Walmart’s Supply Chain Forged Over Decades
Riding a rising five-year trend, retail juggernaut Walmart® grossed $476 billion in the fiscal year that ended in January 2014, up from $408 billion in fiscal 2010, according to The Wall Street Journal’s MarketWatch.
Put another way, Walmart’s revenue comes to 81% of what the National Restaurant Association says the entire U.S. restaurant industry made in 2013.
That income was generated by more than 4,100 stores and fed by a sprawling supply chain, ranked 14th in 2014 by research and analyst company Gartner. Walmart has held a place among Gartner’s top 20 supply chains since 2010.
In detailing its 2014 rankings, Gartner called Walmart a “perennial supply chain powerhouse” and said the company that the National Retail Federation ranks as the world’s top retailer in 2014 based on global sales has a “mature supplier collaboration process” supported by technology.
Walmart uses its mammoth purchasing power to shape suppliers’ behavior which also drives down costs, Gartner said.
The evolution of Walmart’s supply chain includes three elements, according to a 2012 article from Arkansas Business: distribution practices, operating its own fleet of trucks and technology. Benefits from its supply chain efficiency result in time savings, more cost-effective inventory management and improved product forecasting, the article said.
Decades in the Making
The retailer started dealing directly with manufacturers in the 1980s, giving suppliers the job of managing inventory in its warehouses, the Arkansas Business article said. The result was something called vendor managed inventory, or VMI, that smoothed irregularities of inventory flow which helped ensure products were always available on store shelves.
The process involved cooperation and collaboration with suppliers that produced a more efficient supply chain with technology connecting everything.
Walmart was tapping technology even before it developed VMI when in 1975 the company started using a computer system for inventory control in its distribution centers and warehouses, according to a timeline of Walmart’s history from Supply Chain Digest.
Walmart’s inventory management now funnels information from stores such as point-of-sale data, warehouse inventory and real-time sales into a centralized database. The data is shared with suppliers who know when to ship more products.
By 1987, Walmart had its own satellite system that allowed voice and data communication between all segments of the company, according to CIO Online, a website for chief information officers.
By 1989, Walmart saw the benefits of its supply chain management when its distribution costs were 1.7% of its sales, or less than half Kmart’s cost and just under a third of what Sears was spending at the time, according to Arkansas Business.
Walmart’s SCM process is not based entirely on technology. The company has a sprawling network of nearly 160 distribution centers covering almost 120 million square feet and all within 130 miles of the stores it supplies, according to MWPVL International, a supply chain and logistics consulting company. About 81% of Walmart merchandise passed through those centers in 2013, the website said.
The retailer also instituted cross-docking at its warehouses, a method that moves inventory directly from arriving or departing trucks. Products are taken from an arriving truck and packed in a truck bound for a store without lengthy storage in the warehouse, said inventory management software company TradeGecko.
The result is lower costs for inventory storage, reduced transportation costs and products spend less time in transit, TradeGecko said.
Walmart also uses its own trucking fleet and drivers, maintaining high minimum standards for its thousands of drivers, including three years and 250,000 miles of driving experience and no preventable accidents in three years, according to TruckersLogic.
Components of Supply Chain Management (SCM)
Walmart’s overall methods of supply chain management differ little from the main components of most supply chains: purchasing, operations, distribution, and integration. But the retailer has refined the methods.
A supply chain begins with purchasing managers who determine which products will sell, find vendors and arrange deals for the products.
The operations portion of a supply chain focuses on demand planning, forecasting and inventory management. Forecasts estimate consumer demand for a product based on historical data, external drivers such as sales and promotions and changes in trends or competition.
Demand planning is used to create accurate forecasts, a critical step toward effective inventory management. Forecasts are compared to inventory levels to ensure warehouses have enough, but not too much, inventory to meet demand.
Moving the product from warehouses or manufacturing plants to stores and ultimately to customers is the distribution function of the supply chain.
Supply chain integration connects the flow of work and information among all links in the supply chain to maximize efficiencies.
For Walmart, its SCM methods yield lower costs for products and inventory, better control over selection in its stores and the ultimate result of lower prices that can be passed to customers, TradeGecko said.