Wal-Mart's Supply Chain Management Practices (B): Using IT/Internet to Manage the Supply Chain

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Case Details:

Case Code : OPER028
Case Length : 17 Pages
Period : 1992 - 2003
Organization : Wal - Mart
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We view Wal-Mart as the best supply chain operator of all times. Efficiency is a key factor in maintaining Wal-Mart's low-price leadership among retailers. Their margins can be far lower than other retailers' because they have such an efficient supply chain. The company's cost of goods is 5% to 10% less than that of most of its competitors."

- Pete Abell, Retail Research Director, AMR Research, Boston.

"Besides spot-on execution, one of the key ingredients of Wal-Mart's break away from the pack has been enabling certain core processes with technology. Wal-Mart has been proactive in using the Internet as a ubiquitous communication infrastructure to drive mega-efficiencies." ¹

- Mohsen Moazami, Vice-President of Cisco's Internet Business Solutions Group.

"People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information." ²

- Sam Walton, Founder of Wal-Mart.

Introduction

In November 2003, Wal-Mart, the world's largest retailing company (Refer Exhibit I & II), held a meeting with its top 100 suppliers at its Bentonville headquarters. The meeting was held to discuss the course of action for implementing the Radio Frequency Identification (RFID) technology by the company's suppliers. Earlier, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January 2005, while the remaining suppliers were given an extension of one year to accomplish the task.

Wal-Mart planned to replace bar code technology with RFID technology. The company believed that this replacement would reduce its supply chain management (SCM) costs and enhance supply chain efficiency.

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Commenting on the importance of RFID for Wal-Mart, Tom Williams (Williams), a Wal-Mart spokesman said, "We follow what the stores sell, and orders are customized for the stores. For us, tracking inventory is extremely important. RFID is a chance to move to a more advanced system...in our distribution centers. It's somewhat akin to moving from tapping out telegraph signals to moving to the Internet.

What we see at the base of all this information is efficiency; moving product more efficiently. That translates into lower costs."³Analysts were appreciative of Wal-Mart's move to implement RFID on a large scale for managing its supply chain. They expected that by using RFID, the company could save $8.35 billion per year, primarily in labor costs. Expressing the reason for Wal-Mart's move to force its suppliers to adopt the latest SCM technologies, Ananth Raman, a Harvard Business School professor said, They give suppliers a choice. Shape up or pay the price. It's a lot of money that a supplier can lose. There's a lot of inefficiency that exists in the supply chain."⁴

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1] As quoted in the article, "iQ Magazine Leaders 2002: Wal-Mart Internet Business Leaders 2002," by G. Patrick Pawling, business.cisco.com.

2] As quoted in Wal-Mart's Annual Report 1998, www.walmartstores.com.

3] As quoted in the article, "Radio Flier," by Esther Shein, in CFO Magazine, November 01, 2003.

4] As quoted in the article, "Wal-Mart Changes Shipping Landscape," by Melissa S. Monroe, posted on www.casperstartribune.net, dated December 11, 2003.