SOME KEY ELEMENTS TO WALMART'S DISTRIBUTION MODEL

Wal-Mart Stores, Inc.(branded as Walmart) is an American public corporation that runs a chain of large, discount department stores. In 2008 it was the world’s largest public corporation by revenue, according to the Fortune Global 500 for that year. Wal-Mart is the largest majority private employer and the largest grocery retailler in the United States. It also owns and operates the Sam’s club retail warehouse in North America.

Wal-Mart’s operations are organized into three divisions: Wal-Mart Stores U.S., Sam’s Club, and Wal-Mart International. The company does business in nine different retail formats:supercenters, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants. (Wikipedia, 11.5.2010)

Wal-Mart enjoyed a 50 percent market share position in the discount retail industry with its nearly 3,000suppliers. Though Wal-Mart may have been the top customer for consumer product manufacturers, it deliberately ensured it did not become too dependent on any one supplier; no single vendor constituted more than 4 percent of its overall purchase volume. (Achmeyer William F., “Walmart Stores Inc. Case”, Tuck School of Business at Dartmouth, Center for global leadership).

The current ratio in the last 5 years is below 1, between 0,8 and 0,9 (Walmart, annual report 2009). This is typical of strong distribution companies that pay their suppliers in 1,2 or 3 months but they cash inmediately from customers. They use this lag as a financial source.

About 85 percent of all the merchandise sold by Wal-Mart was shipped through its distribution system to its stores. Wal-Mart used a “saturation” strategy for store expansion. The standard was to be able to drive from a distribution center to a store within a day. A distribution center was strategically placed so that it could eventually serve 150-200 Wal-Mart stores within a day. Stores were built as far away as possible but still within a day’s drive of the distribution center; the area then was filled back (or saturated back) to the distribution center. Each distribution center operated 24 hours a day using laser-guided conveyer belts and cross-docking techniques that received goods on one side while simultaneously filling orders on the other. The company owned a fleet of more than 3,000 trucks and 12,000 trailers. (Most competitors outsourced trucking.) Wal-Mart had implemented a satellite network system that allowed information to be shared between the company’s wide network of stores, distribution centers, and suppliers. The system consolidated orders for goods, enabling the company to buy full truckload quantities without incurring the inventory costs. (Achmeyer William F., “Walmart Stores Inc. Case”, Tuck School of Business at Dartmouth, Center for global leadership).

The key to Wal-Mart’s supply chain

Wal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailer Wal-Mart’s success is its ability to drive costs out of its supply chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores. Wal-Mart’s company philosophy (‘The Wal-Mart Way‘) is to be at the leading edge of logistics, distribution, transportation, and technology. The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain(Wal-Mart has made significant investments in supply chain management). (“Why Wal-Mart´s supply chain is so successful?”, http://supply-chain-case-studies.blogspot.com/)

Wal-Mart’s business model and competition

Wal-Mart’s business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low Price Strategy), Wal-Mart’s suppliers – both large and small – either break even or make profit supplying at Wal-Mart’s stores. But the real winners are Wal-Mart’s customers (approximately 175 million every week) who save thousands of dollars buying at low prices. Since Wal-Mart stores began selling groceries almost three dozen regional grocery suppliers have struggled to match or simply run out of business. Last year (2007), Wal-Mart’s annual sales were $350 billion and it had more than 7,000 stores, 120 distribution centres and operations spanning 15 countries. Nearly two million employees at Wal-Mart focus on cost, customers and continuous improvement on a daily basis. 

Wal-Mart’s one-store-at-a-time, RFID and just-in-time distribution approach

Every Wal-Mart store operates like a small company. Store managers are trained to manage one store at a time, one department at a time, and one customer at a time. Decisions are made by store teams to make the individual stores operate at its best with superior in-store execution. With established vendor partnerships with top manufacturers, Wal-Mart has implemented advanced logistics solutions like RFID (radio frequency identification). RFID solutions help maintain lower costs, identify out-of-stocks and increase sales. Distribution centres instead of warehouses, automated replenishment and cross-docking technology also reduce inventory carrying costs.

Monitoring supply chain risk

In 2008 Wal-Mart introduced Supply Risk Monitoring (SRM)service as a requirement to Wal-Mart’s supplier community. This after Wal-Mart made an agreement with Strategic Forecasting, Inc. (Stratfor) to assess and rank security risk for countries in its global supply chain.
Stratfor is a leading private intelligence company and its serviceswill enable Wal-Mart to identify risks with supply chain infrastructure in countries (ranked as high, medium or low) within its supply chain using a unique analytical methodology. The countries will be assessed on risks associated with terrorism, insurrection, crime, the political and regulatory environment, natural disasters, including various other factors related to supply chain infrastructure. This will help Wal-Mart to produce a quantifiable measure of the actual risk to a nation’s supply chain and thereby determine appropriate supply chain security counter-measures. It can thus quickly warn of emerging threats and prevent disruption of deliveries of goods to major markets around the world.