Systems and Operations Management: Wal-Mart

Wal-Mart
Company overview using key concepts from
Managing Business Process Flows

Presented by:

Casey Keller
Rick Buonauro
Aicha Aissaoui
Wal-mart FACTS
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 founded by Sam Walton in 1962

 the largest retailer in the world and the second largest corporation
in the world (behind Exxon Mobil based on revenue as of 2006)

 the largest private employer in the United States and Mexico

 the largest grocery retailer in the United States

 the largest toy seller in the United States

 For the fiscal year ending January 31, 2006, Wal-Mart reported
net income of $11.2 billion on $313 billion of sales revenue (3.5%
profit margin)
Wal-mart & the COMPETITION
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COMPANY SALES (MIL)

FY2006

INDUSTRY AVG. 39,992

Wal-mart 312,427

TARGET 55,363

KOHL’S 14,247

DOLLAR GENERAL 8,941

BIG LOTS 4,534

Wal-mart & the COMPETITION
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Responsiveness

B
operations
frontier
C

High Low
Price
Wal-mart’S PRODUCT ATTRIBUTES
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 What are the 4 key product attributes???

….product cost, product delivery-response time, product
variety, product quality

 Wal-mart’s product cost? Low

 Wal-mart’s product delivery-response time? Low

 Wal-mart’s product variety? High
 Wal-mart’s product quality? Low - Medium
Wal-mart Strategy
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WAL-MART STRATEGY & OPERATIONS STRUCTURE

Enable everyday low prices and above average profitability by procuring, distributing,
and selling products, when and where needed, at lower costs than any competitor.

Operations Structure
Operations Strategy  Fast Transportation System
 Short Response Times  Cross Docking
 Low Inventory Level  Retail Link
 RFID
Process Flow Measures: Wal-Mart
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 Process Flow Measures

– Flow Time (T) – total time spent by a flow unit within
process boundaries
– Flow Rate – number of flow units that flow through a
specific point in the process, per unit of time
– Inventory (I)– total number of flow units present
within process boundaries
 Throughput (R) – average flow rate or average number of
flow units that flow through the process, per unit of time
 Little’s Law: Average Inventory (I) = Throughput (R) x
Average Flow Time (T) or I=RxT
 Inventory Turns or Turnover Ratio – number of times
inventory is sold and replaced during a specific period, R/I
Process Flow Measures: Wal-Mart
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 Wal-Mart is extremely efficient with low flow times, high

flow rates, and low inventory.

 As of January 31, 2006:

– Inventory as a percentage of the Balance Sheet was

23.3%, down from 40.1% in 1997

– Inventory Turnover was 7.8, up from 5.3 in 1997

– Days Inventory was 46.8, down from 69.6 in 1997

Flow-Time Analysis: Wal-Mart
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 Wal-Mart’s merchandise replenishment cycle is no more

than 48 hrs.

Point-of-sale Data is Orders are Merchandise is

Customer Merchandise The store will re-
system transmitted to generated from loaded onto
made a is delivered to stock the shelves
captures data warehouses previous-day trucks using
purchase the store with merchandise
in real-time for Inv. Mgmt. sales cross-docking

Retail Link Merchandise is

Merchandise
transmits manufactured
is shipped to
data to based on historical
warehouses
supplier and real-time data

 Retail Link – real-time point-of-sales (POS) data

transmission
 Cross Docking
 Fleet of 7,000 trucks in US
Flow-Time Analysis: Wal-Mart
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Walmart’s Centralized Hub-and-

Spoke System of Warehouses and
Distribution Centers

250 mile
radius
Flow-Time Analysis: Cross Docking
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Cross docking: take a finished

good from the manufacturing
plant and deliver it directly to
the retail store with little or
no handling in between.
Flow-Time Analysis: Advantages of Cross Docking
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 Reduces operating costs.

 Increases throughput.

 Reduces inventory levels.

 Helps in increase of sales space.

 Eliminates unnecessary handling and storage of product.

 Reduces product damages and product obsolescence.

Supplier Management: Retail Link
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 Retail Link is a decision support system

 It is a bridge between Wal-Mart and its suppliers

 It is an address you can visit via Internet to retrieve the sales

data, inventory data, information on its development
Inventory Management
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Point-of-sale Data is Orders are Merchandise is

Customer Merchandise The store will re-
system transmitted to generated from loaded onto
made a is delivered to stock the shelves
captures data warehouses previous-day trucks using
purchase the store with merchandise
in real-time for Inv. Mgmt. sales cross-docking

Retail Link Merchandise is

Merchandise
transmits manufactured
is shipped to
data to based on historical
warehouses
supplier and real-time data

 Inventory Management:
» Reducing critical activity times
» Eliminating non-value-adding activities
» Moving work from critical to non critical activities
» Redesigning the process to replace sequential with parallel processing
Inventory Management: RFID
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Radio Frequency Identification

 Automated Data collection based
on an electronics – not a barcode
 Tag can be imbedded in the
product or stuck on the exterior
case or pallet
 Reader instead of a barcode
scanner
 Allows fully automated data
collection with the use of portals
 Can read many ID tags at a time
Inventory Management: How does an RFID work?
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Inventory Management: RFID
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 Wal-mart is the most famous retailer implementing RFID in its

supply chain management system in January 2005.

 It required its top 100 suppliers to use RFID technology at the

pallet and case level by January 2005, 200 by January 2006, 300
by January 2007, and so on…
Inventory Management: RFID Read Points
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WAL-MART STORE READ POINTS

Inventory Management: Why RFID?
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 Reduce the possibility of inventory shrinkage and out-of-stock situation.

 Improve fulfillment rates.

 Improve the customer service.

 Reduce inventory and labor cost.

 Eliminate many manual process and improve the operation efficiency.

Inventory Management: RFID Study?
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Reducing out of stock?

» 8% of all items are out of stock (at any point of time)

» Estimated potential lost sales:
– Retailers: 3.4%
– Suppliers: 2.6%
» 26% improvement from no RFID to full RFID
Thank you!
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THANK YOU! QUESTIONS???