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National Conference on

“Management of Resources – Issues & Challenges”



 Dr.Lalitha Balakrishnan
Vice Principal & Professor,
M.O.P.Vaishnav College for Women (Autonomous),
Chennai – 600034

 Ms. Nisha.U
Research Scholar,
Department of Commerce,
M.O.P.Vaishnav College for Women (Autonomous),
Chennai – 600034
Ph – 9840096372
Email id – nishaudayshankar@yahoo.co.in

 Ms. Divya.K
Assistant Professor,
Department of Commerce,
M.O.P.Vaishnav College for Women (Autonomous),
Chennai – 600034
Ph – 9962554953
Email id – divya_krishnakumar@yahoo.com

We, Dr.Lalitha Balakrishnan, Nisha.U and Divya.K authors of the paper, “Supply chain

management of Wal-Mart – A case study analysis” certify that this paper is our original work

and has not been published elsewhere.

Station: Chennai

Date: 09.01.2011

Dr.Lalitha Balakrishnan,




The case examines the supply chain management practices at Wal-Mart, the leading
retailer in the world. The case explains in detail how Wal-Mart managed various components of
the supply chain including procurement, distribution, logistics and inventory management. It
covers how the use of innovative IT tools has helped the company in improving the efficiency of
supply chain. The case concludes with a discussion on the benefits reaped by Wal-Mart due to its
efficient and effective supply chain management system.
Understand the importance of an efficient distribution and logistics management system
in not only reducing the costs for a retailing company but also in creating value for the customers

KEY WORDS: Supply chain management, Wal-Mart, retailer, procurement, distribution,

logistics, inventory management

A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into intermediate and
finished products, and the distribution of these finished products to customers. Supply chains
exist in both service and manufacturing organizations, although the complexity of the chain may
vary greatly from industry to industry and firm to firm. Keeping this in mind Sam Walton, the
founder of Wal-Mart had always focused on improving sales, constantly reducing costs, adopting
efficient distribution and logistics management systems and using innovative information
technology (IT) tools.

By 1969, Walton had established 18 Wal-Mart stores. By late 1970s, the retail chain had
established a pharmacy and an auto service center. In 1980s, Wal-Mart continued to grow due to
huge customer demands in small towns. In 2002, Wal-Mart operated more than 3,500 discount
stores, Sam's Clubs and Supercenters in the US and more than 1,170 stores in all major countries
across the world. Wal-Mart was one of the largest private sector employers in the world, with
employee strength of approximately 1.28 million. The phenomenal growth of Wal-Mart is
attributed to its continued focus on customer needs and reducing cost through efficient supply
chain management practices.


The various practices of supply chain management followed by Wal-Mart are discussed below:-


In the early 1970s, Wal-Mart became one of the first retailing companies in the world to
centralize its distribution system, pioneering the retail hub-and-spoke system. Under the system,
goods were centrally ordered, assembled at a massive warehouse, known as ‘distribution center’
(hub), from where they were dispatched to the individual stores (spoke). The hub and spoke
system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of
goods in huge quantities and distributing them through its own logistics infrastructure to the
retail stores spread across the U.S.


Wal-Mart emphasized the need to reduce purchasing costs and offer the best price to the
customer. The company directly procured from manufacturers, by passing all intermediaries.
Wal-Mart finalizes a purchase deal only when it is fully confident that the products being bought
are not available elsewhere at a lower price. Wal-Mart spends a significant amount of time
meeting vendors and understanding their cost structure. By making the process transparent, the
retailer can be certain that the manufacturers are doing their best to cut down costs.


The computer systems of Wal-Mart were connected to those of its suppliers. EDI enabled
the suppliers to download purchase orders along with store-to-store sales information relating to
their products sold. On receiving information about the sales of various products, the suppliers
shipped the required goods to Wal-Mart’s distribution centers. An important feature of Wal-
Mart’s logistics infrastructure was its fast and responsive transportation system. The distribution
centers were serviced by more than 3500 company owned trucks. Wal-Mart believed that it
needed drivers who were committed and dedicated to customer service. The company hired only
experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic

To make its distribution process more efficient, Wal-Mart also made use of a logistics
technique called “cross-docking.” In this system, the finished goods were directly picked up
from the manufacturing plant, sorted out and then directly supplied to the customers. The system
reduced the handling and storage of finished goods, virtually eliminating the role of the
distribution centers and stores. The manufacturer directly forwarded the goods to a place called
the “staging area.” The goods were packed here according to the orders received from different
stores and then directly sent to the respective customers.


Wal-Mart invested heavily in IT and communication systems to effectively track sales

and merchandise inventories in stores across the country. With the rapid expansion, it was
essential to have a good communication system. Hence, Wal-Mart set up its own satellite
communication system in 1983. Wal-Mart was able to reduce unproductive inventory by
allowing stores to manage their own stocks, reducing pack sizes across many product categories,
and timely price markdowns. Instead of cutting the inventory across the board, Wal-Mart made
full use of its IT capabilities to make more inventories available in the case of items that
customers wanted most, while reducing the overall inventory levels. Employees at the stores had
the “Magic Wand,” a hand-held computer which was linked to in-store terminals through a radio
frequency network.

These helped them to keep track of the inventory in stores, deliveries, and backup
merchandise in stock at the distribution centers. The order management and store replenishment
of goods were entirely executed with the help of computers through the Point-of-Sales (POS)
system. Through this system, it was possible to monitor and track the sales and merchandise
stock levels on the store shelves.


In 1998, Wal-Mart installed a voice-based order filling (VOF) system in all its grocery
distribution centers. Each person responsible for order picking was provided with a
microphone/speaker headset, connected to the portable (VOF) system that could be worn on
waist belt. They were guided by the voice to item locations in the distribution centers.
The VOF system also verified quantities picked, and could respond to a variety of
requests such as providing product detail (type, price, barcode number, etc.) By installing the
VOF system, Wal-Mart eliminated mispicks and product labeling costs since the system did not
require paper lists and labels to be affixed on the goods. Since the floor area of any Wal-Mart
store varied between 40,000 to 200,000 square feet, movement of goods within the store was an
important part of logistics operations. Wal-Mart made significant investments in IT to quickly
locate and replenish goods at the stores.


In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system.
More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of
their goods at stores and replenish inventories. Details of daily transactions ($10 million per day)
were processed through this system. Retail Link connected Wal-Mart’s EDI network with an
extranet, accessible to Wal-Mart’s thousands of suppliers.

The suppliers could find out how their product was performing vis-a-vis competitors’
products in a particular product category. Wal-Mart owned the largest and most sophisticated
computer system in the private sector. The company used Massively Parallel Processor (MPP)
computer system to track the movement of goods and stock levels. All information related to
sales and inventories was passed on through an advanced satellite communication system.



By the mid 1990s, Retail Link had emerged into an Internet-enabled SCM system whose
functions were not confined to inventory management alone, but also covered collaborative
planning, forecasting and replenishment (CPFR). In CPFR, Wal-Mart worked together with its
key suppliers on a real-time basis by using the Internet to jointly determine product-wise demand
forecast. CPFR is defined as a business practice for business partners to share forecasts and
results data through the Internet, in order to reduce inventory costs while at the same time,
enhancing product availability across the supply chain. Though CPFR was a promising supply
chain initiative aimed at a mutually beneficial collaboration between Wal-Mart and its suppliers,
its actual implementation required huge investments in time and money. A few suppliers with
whom Wal-Mart tried to implement CPFR complained that a significant amount of time had to
be spent on developing forecasts and analyzing sales data.


In October 2002, Wal-Mart asked its 14,000 suppliers to switch over from the existing
Value Added Networks (VAN) EDI to web enabled EDI. VANs route and manage EDI messages
for their customers. By implementing web-EDI, Wal-Mart can save millions of dollars in the
form of license fees to the private VANs.


In efforts to implement new technologies to reduce costs and increase the efficiency, in
July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005. Wal-
Mart planned to replace bar-code technology with RFID technology. The company believed that
this replacement would reduce its supply chain management costs and enhance efficiency.
Because of the implementation of RFID, employees were no longer required to physically scan
the bar codes of goods entering the stores and distribution centers, saving labor cost and time.

Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.
Although Wal-Mart was optimistic about the benefits of RFID, analysts felt that it would impose
a heavy burden on its suppliers. To make themselves RFID compliant, the suppliers needed to
incur an estimated $20 Million. Of this, an estimated %50 would be spent on integrating the
system and making modifications in the supply chain software.


Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best
price to its customers. The company procured goods directly from manufacturers, bypassing all
intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only
when it was fully confident that the products being bought were not available elsewhere at a
lower price.

According to analysts, Wal-Mart was able to achieve a leadership status in the retail
industry because of its efficient supply chain management practices. By 1969, Walton had
established 18 Wal-Mart stores, reporting an annual sale of $44 million. In mid 1970s, Wal-Mart
acquired 16 Mohr-Value stores in Michigan and Illinois. By the late 1970s, the retail chain had
established a pharmacy, an auto service center, and several jewellery divisions.

In the 1980s, Wal-Mart continued to grow rapidly due to the huge customer demand in
small towns, where most of its stores were located. Commenting on the growth of Wal-Mart,
Walton said: "When we arrived in these small towns offering low prices every day, customer
satisfaction guaranteed, and hours that were realistic for the way people wanted to shop, we
passed right by that old variety store competition, with its 45 percent mark ups, limited selection
and limited hours."

Wal-Mart stores were located at a convenient place in a big warehouse-type building and
targeted customers who bought merchandise in bulk. Customers could buy goods at wholesale
prices by becoming members and paying a nominal membership fee. By 1984, there were 640
Wal-Mart stores in the US, generating sales of about $4.5 billion and accruing profit of over
$200 million.

Wal-Mart suffered a setback in 1992, when Walton died after a prolonged illness. But it
continued its impressive growth in the 1990s, focusing more on establishing its stores overseas.
In 1992, Wal-Mart expanded its operations in Mexico by entering into a joint venture with Cifra
Two years later, the company acquired 122 Woolco stores from Woolworth, Canada. By 1997,
Wal-Mart had become the largest volume discount retailer in Canada and Mexico. In 1997, Wal-
Mart acquired the 21-store German hypermarket chain, Wertkauf. Other international expansion
efforts included the purchase of Brazilian retailer Lojas Americans' 40 percent interest in their
joint venture, and the acquisition of four stores and additional sites in South Korea from Korea
Makro. In January 1999, Wal-Mart expanded its German operations by buying 74 stores of the
hypermarket chain, Interspar. The stores were acquired from Spar Handels AG, which owned
multiple retail formats and wholesale operations throughout Germany.


Wal-Mart strongly believed and constantly emphasized on strengthening its relationships
with its customers, suppliers and employees. The company was very vigilant and sensed the
smallest of changes in store layouts and merchandising techniques to improve performance and
value for customers. The company made efforts to capitalize on every cost saving opportunity.
The savings on cost were always passed on to the consumers, thereby adding value at every stage
and process. Wal-Mart also enjoyed the benefits of low transportation costs since it had its own
transportation system which assisted Wal-Mart in delivering the goods to different stores within
(or sometimes less than) 48 hours.


• Sivakumar.A, “Retail Marketing”, Excel Books Publication, 1st Edition, 2007

• Suja Nair, “Retail Management”, Himalaya Publishing House, 3rd Edition , 2008
• Swapna Pradhan, “Retailing Management”, TATA McGraw Hill Publication, 2nd Edition 9th
Reprint 2008
• http://www.icmrindia.org/casestudies/catalogue/Operations/OPER020.htm