Case Study of Walmart: Procurement and Distribution

Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to its customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that the products being bought were not available elsewhere at a lower price. According to Claude Harris, one of the earliest employees, “Every buyer has to be tough. That is the job. I always told the buyers: ‘You are negotiating for your customer. And your customer deserves the best prices that you can get. Don’t ever feel sorry for a vendor. He always knows what he can sell, and we want his bottom price. ‘We would tell the vendors,’ Don’t leave in any room for a kickback because we don’t do it here. And we don’t want your advertising program or delivery program. Our truck will pick it up at your warehouse. Now what is your best price?”

Wal-Mart spent a significant amount of time meeting vendors and understanding their cost structure. By making the process transparent, the retailer could be certain that the manufacturers were doing their best to cut down costs. Once satisfied, Wal-Mart believed in establishing a longterm relationship with the vendor. In its attempt to drive hard bargains, Wal-Mart did not even spare big manufacturers like Procter & Gamble (P&G). However, the company, generally, preferred local and regional vendors and suppliers.   In 1998, Wal-Mart had over 40 distribution centers located at different geographical locations in the US. Over 80,000 items were stocked in these centers. Wal-Mart’s own warehouses directly supplied 85 percent of the inventory, as compared to 50-65 percent for competitors. According to rough estimates, Wal-Mart was able to provide replenishments within two days (on an average) against at least five days for competitors. Shipping costs for Wal-Mart worked out to be roughly 3 percent as against 5 percent for competitors.

Each distribution center was divided into different sections on the basis of the quantity of goods received and was managed the same way for both cases and palletized goods. The inventory turnover rate was very high, about once every two weeks for most of the items. Goods meant for distribution within the US usually arrived in pallets, while imported goods arrived in re-usable boxes or cases. In some cases, suppliers delivered goods such as automotive and drug products directly to the stores. About 85% of the goods which were available at the stores passed through the distribution centers.   The distribution centers ensured a steady and consistent flow of products to support the supply function. As Wal-Mart used sophisticated barcode technology and hand-held computer systems, managing the center became easier and more economical. Every employee had an access to realtime 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 were used to label different products, shelves and bins in a center. The hand-held computer guided an employee with regard to the location of a particular product from a particular bin or shelf in the center. When the computer verified the bin and picked up a product, the employee confirmed whether it was 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 enabled the packaging department to get accurate information about the products to be packed. It displayed all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork. It also enabled the center supervisors to monitor their employees closely enabling them to give directions and even guide them even on the move. This enabled the company to satisfy customer needs quickly and improve the level of efficiency of the distribution center management operations.  Each distribution center had facilities for maintaining personal hygiene such as shower bath and fitness centers. It also had provision for food, sleep and personal business. The distribution center could also be used for meetings and paperwork. The truck drivers of Wal-Mart sometimes availed these facilities.

About Walmart

Wal-Mart Stores, Inc. is the largest retailer in the world, the world’s second-largest company and the nation’s largest nongovernmental employer.  Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers. Wal-Mart serves customers and members more than 200 million times per week at more than 8,416 retail units under 53 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Wal-Mart employs more than 2.1 million associates worldwide. Nearly 75% of its stores are in the United States (“Wal-Mart International Operations”, 2004), but Wal-Mart is expanding internationally.  The Group is engaged in the operations of retail stores located in all 50 states of the United States, Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, Central America, Chile, Mexico,India and China


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