Walmart-supply-chain

PIT_ZXH244_022601_DD_v1Wal*Mart’sUseofConnectivitytoDriveSupplyChainEfficiencyCONFIDENTIALeOperationsPracticeCaseStudyMay2001ThisreportcontainsinformationthatisconfidentialandproprietarytoMcKinsey&CompanyandissolelyfortheuseofMcKinsey&Companypersonnel.Nopartofitmaybeused,circulated,quoted,orreproducedfordistributionoutsideMcKinsey&Company.Ifyouarenottheintendedrecipientofthisreport,youareherebynotifiedthattheuse,circulation,quoting,orreproducingofthisreportisstrictlyprohibitedandmaybeunlawful.PIT_ZXI493_032901_DD_v11WAL*MART–BACKGROUNDBusinessoverview•America’slargestretailerservingcustomersprimarilythroughtheoperationof–Wal-martstores(discountdepartmentstores)–Sam’sClubs(warehousemembershipclubs)–Wal-martSupercenters•Salesofnearly$191billioninthefiscalyearendingJan.31,2001•Employsmorethan1millionassociatesworldwidethroughnearly3,500facilitiesintheUnitedStatesandmorethan1,000unitsinMexico,PuertoRico,Canada,Argentina,Brazil,China,Korea,GermanyandtheUnitedKingdomBusinesstechnologyagenda•UsingITtoreducesupplychaincostsandimproveoperationsefficiency•UsingITtoenableWal*marttodeliveritspromiseofeverydaylowpricesSource:AnnualreportsPIT_ZXI493_032901_DD_v12WAL*MARTVALUEPROPOSITIONANDBUSINESSSYSTEMBroadSKUselectionEmphasisonhighfrequencyitemsCentralizedbuyingwithregionaltailoringProductselectionVendorManagementRuthlessnegotiator,hardbargaining–abletosqueezethebestpricefromsuppliersVendorpartnershipstoreduceinterfacecostsDistribution/LogisticsRetail/StoreformatSellingStoresclusteredaroundDC’sForcevendorstoDSD(direct-store-delivery)Noinventoryatstores,vendorsresponsibletouse,sitorholdextrastockEverydaylowpricingPricing/merchandisingdecisionsdecentralizedtostoremanagerstotailortolocalneedsStoressaledatauploadedhourlyforforecasting/replenishmentStoresarerunasindependentbusinessesandwilldoeverythingtosatisfytheirlocalcustomersWal-MartDiscountStoresSource:McKinseyanalysisPIT_ZXI493_032901_DD_v13WAL*MART’SIT-ENABLEDCOMPETITIVEADVANTAGESamWaltonopenedhisfirstWal*MartstoreinRogers,Arkansasin1962…•Hadanearlyfocusonbeingdistinctiveinitsofferings•Hubandspokenetworkdesign•Fewtouchpointsinthedistributionsystem…andstartedleveragingtechnologyasearlyas1983…•ElectronicscanningofUniformProductCodes(UPC)atthePointofSale(POS)beganandwascompletedforallstoresby1988,2yearsaheadofKmart•Introducedelectronictrackingofrefundsandcheckauthorization•SatelliteinstalledatheadofficeinBentonville,AKin1983Theycontinuedtoseamlesslyintegratewiththesuppliers…•Beginningin1990,“retail-link”gavemorethan2,000supplierscomputeraccesstopointofsaledata…sotheyfocusedon•Drivingcostsoutofthesystem•HighlyefficientsupplychainSource:Literaturesearch;pressreleases;HBScase“Wal*MartStoresInc.”;McKinseyanalysisPIT_ZXI493_032901_DD_v14WAL*MARTFOCUSEDONLEVERAGEPOINTS…Researchanddevelop-mentInputcostsmgmt.Manufac-turing/serviceprovision-ingFulfill-mentOperationsbusinesssystemSupplychainmanage-mentOrdermgmt.Accountspayable/receivableMROmanage-ment(indirectgoods)HumanresourcesSupportbusinesssystemProductmixMarginmgmt.Channelmgmt.Adver-tisingandbrand-ingCusto-merservice/relation-shipSalesMarketingbusinesssystem•EDIwithsuppliers–Lowerinventorycost–Reducedleadtime•POSdatasharingwithsuppliers–Visibilityofdemandandinventorylevelstosuppliers•Procurementthroughprivateexchanges–Quickresponse–Reducedcostofprocurement•Fastmanagementofcashflowthroughelectronicnetworks•Supplierslinkedtocompanyextranet–DirectdeliveryofSKUstoPOS–HighavailabilityratiotominimizelostsalesSource:McKinseyanalysisKeyprocessesPIT_ZXI493_032901_DD_v15…ANDAPPLIEDTECHNOLOGYTODRIVECOMPETITIVEADVANTAGE•ElectronicscanningofPOSdata•Satellitecommunication•EDI“retaillink”KeyprocessesBeselectiveintheconnectionsyoumakeandintheinformationyouprovidetootherstoensureyoucapturevalue•StoppedsharingPOSdatawiththirdpartiesandanalysts•SignedanagreementwithAtlasCommercetonotsellthesolutiontootherpartiesAlthoughinitialstepscanbetakenquicklyandvaluecanbecreatedinthenear-term,thepathtocompetitiveadvantageisamulti-yearjourney•Startedleveragingtechnologyasearlyas1983ImplicationsSelectappropriatesolutionsandcreatetherightbalancebetweencustomsolutionsand“off-the-shelf”packagesSource:Literaturesearch;pressreleases;McKinseyanalysisResearchanddevelop-mentInputcostsmgmt.Manufac-turing/serviceprovision-ingFulfill-mentOperationsbusinesssystemSupplychainmgmt.•Companyextranet•POSdatavisibilitytosuppliersOrdermgmt.Accountspayable/receivableMROmgmt.(indirectgoods)HumanresourcesSupportbusinesssystem•Electronicinvoicing,payments,checkauthorizationandrefundsPIT_ZXI493_032901_DD_v16WAL*MART’SPATHTOCOMPETITIVEADVANTAGE•Privateexchangeannouncedtofurtherdrivedownprocurementcostsbyaggregatingdemand•DecidednottosharePOSdatawiththirdpartiesandanalysts1983-88•“Retail-Link”EDInetworkwithsuppliersgivingPOSdatavisibility•HighlyautomatedDC’sservingabout150storeseachwithinaradiusof200miles•Computerized“picktolight”systemforassociatestogotorightlocations1990-19991987-932000…•ElectronicscanningatthePOS•Computerizedinventorymanagementsystems•Electronicrefundtrackingandc