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Wal-Mart’s
Omni-channel
Synergy
When it comes to online and offline distribution, Wal-Mart has
chosen synergy over integration. Other brick-and-mortar retailers
can learn from Bentonville’s approach.
“W
BY STANLEY FREDERICK W.T. LIM, e’ll be the first to deliver a
LINA WANG AND JAGJIT SINGH SRAI
seamless shopping experi-
ence at scale: No matter
Stanley Lim is doctoral researcher of
how you choose to shop at Wal-Mart—in
operations management at Cambridge
stores, online, mobile or a combination—
University and a visiting scholar of
it will be fast and easy.” –Wal-Mart 3-Year
supply chain management at Arizona
Growth Plan
State University. He can be reached
at stanley.lim@asu.edu. Lina Wang Retail has always been competitive. But, with the
is doctoral researcher of supply rise of pure-play e-commerce giants like Amazon, an
chain management at Arizona State over-abundance of retail stores and an ever-changing
University. She can be reached at lina. consumer, it’s hard to imagine a tougher environ-
wang@asu.edu. Jag Srai is Head of ment for brick-and-mortar retailers.
Centre of International Manufacturing Jumping into e-commerce is no longer an option
at Cambridge University. He can be for any major retailer that wants to survive. As a
reached at jss46@cam.ac.uk. For more result, many are hatching plans to integrate the dif-
information visit ifm.eng.cam.ac.uk/ ferent distribution channels of their businesses in
research/cim. order to compete in the new retail landscape, what
we’ve come to think of as omni-channel distribution.
We think there’s a better way. Rather than integra-
tion, which can take time to accomplish, the goal
should be to create a seamless synergy between the
different functions of the organization—perhaps we
can call it “synergization.”
Similarly, the consulting firm PwC predicts that by and Wal-Mart.com. They only see one Wal-Mart. So we need
2020, the omni-channel customer experience will be a strategy based around serving customers however they want
enhanced by the need for accurate execution. Many con- to shop, and we’ve changed our planning approach to take
sumer-facing organizations are trying to solve this puzzle by an enterprise view.” C. Douglas McMillon, president and
integrating the different channels in which they serve the CEO, Wal-Mart Stores, Inc.
customer, such as purchases in the store or made on a lap- Since taking over the C-Suite in 2014, Doug McMil-
top or smartphone. But customers don’t think in terms of lon has overseen a “synergization” masterplan that brings
channels. Instead, they want a consistent shopping experi- together Wal-Mart’s stores with its logistics network and
ence, regardless of how they shop. A survey by eMarketer, digital commerce capabilities. The point of this new
for instance, reveals that during holiday shopping, consum- alignment is to empower customers to shop whenever,
ers purchase almost equally from online and offline chan- wherever and however they want. As part of that enter-
nels (Figure 2). Therefore, we need to think of consumers prise view of planning, the retailer undertook a three-part
as traveling on a buying journey and think of how to make organizational realignment.
this journey as experiential and effortless as possible. Establishment of cross-functional business units.
That’s where the idea of synergy comes into play. While Central to the plan was the establishment of dedicated
synergy is not always preferable to integration across chan- business units in planning, merchandising, replenishment
nels, we recognize that in a volatile environment, integration and fulfillment to support e-commerce operations. That
requires time to produce results. In a fast-paced retail was a departure from the previous approach in which
environment, time is a precious commodity that is often in e-commerce shared resources with its offline operations.
short supply; moreover, a retailer runs the risk of capabil- The merging of previously compartmentalized expertise
within the various functional units combined expertise to
FIGURE 1
enable better performance across all channels. “Inside the
Wal-Mart’s winning omni-channel strategy
company, we think about this: if we pull e-commerce and
Leadership stores too far apart, we may confuse the customer,” McMil-
Omni-channel lon told the management and consulting firm Innosight in
distribution model 2014. “If we coordinate our efforts too much, the larger
core may diminish the progress on new capabilities. That’s
Resource Relentless Ecosystem why striking the right balance is so important.”
exploitation innovation development
Key performance indicators to reflect a “single”
Key enablers
channel. Up until 2016, offline and online channels relied
Source: Authors on separate performance measurement systems and were
measured by their own sets of key performance indicators
ity atrophy once the implementation is complete. After all, (KPIs). Because e-commerce sales account for just 2% of
a solution designed today may no longer meet a retailer’s overall sales in the United States, the resources allocated
needs a year from now when the integration is complete. by corporate to this channel had been limited. However, as
Meanwhile, synergy delivers a means to respond to the Wal-Mart began to strengthen its customer proposition by
needs of the market and generate quick leverage in the delivering low prices, high access, wide assortments and a
omni-channel context. That’s the lesson to be learned from pleasant experience, a single integrated channel was devel-
Wal-Mart. oped with a single measurement system where sales perfor-
Let’s look at the three components of Wal-Mart’s mance is tracked through Wal-Mart’s four anchor channels:
approach to omni-channel synergy. Those are Ship to Store, Ship from Store, Pickup Today and
Ship to Customer. These four channels are used extensively
Synergy Area 1. Organizational Realignment: by customers, with some 70% of online U.S. shoppers using
Rewiring key leadership a portal to place an order that is picked up in a store, and
“Our customers don’t distinguish between a Wal-Mart store provide a better performance tracking system.
FIGURE 3
The scenarios in Figure 3 illustrate the point. In the benchmarks its cost-to-serve the home delivery shopper via
first scenario, a consumer places an online order via the fulfillment from the warehouse compared to fulfillment from
Ship from Store delivery mode. Once Wal-Mart’s order the store. Figure 4 illustrates the competitive advantage deliv-
management system realizes the item is out of stock in the ered by Wal-Mart’s distribution network compared to a pure-
selected store, the order is instantaneously directed to the play e-tailer such as Amazon and another bricks and-mortar
nearest store with available stock and the ability to deliver retailer with online presence such as Target.
the order based on the consumer’s expected lead time. Information flow management. Wal-Mart utilizes
In the second scenario, the e-commerce fulfillment several different automated systems to manage the flow
center tasked to fulfill an online order experiences an of information to its suppliers. Using the SPARC mobile
out-of-stock situation. In this instance, order fulfillment app, for instance, suppliers can view stock levels in specific
is dynamically rerouted to the nearest (a) physical store, location in real time. Wal-Mart’s proprietary Global Data
(b) alternate e-commerce fulfillment center or (c) one of Synchronization Network (GDSN) platform securely pro-
Wal-Mart’s distribution center. Once a fulfilment location vides continuous synchronization of accurate product and
is chosen, the system selects a delivery mode based on location information. The framework can be used to auto-
the lowest delivery cost that can meet the promised deliv- matically communicate and add products via the Synchro-
ery date. Above all, inventory balancing occurs at regular nized Item Network. Fig. 5 depicts Wal-Mart’s high-level
intervals across the fulfillment centers and stores to opti- information flow diagramming.
mize inventory availability across the entire network. This With over 2,000 suppliers in the network, Retail Link,
is critical as the online channel often experience excess Wal-Mart’s inventory management system, has long been
stocks due to demand uncertainty. used as a collaborative planning, forecasting and replen-
According to CEO McMillon, the system has enabled ishment engine for its brick-and-mortar stores, while the
Wal-Mart’s distribution and logistics engine to execute e-commerce team at San Bruno uses a dedicated and
on promotions, especially during the critical peak season proprietary system developed by Wal-Mart Lab. Overall,
when consumer expectations are at the highest. “One order information across online and offline channels is syn-
great example was on the morning of Black Friday, when chronized in real-time across the e-commerce fulfillment
we saw a Smart TV sell out online within 20 minutes,” centers and the store distribution network. In the future,
McMillon recalled in an interview. “We had another TV Wal-Mart plans to change its manual exchange of data
from that supplier available in stores, so we dialed up the between the stores and the e-commerce channels. Those
promotion on walmart.com and made it available for store changes will be implemented in stages.
pickup. The item quickly sold out in stores. To customers, Given the rapid growth in the online business, coupled
it was a seamless access to a gift they wanted.” with high demand uncertainty affecting investment risks,
When it comes to last-mile delivery, Wal-Mart constantly Wal-Mart utilizes a range of service providers to subsidize its
FIGURE 5
inventory costs while still serving
High-level information flow diagramming its customers. The network of third
GDSN RDC party partners also gave customers
GRS
Retail link access to some 50 million differ-
Supplier Wal-Mart
home Stores ent items as of the end of the first
office GLS
quarter in 2017, compared to 10
EDI Access
points million items in 2016. With the
SMART addition of an estimated 1 million
EDI new SKUs per month, Wal-Mart
Wal-Mart
Data global is making up lost ground against
feed e-commerce
Amazon’s vast online assortment.
API integration 1P
Notwithstanding, 25% of e-com-
merce volume is fulfilled directly
SCP
Marketplace via the dropship vendor partner
Solution
providers
program, where vendors ship direct
Wal-Mart system acronym
to customers on behalf of Wal-Mart
Fulfillment centers GDSN: Global data synchronization network while Wal-Mart handles customer
GRS: Global replenishment system services and returns. While the
API: Open application programming interface
Automated connection SCP: Schaefer case picking program meets today’s need, it is not
Manual GLS: Global logistics system
SMART: Store management through
part of Wal-Mart’s long-term strategy.
applied retail technology On the contrary, the retailer is aim-
ing to own the inventory and fulfill-
Source: Authors
ment process in the future in order
allows Sam’s Club members to scan and pay for items on to better control customer experience.
their smart phones while shopping, bypassing the checkout
line; and an application for a patent for an automatic home Strive for synergy over integration
ordering subscription system. Our aim in this article is to demonstrate that synergy is a
Yet, as all companies know, in a fast-moving industry, more effective strategy than integration in the new world
speed to market rules. To counter that, Wal-Mart has of omni-channel retailing and fulfillment. The insights
adopted a smart acquisition strategy to bring in expertise gained from Wal-Mart can be used by brands, retailers
now from outside the organization rather than devote and supply chain managers in their own organizations to
time to build it in-house (see Fig. 7 for timeline of offer omni-channel experience in an optimized way. Fol-
selected Wal-Mart’s recent acquisitions). Some experts lowing are our takeaways.
have argued that the acquisition of Jet.com could turn 1. Organizational leadership alignment with com-
Wal-Mart into the world’s leading omni-channel retailer. pany’s mission and vision: Top-down and bottom-up
Moreover, acquisitions like Jet.com, Modcloth and collaboration. There must be synergy between top-down
Moosejaw open up Wal-Mart to a millennial customer leadership and bottom-up execution to bring about real
base that doesn’t presently shop in its stores. They also change. Consistent goals must be prepared for each level
strengthen Wal-Mart by bringing in talent in emerging with the appropriate allocation of resources. Leadership
areas like analytics and mobile commerce. should also be changed if the existing one is causing a hin-
Ecosystem development and sustenance. Wal-Mart drance to the implementation of omni-channel efforts.
has created an ecosystem that includes a marketplace 2. Channel-agnostic KPIs. Performance measure-
for 3P vendors as well as a vendor dropship program that ment systems should be in line with the omni-channel
works seamlessly to fulfill orders placed by customers. Last efforts of the company. In the case of Wal-Mart, a change
year, over 1,000 3P sellers helped Wal-Mart reduce its in KPIs gave the retailer better insight into its sales and