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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
     
   
  July 26, 2012  
     
 

50 Years of Walmart's Supply Chain

 
 

If you haven't heard, it is the fiftieth anniversary of Walmart - and its legendary supply chain - this month.

The first Walmart store was opened on July 2, 1962 in Rogers, Arkansas. (You may be surprised to know that Kmart and Target first opened stores that same year). The impact on the retail sector, the supply chain, and society as a whole from what is now by far the world's largest merchant has been nothing short of profound, especially the last 25 years.

Gilmore Says:

Walmart has had a huge impact on supply chain thinking and practice, and is regularly cited for its supply chain excellence by pundits who can't even really tell you why it is great.


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Founder Sam Walton, a notorious cheapskate in his personal life, was even more so in business. The chain's fantastic success was driven by Sam's obsession with keeping costs low, and then using that cost advantage to drive down prices to increase volume, which lowered costs and thus prices further, in a virtuous circle.

Ultimately, that focus on costs turned to logistics, and Walmart certainly led the way in developing sophisticated systems to drive down logistics costs much earlier than almost everyone else. The company honed these systems and capabilities in the South and Southwest regions of the country, sort of hidden from the major retailers headquartered in the Northeast, Chicago, etc., until it was too late to stop or even slow down a chain headquartered in then rural Bentonville, AR.

In 2011 (really its 2012 fiscal year ending in January), Walmart had global sales of $444 billion, a number almost hard to imagine. Of that, $318 billion was domestic US (combining US store sales and Sam's Club), and $126 billion was international. A chart of Walmart's sales growth since 2001 across those three segments is shown below. Wow. By comparison, the next largest US retailer is Kroger, with sales of about $90 billion, less than one-third of Wal-Mart's US total.

Notice the cumulative average growth rates over that time: US stores 6.62%; Sam's Club 6.23%; international 13.5%; and total company 8.08%.

I have seen at various times numbers looking at Walmart's sales as a percent of the US total, but most have seemed flawed to me. So I did something I haven't seen done before. I took total US retail sales as reported monthly from the US Census Bureau. I then subtracted from that total each year sales of automobiles, auto parts, gasoline stations and restaurants. This then gives us a better look at the markets in which Walmart more legitimately competes (yes, I know Walmart sells some gasoline and does a bit of in-store restaurant business, but I believe these aren't material to the analysis).

 



So, I then calculated Walmart's US retail market share by combining US store and Sam's sales and dividing that by the size of the overall US retail market (from my definition.) And what results is a pretty powerful and important story, as shown in the chart below. US market share has grown from 10% in 2001 to 13.8% in 2011, after having topped 14% in the preceding two years.

 

That's because Walmart's US sales have been growing at more than 6%, while overall retail sales over that time have grown at just a 3.2% rate, from about $1.6 trillion in 2001 to $2.3 trillion last year. Walmart's growth in US sales from 2001 through 2011 is an amazing $149 billion - $50 billion more than the total sales of no. 2 Kroger last year. That is coming out of somebody's lunch, and there are only so many mom and pops to knock off.

All this in the end of course has a supply chain impact, as Walmart becomes a larger and larger share of the business of most consumer goods manufacturers. And as Walmart continues to push its own private label brands very aggressively (as do Kroger and others, I will note).

Walmart has had a huge impact on supply chain thinking and practice, and is regularly cited for its supply chain excellence by pundits who can't even really tell you why it is great. See final comments at end of this article.

There is no question that Walmart has been at the heart of many supply chain innovations. A succinct timeline is offered below of key Walmart milestones, most specific to supply chain.

1970: Walmart opens its first distribution center. Before then, stores were stocked by vendor direct shipments and wholesalers.

1975: Wal-Mart leases an IBM 370/135 computer system to maintain inventory control for all merchandise in the warehouse and distribution centers, becoming among the first retailers to really tie store and DC inventories together electronically

1980: Walmart reaches $1 billion in sales, achieving that milestone in just 17 years, fastest in US history.

1985: Amid anxiety about trade deficits and the loss of American manufacturing jobs, Sam Walton launches a "Made in America" campaign that committed Wal-Mart to buying American-made products if suppliers could get within 5 percent of the price of a foreign competitor, major signage in the stores, etc. The campaign stays around for a few years, but never really catches on, and is abandoned, as Walmart becomes by far the largest US importer
.
1988: After having first pioneered the concept of continuous replenishment (CR) with Schnuck's Markets in St. Louis, Procter & Gamble takes concept to Kmart – which doesn't act. P&G next heads to Walmart, where Sam Walton says if it will help me sell more soap then Yes, he's in. The rest is history.

1988: Wal-Mart opens its first super center, which carries groceries in addition to general merchandise.

1995: Walmart is involved in the first Collaborative Planning, Forecasting and Replenishment (CPFR) pilot with Warner Lambert, which shows significant benefits from the practice. (It was actually called just Collaborative Forecasting and Replenishment at the time.)

2000: Lee Scott, who started his Walmart career as a dispatcher in the transportation group, is named CEO. Move sends message about importance of logistics to Walmart's success.

2003: BusinessWeek magazine runs cover story titled "Is Walmart too Powerful?" Story catches major attention, but little really happens from there.

2004: Walmart announces first RFID "mandate" for top 100 suppliers to put RFID tags on cases going to three DCs in Texas by Jan. 2005.

2004: Walmart finds inventories are rising much faster (90+%) versus sales growth at much faster rates than historical levels; leads to "Remix" program that is designed to reduce stock outs and lower inventory by improving the flow of fast moving goods from DC to store. Walmart says it also plans to reduce vendors/SKU counts.

2004: Major documentary on Walmart is broadcast by business network CNBC that opens up some previously hidden areas of company operations and certainly leaves an impression Walmart is a unstoppable machine.

2006: Walmart, led by CEO Lee Scott, really starts to push sustainability message and initiatives. Scott goes on big media tour with the message.

2007: With stock price stuck in concrete, Walmart said to be developing super-secret plan under incredible security that might involve spin out of Sam's Club unit and other moves, but nothing ever happens.

2009: Walmart's RFID case tagging initiative is for all intents and purposes dead. Company does later move ahead with (better) plan for item-level tagging of apparel.

2009: Amid deep recession, Walmart starts taking thousands of marginal SKUs off its shelves in in an attempt to reduce store clutter, focus on faster-growing product categories, and improve supply chain efficiencies.

2009: Walmart announces plans for a supplier sustainability index, basically a "green" vendor scorecard, that will be rolled out in three phases. The program still evolving today.

2010: Walmart announces major plan to take greater control of inbound freight from vendors, but program grows slowly from there amidst much pushback from suppliers.

2010: WalMart announces an ambitious plan to dramatically increase the amount of "local" produce it sources and sells in the US and around the world, says it will invest $1 billion in related logistics improvements for produce/fruit.

2010: Walmart announces a sweeping plan to consolidate its global procurement functions and reduce the use of intermediaries in its global sourcing processes, leading to savings of billions of dollars per year.

2011: Walmart reverses course, says it is bringing 8500 SKUs back to store shelves, as removal blamed in part for slumping same store sales numbers.

2012: Walmart appears caught in scandal of sorts involving alleged bribes in Mexico years before and more importantly alleged cover-ups by top execs, but issue seems to have faded from view.

2012: Walmart stock price reaches all-time high, surging in 2012 after years of flat performance.

Ok, that's it. As to whether Walmart's supply chain is truly great, I have my thoughts - and those of others - but am saving that for another day.

How important has Walmart been to the development of supply chain practice? What do you think its most important contributions were? Anything major we missed in our timeline? Let us know your thoughts at the Feedback button below.


 
 
     

Recent Feedback

It would be interesting to compare WalMart and Toyota: revenues, number of locations, employees, SKUs, suppliers, days-of-supply in inventory, average days between product ordering from suppliers and selling out of the stores.

While Toyota chose to focus on reduced variety and stability of the supply chain, reducing the need for forecasting, planning and information systems, WalMart chose to improve forecasting, speed-up information throughout the SC and thus increase responsiveness.

Toyota is regarded as Lean, which I think it is fair - it is the least waste solution for the business, as strategically chosen by Toyota. Nobody thinks of the WalMart way as Lean, which I think is grossly unfair.  The Toyota way for the WalMart business would be so wasteful, it would be a total disaster.

WalMart has chosen a very appropriate business strategy, as its success proves it. Given that strategy, WalMart has chosen and has been continuously improving the least waste solutions. That should be the definition of Lean, shouldn't it? Or should we continue to see Lean defined as the thoughtless implementation of a fixed recipe of tools to mimic Toyota?


Daniel Druwe Araujo
Managing Director
T2People
Jul, 28 2012

Walmart did play a pivotal role in the development of supply chain practices. They pioneered the distribution centre model and had faster replenishment time than their competitors.  Additionally, they owned their own truck fleet and so had complete freedom in that respect. They were among the first ones to invest heavily in IT infrastructure to connect their warehouses, DC and retails stores. This led to a more responsive supply chain and led to greater sales which led to greater profits.

We can see their practices being adopted far and wide. So I do believe walmart was and IS a big contributor in the development of supply chain practices.


Pranay Gossain
Student
MBA Operations Management (symbiosis institute of operations management)
Aug, 05 2012


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