Systems and Operations Management WalMart 1 WalMart Company

Systems and Operations Management: Wal-Mart 1 Wal-Mart Company overview using key concepts from Managing Business Process Flows Presented by: Casey Keller Rick Buonauro Aicha Aissaoui

Wal-mart FACTS 2 q founded by Sam Walton in 1962 q the largest retailer in the world and the second largest corporation in the world (behind Exxon Mobil based on revenue as of 2006) q the largest private employer in the United States and Mexico q the largest grocery retailer in the United States q the largest toy seller in the United States q 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 3 q To sustain competitive advantage, a firm must ensure that its competition finds it hard to imitate its chosen position. COMPANY SALES (MIL) FY 2006 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 4 Responsiveness A B operations frontier C High Low Price

Wal-mart’S PRODUCT ATTRIBUTES 5 q What are the 4 key product attributes? ? ? …. product cost, product delivery-response time, product variety, product quality q Wal-mart’s product cost? Low q Wal-mart’s product delivery-response time? Low q Wal-mart’s product variety? High q Wal-mart’s product quality? Low - Medium

Wal-mart Strategy 6 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 Strategy q q Short Response Times Low Inventory Level q q Operations Structure Fast Transportation System Cross Docking Retail Link RFID

Process Flow Measures: Wal-Mart 7 q 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 q Throughput (R) – average flow rate or average number of flow units that flow through the process, per unit of time q Little’s Law: Average Inventory (I) = Throughput (R) x Average Flow Time (T) or I=Rx. T q Inventory Turns or Turnover Ratio – number of times inventory is sold and replaced during a specific period, R/I

Process Flow Measures: Wal-Mart 8 q Wal-Mart is extremely efficient with low flow times, high flow rates, and low inventory. q 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 9 q Wal-Mart’s merchandise replenishment cycle is no more than 48 hrs. q Retail Link – real-time point-of-sales (POS) data transmission q Cross Docking q Fleet of 7, 000 trucks in US

Flow-Time Analysis: Wal-Mart 10

Flow-Time Analysis: Cross Docking 11 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 12 q Reduces operating costs. q Increases throughput. q Reduces inventory levels. q Helps in increase of sales space. q Eliminates unnecessary handling and storage of product. q Reduces product damages and product obsolescence.

Supplier Management: Retail Link 13 q Retail Link is a decision support system q It is a bridge between Wal-Mart and its suppliers q It is an address you can visit via Internet to retrieve the sales data, inventory data, information on its development

Inventory Management 14 q 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 15 Radio Frequency Identification q q q 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? 16

Inventory Management: RFID 17 q Wal-mart is the most famous retailer implementing RFID in its supply chain management system in January 2005. q 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 18 WAL-MART STORE READ POINTS

Inventory Management: Why RFID? 19 q Reduce the possibility of inventory shrinkage and out-of-stock situation. q Improve fulfillment rates. q Improve the customer service. q Reduce inventory and labor cost. q Eliminate many manual process and improve the operation efficiency.

Inventory Management: RFID Study? 20 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! 21 THANK YOU! QUESTIONS? ? ? =