stores are controlled centrally from Bentonville, AR (Johnson & Mark, 2013, p. 6). This allows for Walmart to have low operational costs. Purchasing & Suppliers

Walmart worked to cut out the middleman in many of its processes. When it came to purchasing, Walmart did not use wholesalers or distributers, but rather worked direct with suppliers to ensure correct amount of product was carried in stores. Suppliers for Walmart vary across the globe. With more than 40,000 suppliers, Walmart was a major customer which gave them dedicated full-time supplier employees working to support their business (Walmart Corporate, 2014d). Walmart’s unique agreements with suppliers give them a competitive edge in the market. According to the Ken Mark, “Walmart insisted on a single invoice price and did not pay for co-operative advertising, discounting, or distribution” (Johnson & Mark, 2013, p. 4). Furthermore, Walmart conducted field intelligence on stores to better understand individual stores, stock, sales, and more. Inventory

Walmart procured private merchandise, not available elsewhere, which is appealing to customers. Walmart’s stated strategy was to be a “house of brands,” procuring top brands in volume and selling them at low prices” (Walmart Corporate, 2014d). Logistics

According to the author, Walmart’s distribution strategy is a significant aspect along the supply chain. Walmart developed stores within short distances of one another, saturating the market around a central distribution center. Furthermore, Walmart stores were located in low-rent, suburban areas close to major transportation systems. This enabled Walmart to be close to its distribution centers, reducing transportation costs, and time. Walmart’s logistics team is more than 75,000 people, and with the largest private truck fleet of any firm (Johnson & Mark, 2013, p. 5). Walmart’s private truck fleet is truly one of the most influential aspects of their logistics system. This key piece enables Walmart to deliver quickly and efficiently. Walmart’s trucks also generate “backhaul” revenue by transporting unsold merchandise on trucks, as well as serving as a “for-hire” carrier to generate additional dollars (Johnson & Mark, 2013, p.6). SWOT ANALYSIS

Positive Factors
Negative Factors
External Factors

STRENGTHS

Procurement
Distribution
Store Network
Information Systems

WEAKNESSES

Procurement
Store Network
Human Resources
Focusing on the Supply Chain

Internal Factors

OPPORTUNITIES

Focusing on the Supply Chain
New Initiatives and a Reorganization
Global Sourcing
Project One Touch
Multi-Channel Strategy

THREATS

Human Resources

Figure – SWOT Analysis
Will create this chart once everyone agrees
Strengths
Procurement
Walton and his senior management team would cut out the middleman, and work directly with buying offices. Many of Walmart’s suppliers maintained offices in Bentonville (Walmart’s headquarters city) and analysts and managers who worked in these offices were supporting Walmart’s business. Walmart’s strategy was to provide top brands at low prices. Walmart having a great deal of power over its suppliers.

Walmart requires that suppliers accept payment entirely on their terms and that supplier share information on products beginning at the raw materials stage, Walmart also controls with whom the suppliers speak and how and where they sell their goods (Johnson & Mark, 2013). Distribution

Having the largest private truck fleet of any firm (being able to control shipping and receiving). Some of the Walmart private trucks also used ship “collect,” which means that the Walmart owned truck would pick up goods directly from the supplier and deliver to Walmart’s stores. Walmart’s private fleet also generated revenue by “backhaul,” which is transporting unsold merchandise, on a truck that would normally be empty. This additional business avenue for Walmart generated $1billion per year (Johnson & Mark, 2013). Store Network

Walmart stores aimed to be the “store of the community” tailoring their store products to consist of items that are liked by the customers of that particular geographic community. It was stated in the Mark (Johnson & 2013, p. 6) case that “most other retailers made purchasing decisions at the district or regional level.” The Every Day Low Price (EDLP) policy allowed Walmart to channel the savings from not needing to advertise to price reductions for store goods. To further increase customer demand Walmart also worked with suppliers on price rollback campaigns, which are campaigns that had specific products on sale in addition to their everyday low prices. Associates had authority to manually input orders or override impending deliveries based on store level information systems (Johnson & Mark, 2013, p. 7). Information Systems

Walmart invested in a central database, a store level point of sale system, and a satellite network, allowing the company to improve on forecasting and come close to accuracy for sale items (Johnson & Mark, 2013, p. 7). Retail Link, developed by Walmart was the second to largest internet database. Walmart’s suppliers had access to real-time sales data for their products in Walmart’s stores. Radio Frequency Identification (RFID) tags are utilized to increase visibility of products that are inbound, in stores or in distribution centers. The RFID tags have saved an estimated $500 million a year for Walmart (Johnson & Mark, 2013, p.9). Walmart has many strengths that have allowed the firm to grow at alarming speeds and allow many people to become loyal customers to the Walmart franchise.

Most of Walmart’s strengths are involved in their supply chain management that has created a strong foundation for the brand and has helped achieve a high sales total of 418,952 in year 2011 as seen in Exhibit 3 (Johnson & Mark, 2013, p. 17) outranking many of Walmart’s competitors. Many of the strengths of Walmart have created major savings for the firm and also increase effectiveness and efficiency. It also removes many supply chain issues similar to bull-whip effect, and unknown distribution deliveries of products. Walmart’s supply chain strategies were sustainable for many years by using a centralized database, retail link, RFID, tailoring store items to their neighboring community, and using a “backhaul” function for their private trucks, however Walmart will need to reduce waste in their high volume inventory purchases. Buying in bulk when customers are showing an interest in smaller formatted stores is not sustainable. Weaknesses

Procurement
Walmart sourced products internationally, although the international offices worked with local offices for private labeling products the products were completely sourced in different countries than the U.S. (taking U.S. jobs). Store Network

The stores were simply furnished and constructed with standard materials. Light and temperature settings for U.S. stores were all controlled manually from the headquarters in Bentonville, Arkansas. Human Resources

Making operational changes quickly and taking advantage of technology to drive labor cost down. The many changes of Walmart’s management team to decrease cost for operation expense has also been at the expense of its employees. Focusing on the Supply Chain

Delays in restocking supplies due to how the key selling items arrived to the store from truckload deliveries. Walmart’s weaknesses shows a lack of environmental sustainability by not allowing each store in different states to have control over their own light and temperature settings, this is not putting the work environment in a safe and healthy position by limiting controls. Each state has completely different weather temperatures, and some cities change weather climates quicker than others do. Making operational changes quickly without receiving input from employees of an organization can cause employees to feel unvalued resulting in low morale. Having a strong supply chain does not always create a strong infrastructure. Many other facets of a business must be explored and improved to sustain a changing economy, culture, and environment. Opportunities

Focusing on the Supply Chain
Having top selling items like paper towels, toilet paper, and toothpaste be housed and shipped from dedicated “high velocity” food distribution centers (Johnson & Mark, 2013, p. 10). Looking to reduce excess inventory which can reduce cost margins for Walmart. Remodeling stores which would consist of improved checkout speed, customer service and store appearance. New Initiatives and a Reorganization

A. Global Sourcing
The global merchandising centers to be reorganized into different categories. Entering into partnerships with global suppliers for private label business.
B. Project one Touch
Aligning the complete structure of the supply chain to be operated together, which consist of merchandise flow, delivery schedules, and store labor schedules.
C. Multi-Channel Strategy
To improve its physical store and distribution center functions and Walmart’s online presence. Allowing stores to receive sale credit for online purchases. Having three shipping options available to customers: site to store, home free and pick up today. Walmart’s core competencies and competitive advantages stem from them having many opportunities and planning to implement new strategies that will evolve with changing times. Their idea to offer many shipping methods for their online shoppers and looking to develop high velocity distribution centers shows sustainability by developing strategies that address current needs for their customers. Walmart’s executive’s top priority among new initiatives (opportunities) should be reducing the excess inventory, and utilizing a lean system as much as possible. Walmart has many centralized systems that can provide adequate communication to fulfill low inventory products quickly and remove the need to buy in high volume. Threats

Human Resources
Being a target for politicians with United Food and Commercial Workers Union forming anti-Walmart campaigns with Walmart employees.

Figure – Walmart protest (Huffington Post, 2013)
Smaller format stores like Dollar General becoming more popular than Walmart supercenters. Buying in high volume/bulk which causes excess inventory. Remodeling Walmart stores which has caused a negative impact on Walmart’s sales. Walmart’s threats are there due to a few reasons one is the rise of smaller formatted stores, if customers continue to patronize smaller stores this will create a lower customer demand for Walmart, in turn creating a loss in sales and profits for Walmart.

Remodeling Walmart stores is also an opportunity that the firm will pursue since the stores are built modestly with standard materials however, this has resulted in a drop in sales and if continued may result in a permanent loss of customers. Walmart being in the public eye for negative media also reflects a large threat being that Politicians and everyday civilians may not like the allegations raised against Walmart and may decide to discontinue their shopping at local Walmart stores. Walmart’s social sustainability needs improvement and will not be met until Walmart executives try to not only lower operating cost but also ensure a healthy and safe work environment for their employees. DECISIONS

Upon review of the SWOT analysis as well as Exhibits 3 and 5, it does not make sense to continue to hold on to Walmart stock. Exhibit 3 shows growth in the total assets for each company that is similar to Walmart between 2002 and 2012; however, Amazon.com is one of the companies who has had a large growth during that time period. Walmart’s total assess has grown approximately 2.16 times while Amazon.com grew its total assets 12.7 times during the same time period. In addition, looking at competitors who are most similar to Walmart, Target has grown 1.63 times while Costco has grown 2.30 times during the same time period.

The value of Walmart stock has remained basically unchanged for approximately 10 years as seen in Exhibit 5, which shows that the value of the stock between February of 2002 and February of 2012 has fluctuated between slightly above $40 and slightly above $60. However, the stock of the 500 large companies under the Standard & Poor’s 500 (S&P 500) shows a more drastic up and down movements showing more rapid and decrease gain. When the S&P 500 stocks were growing between 2004 and 2008, the stock for Walmart started to fall. After the economic problems of 2008, the S&P 500 stocks took a drastic fall while the Walmart stocks gained in value. Unfortunately, the Walmart stocks have not increased in value since 2008 at the same rate as the S&P 500 stocks have done. CONCLUSION

Walmart continues to hone its management of the flow of products and information among its suppliers, distribution centers, and individual stores through technology to increase its control of logistics and inventory. Thoughtful use of innovation has put Walmart at the top of the retailing game. Not all organizations can pull this approach off so well. Walmart is a unique case in which a single, very powerful firm took primary responsibility for improving performance across its own supply chain. By developing a superior supply chain management system, it has reaped the rewards of higher levels of customer service and satisfaction, lower production and transportation costs, and more productive use of its retail store space. Fundamentally, it boils down to Walmart’s ability to link together suppliers, distribution centers, retail outlets, and, ultimately, customers, regardless of their location. Although operational innovation is not the only ingredient in Walmart’s success, it has been a crucial building block for its strong competitive position.

REFERENCES
Huffington Post. (2013, November 6). Walmart workers are striking today in Southern California. Retrieved from http://www.huffingtonpost.com/2013/11/06/Walmart-workers- california_n_4226285.html Johnson, J.F., & Mark, K. (2013, November 12). Half a century of supply chain management at Walmart. Ivey Publishing. Walmart. (2014). Home page. Retrieved from Walmart.com.

Walmart Corporate. (2014a). Our ad match guarantee. Retrieved from http://corporate.walmart.com/ad-match-guarantee Walmart Corporate. (2014b). Our business. Retrieved from Walmart Corporate. (2014c). Our History. Retrieved from http://corporate.walmart.com/our-story/history/history-timeline Walmart Corporate. (2014d). Our locations. Retrieved from
http://corporate.walmart.com/our-story/locations Wu, J. (2014). Sustainability power point. Supply Chain Management. CSU San Bernardino