The US based Wal-Mart ranked first in the global Fortune 500 list in the financial year 2001-02 earning revenues of $219. 81 billion. Wal-Mart is one of the largest retailing companies in the world. The company has grown larger then than its competitors, such as Target, Sears, K-Mart, and many more. Now, Wal-Mart operate more than 3,500 discount stores, Sam’s Clubs and supercenters in the US and more than 1,170 stores in all major countries across the world. So, one has to wonder, how do Wal-Mart’s supply chain works and how is it managed.
The use of technological infrastructure such as information technology and state-of-the art communication system is a very powerful tool in any business today that guarantees up-to-date and hasten process in the logistics operations which leads to being able to cater to the needs and demands of the customer in the least time possible. The use of the said state-of the art technology guarantees Wal-Mart to readily and steadily track down the sales and merchandise in all of its stores across the United States including the follow-up track down to the global operations.
In fact, in 1983, Wal-Mart launches its own satellite communication system as they see the need to expand not only their operations but also their communication system such that they can sustain the growing demand of communication essential to keep terms in the operation of the increasing retail outlets or distribution centers. Wal-Mart always highlights the need to reduce its purchasing costs and offer the best price to its customers. The company acquires goods directly from manufacturers, bypassing all intermediaries.
Wal-Mart is a tough negotiator on prices and finalized a purchase deal only when it is fully confident that the products being bought were not available elsewhere for the same low price. Wal-Mart had over 40 distribution centers located at different geographical locations in the US. Over 80,000 items are stocked in these centers for shipments to different supercenters. Wal-Mart’s own warehouses directly supplies 85-90 percent of the inventory, as compared to 50-65 percent for competitors. According to rough estimates, Wal-Mart is able to provide eplenishments within two days, on an average, against at least five days for competitors. Shipping costs for Wal-Mart supplies worked out to be roughly 3 percent cost compared to competitors, where theirs’ are 5 percent cost. Each distribution center is divided into different sections on the basis of the quantity of goods received and is also managed the same way for both cases and palletized goods. The inventory turnover rates are very high, about once every two weeks for most of the items.
Goods meant for distribution within the US usually arrive in pallets, while imported goods arrive in re-usable boxes or cases. In some cases, suppliers delivered goods such as automotive and drug products directly to the stores. About 85 percent of goods which are available at the stores must pass through the distribution centers. The distribution centers ensure a steady and consistent flow of products to support the supply functions. As Wal-Mart used sophisticated barcode technology and hand-held computer systems to manage the center, the work becomes easier and more economical.
Every employee had an access to real-time information regarding the inventory levels of all the products in the center. They had to just make two scans – one to identify the pallet, and the other to identify the location from where the stock had to be picked up. Different barcodes are used to label different products, shelves and bins in the centers. The hand-held computer guides an employee with regards to the location of a particular product from a particular bin or shelf in the center.
When the computer verifies the bin and picks up a product, the employee confirmed whether it is the right product or not. The quantity of the product required from the center was entered into the hand-held computer by the employee and then the computer updated the information on the main server. The hand-held computer also enables the packaging department to get accurate information about the products to be packed. It displays all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork.
It also enables the center supervisors to monitor their employees closely enabling the company to satisfy customers’ needs quickly and improve the level of efficiency of the distribution center management operations. An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive transportation system. The distribution centers were serviced by more than 3,500 company owned trucks. These dedicated truck fleets allowed the company to ship goods from the distribution centers to the stores within two days and replenish the store shelves twice a week.
The truck fleet was the visible link between the stores and distribution centers. Wal-Mart believed that it needed drivers who were committed and dedicated to customer service. The company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation. Wal-Mart truck drivers generally moved the merchandise-loaded trailers from Wal-Mart distribution centers to the retail stores serviced by each distribution center. These retail stores were considered as customers by the distribution centers. The drivers had to report their hours of service to a coordinator daily.
The coordinator scheduled all dispatches depending on the available driving time and the estimated time for travel between the distribution centers and the retail stores. The coordinator informed the driver of his dispatches, either on the driver’s arrival at the distribution center or on his return to the distribution center from the retail store. The driver was usually expected to take a loaded truck trailer from the distribution center to the retail store and return back with an empty trailer. He had to dispatch a loaded truck trailer at the retail store and spend the night there.
A driver had to bring the trailer at the dock of a store only at its scheduled unloading time, no matter when he arrived at the store. The drivers delivered the trailers in the afternoon and evening hours and they would be unloaded at the store at nights. There was a gap of two hours between unloading of each trailer. For instance, if a store received three trailers, the first one would be unloaded at midnight (12 AM), the second one would be unloaded at 2 AM and the third one at 4 AM. Although, the trailers were left unattended, they were secured by the drivers, until the store personnel took charge of them at night.
Wal-Mart received more trailers than they had docks, due to their large volume of business. Wal-Mart maintained a strict vigil over its drivers by keeping a record of their activities through the “Private Fleet Driver Handbook”. The purpose of the book was to educate the drivers with regard to the code of conduct. It also included the terms and conditions regarding the safe exchange of trailers with the store personnel and the safety of Wal-Mart’s property. This book also contained a list of other activities, the non-compliance of which would result in the termination of the driver.
To make its distribution process more efficient, Wal-Mart also made use of a logistics technique known as ‘cross-docking. ’ In this system, the finished goods were directly picked up from the manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores In cross docking, requisitions received for different goods from a store were converted into purchase or procurement orders.
These purchase orders were then forwarded to the manufacturers who conveyed their ability or inability to supply the goods within a particular period of time. In cases where the manufacturer agreed to supply the required goods within the specified time, the goods were directly forwarded to a place called the staging area. The goods were packed here according to the orders received from different stores and then directly sent to the respective customers. To gain maximum out of cross-docking, Wal-Mart had to make fundamental changes in its approach to managerial control.
Traditionally, decisions about merchandising, pricing and promotions had been highly centralized and were generally taken at the corporate level. The cross docking system, however, changed this practice. The system shifted the focus from “supply chain” to the “demand chain,” which meant that instead of the retailer ‘pushing’ products into the system; customers could ‘pull’ products, when and where they needed. This approach placed a premium on frequent, informal cooperation among stores, distribution centers and suppliers with far less centralized control than earlier.
The success of Wal-Mart is proved to be in the reliability and efficiency in the supply chain management system. Having gone through the essence of the underlying operations of Wal-Mart, they always seek to improve and explore over the possible ways to give customers superb quality service without an additional expense. From the purchasing to transporting and then finally to selling, at Wal-Mart they were able to have a well-coordinated and systematized system that ensures the success of the whole supply chain management which in turn would benefit and satisfy Wal-Mart’s customers.