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Wal-Mart

Company overview using key concepts from

Managing Business Process Flows

As on 2007

Systems and Operations Management: Wal-Mart

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Wal-mart FACTS

founded by Sam Walton in 1962

the largest retailer in the world and the second largestcorporation in the world (behind Exxon Mobil based onrevenue as of 2006)

the largest private employer in the United States and Mexico

the largest grocery retailer in the United States

the largest toy seller in the United States

For the fiscal year ending January 31, 2006, Wal-Martreported net income of $11.2 billion on $313 billion of salesrevenue (3.5% profit margin)

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Wal-mart & the COMPETITION

To sustain competitive advantage, a firm must ensure thatits competition finds it hard to imitate its chosen position.

COMPANY SALES (MIL)FY2006

INDUSTRY AVG. 39,992

Wal-mart 312,427

TARGET 55,363

KOHLS 14,247

DOLLAR GENERAL 8,941

BIG LOTS 4,534

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Responsiveness

operations

frontier

A

B

C

Price

High Low

Wal-mart & the COMPETITION

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Wal-martS PRODUCT ATTRIBUTES

What are the 4 key product attributes???

.product cost, product delivery-response time, productvariety, product quality

Wal-marts product cost? Low

Wal-marts product delivery-response time? Low

Wal-marts product variety? High

Wal-marts product quality? Low - Medium

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Wal-mart Strategy

WAL-MART STRATEGY & OPERATIONS STRUCTURE

Enable everyday low prices and above average profitability by procuring, distributing,

and selling products, when and where needed, at lower costs than any competitor.

Operations Strategy Short Response Times

Low Inventory Level

Operations Structure

Fast Transportation System

Cross Docking

Retail Link

RFID

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Process Flow Measures: Wal-Mart

Process Flow Measures

Flow Time (T) total time spent by a flow unit withinprocess boundaries

Flow Rate number of flow units that flow through a

specific point in the process, per unit of time

Inventory(I) total number of flow units present withinprocess boundaries

Throughput (R) average flow rate or average number offlow units that flow through the process, per unit of time

Littles Law: Average Inventory (I) = Throughput (R) xAverage Flow Time (T) or I=RxT

Inventory Turns or Turnover Ratio number of timesinventory is sold and replaced during a specific period, R/I

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Process Flow Measures: Wal-Mart

Wal-Mart is extremely efficient with low flow times, highflow rates, and low inventory.

As of January 31, 2006:

Inventory as a percentage of the Balance Sheet was23.3%, down from 40.1% in 1997

Inventory Turnover was 7.8, up from 5.3 in 1997

Days Inventory was 46.8, down from 69.6 in 1997

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Flow-Time Analysis: Wal-Mart

Wal-Marts merchandise replenishment cycle is no morethan 48 hrs.

Retail Link real-time point-of-sales (POS) datatransmission

Cross Docking

Fleet of 7,000 trucks in US

Point-of-sale

system

captures data

in real-time

Data is

transmitted to

warehouses

for Inv. Mgmt.

Retail Link

transmits

data to

supplier

Orders are

generated from

previous-day

sales

Merchandise is

loaded onto

trucks using

cross-docking

Merchandise

is delivered to

the store

Merchandise is

manufactured

based on historical

and real-time data

Merchandise

is shipped to

warehouses

Customer

made a

purchase

The store will re-

stock the shelves

with merchandise

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Flow-Time Analysis: Wal-Mart

250 mileradius

Walmarts Centralized Hub-and-

Spoke System of Warehouses andDistribution Centers

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Flow-Time Analysis: Advantages of Cross Docking

Reduces operating costs.

Increases throughput.

Reduces inventory levels.

Helps in increase of sales space.

Eliminates unnecessary handling and storage of product.

Reduces product damages and product obsolescence.

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Supplier Management: Retail Link

Retail Link is a decision support system

It is a bridge between Wal-Mart and its suppliers

It is an address you can visit via Internet to retrieve the sales

data, inventory data, information on its development

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Inventory Management

Inventory Management:

Reducing critical activity times

Eliminating non-value-adding activities

Moving workfrom critical to non critical activities

Redesigning the process to replace sequential with parallel processing

Point-of-sale

system

captures data

in real-time

Data is

transmitted to

warehouses

for Inv. Mgmt.

Retail Link

transmitsdata to

supplier

Orders are

generated from

previous-day

sales

Merchandise is

loaded onto

trucks using

cross-docking

Merchandise

is delivered to

the store

Merchandise is

manufacturedbased on historical

and real-time data

Merchandise

is shipped towarehouses

Customer

made a

purchase

The store will re-

stock the shelves

with merchandise

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Inventory Management: RFID

Radio Frequency Identification

Automated Data collection based

on an electronicsnot a barcode

Tag can be imbedded in the

product or stuck on the exteriorcase or pallet

Reader instead of a barcode

scanner

Allows fully automated data

collection with the use of portals

Can read many ID tags at a time

http://www.intel.com/business/bss/technologies/rfid

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Inventory Management: How does an RFID work?

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Inventory Management: RFID

Wal-mart is the most famous retailer implementing RFID in its

supply chain management system in January 2005.

It required its top 100 suppliers to use RFID technology at the

pallet and case level by January 2005, 200 by January 2006,

300 by January 2007, and so on

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Inventory Management: RFID Read Points

WAL-MART STORE READ POINTS

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Inventory Management: Why RFID?

Reduce the possibility of inventory shrinkage and out-of-stock situation.

Improve fulfillment rates.

Improve the customer service.

Reduce inventory and labor cost.

Eliminate many manual process and improve the operation efficiency.

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Inventory Management: RFID Study?

Reducing out of stock?

8% of all items are out of stock (at any point of time)

Estimated potential lost sales: Retailers: 3.4%

Suppliers: 2.6%

26% improvement from no RFID to full RFID

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Thank you!

THANK YOU! QUESTIONS???

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