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October 11 , 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Wal-Mart, the Supply Chain, and the Wheel of Retailing

“The Wal-Mart Era, the retailer's time of overwhelming business and social influence in America, is drawing to a close.”

So says a recent article in the Wall Street Journal.


Of all the pieces we’ve done in SCDigest, perhaps my favorite was last year’s “Time for New Supply Chain Icons?," which basically said it was time for many of us to stop citing Wal-Mart and Dell as about the only two supply chain paragons (See Time for New Supply Chain Icons?). Each company has encountered some strong overall market turbulence, and the loss of some supply chain advantage was certainly a contributing factor. And too often, these certainly fine companies and supply chains were cited by pundits for SCM excellence without the commentators really having any real idea as to why their supply chains were supposed to be so great.

Gilmore Says:

"Maybe we should talk about a “Wheel of Supply Chain,” and not just a Wheel of Retailing."

What do you say?

Send us your comments here

Are Wal-Mart’s current challenges really only of interest to stock market investors and retail competitors? I say no, it’s actually quite important to supply chain management as a whole, as I’ll explain in a few paragraphs.

The Wall Street Journal piece says that, “Amid the country's growing affluence, Wal-Mart has struggled to overhaul its down-market, politically incorrect image while other discounters pitched themselves as more upscale and more palatable alternatives. The Internet has changed shoppers' preferences and eroded the commanding influence Wal-Mart had over its suppliers.”

The impact is obvious. While certainly still the largest gorilla in the retail jungle by far, and a huge percent of sales for most consumer goods companies, Wal-Mart’s overall growth has slowed dramatically in the US; international strategies have had mixed success; and the percent of total sales through Wal-Mart channels for many companies, such as Procter & Gamble, are shrinking.

That brings me to the “Wheel of Retailing” theory. I learned this concept in a retailing class I took in grad school, and have been surprised that almost no one seems to drag it in to the whole Wal-Mart discussion.

To summarize, the Wheel of Retailing theory says that retailers tend to emerge at the low end of the market, and win at the outset by offering customers low prices made possible by highly efficient operations – which Wal-Mart did in the 1970s through the 1990s in spades. But over time, these retailers become increasingly "fat" by letting their costs and margins increase. The new retailers' success leads them to upgrade their facilities and offer more services, increasing their costs and forcing them to raise prices. Eventually the new retailers become like the conventional ones they replaced, and the cycle begins again when still newer types of retail forms evolve with lower costs and prices.

Does this not seem to mirror Wal-Mart’s trajectory as it tries to move into higher end apparel, electronics, and organics, with limited success? Did it not let its inventory growth get out of control in 2004-2006, negatively impacting profitability?

Now let’s bring it back to the supply chain. There is no question that Wal-Mart competitors, from other mass merchandisers like Target, to the grocery store chains, to drug stores now offering increasingly broad assortments, have learned some strong SCM lessons form Wal-Mart – and found other advantages of their own. Wal-Mart’s ability to use its supply chain to drub the competition has clearly waned – and in some areas disappeared.

The supposed Wal-Mart edge in technology is no longer feared by many competitors. Competitors like Target and Best Buy have bought or built systems that are as good or better, says the WSJ, and Wal-Mart’s RFID initiative has sucked up tremendous resources with little real bottom line benefit to date.

“For years, Wal-Mart was held up as a shining example of cutting-edge thinking in retail technology,” Patricia Edwards, a retail consultant, told CIO Magazine. “But today, when I hear about a retailer doing something cutting edge, it’s never Wal-Mart being talked about.”

If you have any interest in business generally, this is a fascinating story. But I think it’s important for all of us in supply chain and logistics for the following reasons:

  • Rightly or wrongly, the whole industry has looked to and cited Wal-Mart as a supply chain model to emulate. This tendency has already diminished, and is likely to accelerate. We’ll all increasingly seek new supply chain innovators for guidance.
  • Relatedly, it shows that supply chain models and supply chain competitive advantage are no more permanent than overall business competitive advantage - which means not long today. I think Procter & Gamble, for example, actually has put more focus on truly developing continuous supply chain innovation than either Dell or Wal-Mart.
  • If you are a consumer goods manufacturer, your strategic supply chain planning has to at least consider that Wal-Mart will in fact be a much less dominant factor in your decision making.  It will still be the biggest customer for some time or even forever, but not so large a company’s supply chain and program are built around Wal-Mart.

“Four of the top 10 consumer-products companies say they can move merchandise faster with Walgreen and CVS," says Burt P. Flickinger III, a consultant from Strategy Resource Group, in the Wall Street Journal piece.

Maybe we should talk about a “Wheel of Supply Chain,” and not just a Wheel of Retailing.

Do you think we are at the end of the dominant “Wal-Mart” era? Does this have implications for the supply chains of consumer goods companies? Have other retailers significantly reduced the supply chain and logistics advantages of Wal-Mart? Let us know your thoughts at the feedback button below – and as always, we’ll keep your name and company anonymous upon request.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Workforce Management in the Supply Chain Videocast Series

Interest in LMS?

You'll Benefit from this Four -Part Videocast Series

Part 1: Getting Real Results from Engineered Labor Standards

View the Entire Series Schedule and Register Today

Hot Topics in
Supply Chain
Videocast Series

What key new issues and technologies are coming to the forefront of Supply Chain?

Green Supply Chain, SCM Security, Global Logistics Excellence, Inventory Optimization

View the Entire Series Schedule and Register Today


This Week’s Supply Chain News Bites – Only from SCDigest

October 10, 2007
Supply Chain Graphic of the Week: Sources of Fed Ex and UPS Revenues

October 9 , 2007 Supply Chain by the Numbers: October 9, 2007


Can You See the Big Picture in your Supply Chain?  

JDA Software
Can make that Picture

Join us at CSCMP
in Philadelphia to
learn more


Our Supply Chain and Logistics stock index finished the week with an overall strong performance. The software group was on fire as Logility, JDA, i2, and Manhattan all ended the week with impressive gains. However, both Intermec and Zebra in the hardware group were considerably down.  In the transport and logistics group, Prologis and Burlington Northern were both solid performers, and only Canadian National finished the week with a slight loss.   

See stock report.


Print Version Here

Cover Story:
Rail Carriers in the Cross Hairs

The Executive View

by: Gene Tyndall

Green Transportation and Logistics - How Are We Doing?

"Green" Movement May Serve as Catalyst for Improved Transportation Collaboration and Innovation

Guest Contribution

by: Jim Barnes
President, EnVista

The Do's and Don'ts of Designing a World Class Distribution Facility

What You Need to Know to Complete a Successful Design


Q. When and where was the first commercial application of RFID technology for use with toll road payments?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

Or, ask your question


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming! In the next few weeks, we'll start adding feedback right on specific story pages, so you can see what others are saying.

Catching up on a variety of topics this week. Of feedback of the week is from Stephan Engberg of Priway, commenting on our story on a report from Europe on RFID and privacy, who feelss strongly that the report's analysis missed the boat. Agree or disagree, you'll find his comments of interest. We also have a letter saying that "Bucket Brigades" can work very well in automated order picking environments, a couple of letters on the Mattel recall, one saying 100% cargo screening will cause big supply chain problems, and more comments on Supply Chain Best Practice.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On RFID and Privacy:

I think the [European Commision RFID and Privacy] report referred to is in serious error on a number of assumptions.

a) The present RFID paradigm is based on collect data and then try to deal with security afterwards - it will fail.
b) We need more nuance and dynamics - the security requirements of an RFID change through the supply chain.
c) For products, the consumer will need to receive complete control of the chip to trust it.
d) For person ID, the requirements are so much stronger that it does not make sense to use RFID on people. We have known effective attack models.

Control has to be transferred even more to the people to prevent fraud and crime.

And sure, consumers will understand how to manage identity, if we provide them with the proper tools. Just have a look at how aware and assertive teenagers are when it comes to online profiles.

The essence of this debate is NOT either-or as we can get the benefits of RFID without throwing data and identity security out the window. Try checking out the Danish company which I have been involved in starting. They manufacture RFID with built-in security. The technologies and security models are available to deal with these issues including "privacy mode", transfer of controls, multiple keys, non-linkable communication, on-tag data security etc.

The challenge is that:

  • RFID standards are not designed for the benefit of the manufacturer or the customer - they are designed focusing on retailers and thereby missing both the reason to put the RFID on the product and the main value creation.
  • The main value creation and real revolution happens post-purchase but has to be enabled as part of product design.

Stephan Engberg
Priway - Security in Context

On Bucket Brigages and Order Picking:

Yes, I have used this concept with a 'Put-to-Light' layout design for a SoCal DC - it worked great for a team of six people application picking eaches from a case traveling on a gravity conveyor with 3 operators per side of a face-to-face layout at 125' per side. The PTL system was located on a mezzanine with chutes feeding some 100 pack-table station queue bins below. The 3 operators worked with "floating areas" as they responded to scanning a case coming into any segment of chutes and with the PTL activated for eaches required per chute. The operators balanced themselves with some peer pressure and assistance from IE coaching. The ergonomics were very important in this design and with a modular design the operators had key inputs into the final configuration. I guess this was our version of the "Case Brigade"?

PS - I always tell my clients when I first meet them that "Simple concepts, that work, are the most difficult to design and develop"! Why cross-traffic pick paths exist in DC's is way beyond my belief that 'Simple is Better'!  The North America DC's must 1st eliminate the wasted steps - in most cases I find 70% - 80% wasted pick area moves and that cost real money!

Neil E. Glenney
Material Handling Dynamics
Solution Providers Group

On the Mattel Recall:

While Lead tainted toys are a serious gaff, I think the media has formed a template to pursue and sensationalize these episodes, not unlike the ‘shark-bite’ stories they pursue on a cyclical basis every few summers. Nevertheless, its conceivable that in the race to the bottom to maintain deflationary production pricing, ‘quality fade’ is a growing trend. Perhaps there’s some growth opportunity for Quality Control services as agents for purchasers of these manufactured products.

Bottom line in my opinion is no way will the trend in outsourcing to low cost Asian (Chinese) production slow significantly in the near to mid term.

Tom Miralia
Distribution Technology Inc

Yes, this is a supply chain failure, and 90% of that fault is with Mattel! Sloppy sourcing and procurement practices!

LeRoy H. Graw
President, American Certification Institute

On Cargo Screening Issues:

This attempt from US will further increase the dwell time of cargo at ports in Asia which are reeling under tremendous growth pressure.

Some of the ports in Indian subcontinent are facing congestion and many times there are uncertainties in cargo leaving shore due to backlog, added to this will be the time for scanning and delay in facilities tohandle sudden spurt in cargo on occasions.

It is sure to add to the cost, time, bring inefficiency, uncertainty, and create longer chain of supply and increase inventory levels.


On Supply Chain Best Practice:

I think we need to agree on a definition of a "best practice" before we can argue.  I was teaching my dad a few years ago how to use a computer.  I showed him how he could copy and paste text by hitting "control C" on the keyboard instead of from the pull down menu.  In its simplest form I'd say its a best practice.  It improves productivity and is the most direct way to solve the problem.  So while some tips may seem logical, I don't think a best practice needs to be "genius" it just needs to be the best way to solve the problem at hand based on the situation.

Christopher P. Sciacca
Manager, Strategic Communications
European & African Integrated Delivery Centers IBM Integrated Operations



Q. When and where was the first commercial application of RFID technology for use with toll road payments?

A. Norway, 1987. New York followed two years later.

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