Case Study: How Walmart Enhances Supply Chain Management with ERP Initiatives?

Wal-Mart was founded in 1962 by Sam Walton and is been in the business of selling anything and everything people need for their everyday life with an everyday low price strategy. The success of Wal-Mart is mainly due to its focus on continuously improving operations through its efficient supply chain management practices. Sam Walton was not mainly concerned about opening more stores in small towns, but also came up with several innovative practices to improve the way business was conducted in the store. From the inception, Sam Walton provided products at a reduced cost than its competitors. Wal-Mart follows the “Everyday low prices” business model. As the years passed Wal-Mart grew to a size which gave it power to bargain the cost of products with its suppliers. To provide customers with “Everyday low prices”, Wal-Mart has highly invested in IT system to effectively manage their supply chain activities. Wal-Marts company philosophy is to be at the leading edge of logistics, distribution, transportation and technology.

Wal-Marts procured goods directly from the manufacturers bypassing the middlemen in the supply chain and it spent significant time to meet with its suppliers and understand their cost structure. Wal-Marts supply chain mainly provides horizontal collaboration; it creates collaboration among suppliers, retailers and customers to create value. Wal-Mart has built up its protocol with the following strategies, Distribution Centers, Cross Docking, Trucking Fleet, Barcode System, RFID Technology, Point of sale terminals, large scale satellite system, CPFR – Collaborative Planning, Forecasting and Replenishment program, Information Sharing, Electronic Data Interchange, and VMI. IT systems are tightly integrated to assure economies from system security, compatibility, and integrity. The system security, compatibility, and integrity provide the technological foundation for economies of scale and scope.

Retail Information System & Satellite Network

Wal-Mart, in 1987 had installed a large scale satellite system to mainly improve communication amongst the stores, the distribution center and the suppliers. The Retail Information System which was later established in 1991 acts as a data warehouse tool to provide real time inventory data of all the stores to Wal-Marts central computer system. Allows daily sales data management and adjustments and each stores sale information can be retrieved and compared. The Retail Information System along with the Satellite communication system enables seamless communication of inventory data across all Wal-Mart stores and helps to schedule their production cycle with the suppliers.

Distribution Centre, Cross Docking & Trucking Fleet

Wal-Mart employs a two-step Hub and Spoke distribution system to distribute materials from the manufacturers to different retail stores. The distribution centers receive goods from various suppliers, these goods are sorted based on the requirements of various stores and shipped to them. This process is called Cross-Docking, to avoid inventory and handling costs and to reduce the product cost by 2% or 3%, Wal-Mart orders truck load of items. Once the products reach the Distribution Centers, they are cross docked to company owned trucks, the company owned trucks has different products that are to be shelved in particular stores. The cross docking is done using forklift trucks. The drivers of these trucks are instructed by the computer on what merchandises to transport, from and to where. The status of the delivery is updated in the system then and there; this cross docking model helps Wal-Mart to be productive and efficient in sorting and shipping merchandise. The truck drivers are provided with the latest traffic information and adjust the delivery line.

A continues contact between the distribution centers, the suppliers and point of sale system helps to efficiently identify and replenish merchandise globally at all Wal-Mart stores. This created a Pull environment on the manufacturers rather than being pushed.

Collaborative Planning, Forecasting and Replenishment

Customer demand forecasting plays a very important role to efficiently manage cost savings with respect to inventory. The presence of the Retail Information System enables Wal-Mart to see in real time the availability of merchandise/inventory in each store. Rather than doing demand forecasting, what Wal-Mart does is a collaborative forecasting and replaces the goods that have been sold. As a retailer, Wal-Mart requests suppliers only with the goods that have been sold and replaces the exact quantity. This process helps Wal-Mart to avoid the Bullwhip effect. Barcode, Radio Frequency Identification, Massively Parallel Processor and Point Of Sale.

The Point-Of-Sale helped Wal-Mart to identify inventory deductions and resupplies. This POS was connected to the Retail Information System and became an integral part of demand forecasting. To further track the flow of inventory over the supply chain and the type of the item that leaves the store, RFID and Barcodes were used. Wal-Mart standardized the bar-coding of items across all suppliers and when delivered by the supplier the barcodes are scanned and fed into the central database, creating an inventory list. RFID tags are microchip with built in antennas, these chips hold information about the product. Whenever the chip comes in contact with the receiver, the data in the chip is taken into the system. This enables Wal-Mart to track the item across the supply chain. The main advantages of RFID are to improve logistic efficiency, save time identifying merchandise, convenience in checking inventory and reducing human labor. Wal-Mart is not able to fully migrate into RFID based SCM because of the investment involved in RFID, the RFIDs capabilities to work on wet, metallic and glass pallet and finally the requirement for all suppliers to move to RFID. The Massively Parallel Processor (MPP) is the central system that holds massive amounts of data regarding the sales, inventory and POS transactions. The main purpose of the MPP is to keep track of stock and movement.

Vendor Managed Inventory & Electronic Data Interchange

Electronic Data Interchange is mainly used by Wal-Mart to help them reduce the transaction cost in terms of ordering products and paying of invoices while dealing with suppliers. EDI would also enable Wal-Mart to have control and coordination and scheduling and receiving the product delivery from the supplier. EDI helps to ensure the right product is delivered at the right time to the right distribution center. Wal-Mart does not store inventory in the distribution center’s for long, the inventory holding period is until the cross docking takes place and immediately merchandise is shipped to the stores. The suppliers have a period of 4 days to get the items to the DC’s. Because of strict rules dictated by Wal-Mart on delivery of goods by suppliers, some suppliers use third party logistic warehouses to stock their inventory and provide it to Dell just on time. These warehouses are not managed by Manufacturers, but are rented by the suppliers in the 3PL warehouses. This concept is the Vendor-Managed-Inventory.

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