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  - June 26, 2013 -  

Supply Chain News: Walmart Upping its Ante in E-Fulfillment War with Amazon


Admitting it is Behind, Walmart Now Building Network of the Future

  by SCDigest Editorial Staff  

Walmart is by far not only the world's largest retailer but the biggest company overall by sales volume, with 2012 revenues of some $469 billion.

But the company is now dramatically upping its ante in e-commerce, where it badly trails the growth machine that is, which chalked up some $61 billion in 2012 sales, most of that total from e-ecommerce, versus just an estimated $7.7 billion for Walmart's on-line group.

SCDigest Says:
Walmart is using consultants from Deloitte & Touche to develop its "next generation fulfillment network." It also recently hired Jun-Sheng Li, a former trucking executive, to head global e-commerce logistics.

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And for a company that rarely admits to mistakes, Walmart recognizes it got a late start in really focusing on its e-commerce engine.

"We're starting to gain traction," Chief Executive Mike Duke said during the company's annual meeting this month, according to an article last week in the Wall Street Journal. "I say starting because we know that it's an area we still have a long ways to go."

Part of that relativc lack of attention was simply the business math. Walmart's e-commerce business represents just a couple of percent of the company's sales, while Amazon is all about e-ecommerce.

That disparity, especially as Walmart focused much energy on building out, largely through acquisition, a global physical store network, led to a somewhat hodge-podge approach to the critical component of e-fulfillment. That included somewhat randomly using third parties, some of its own "dark stores" and other facilities rather than building out a network with really well thought strategy.

That is all changing, Walmart says, and e-commerce is now "a top priority."

As Amazon has seen its revenues soar, that has generally come at the expense of profits, as the company makes massive investments in distribution centers, IT and low priced shipping. CEO Jeff Bezos is willing to sacrifice margins in the name of grabbing market share - successfully, it appears, as Wall Street continues to push Amazon's stock price higher despite weak earnings (we will note cash flow performance is better than profits).

But is the relatively new kid on the block, run out of a California office, rather than the Bentonville, AR corporate headquarters. While the e-commerce group wanted to focus on growth, some executive at the headquarters wanted to emphasize profitability. Showing tensions that exist at other brick and mortar retailers as well, two years ago Duke emailed executives and asked if the company should avoid promoting special Web deals on "Black Friday" over concerns the volumes would overwhelm the distribution network without adding to profits.

E-commerce at Wal-Mart is run as a distinct business, with its own headquarters, CEO and merchants who buy items specifically for the website.

"Every year, executives would start a five-year planning exercise, but the plans were never executed and management would say the sales weren't there to justify the investment capital," says a former Walmart online-division executive, according to the Wall Street Journal.

The hodge-podge network it developed for e-fulfillment proved costly. The Wall Street Journal says. "Walmart is being forced to invent its own solution because it still hasn't figured out how to economically deliver all its products into the hands of online shoppers, current and former executives say."

Walmart's on-line shipping can costs range from $5 to $7 per parcel, according to some estimates (Walmart does not break out those numbers), versus just $3 to $4 per parcel for Amazon. That difference is exacerbated by the generally lower dollar value of each order for Walmart versus Amazon.

Walmart now says it is making up for lost time.

(Supply Chain Trends and Issues Article - Continued Below)



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Walmart is using consultants from Deloitte & Touche to develop its "next generation fulfillment network." It also recently hired Jun-Sheng Li, a former trucking executive, to head global e-commerce logistics, a newly created position.

In its March earnings call, Walmart said the effort would cost 9 cents per share, which translates into about $430 million in investment in fiscal 2013 alone.

And unlike Amazon, which without physical stores is committed to using its fulfillment centers to process e-ecommerce orders, Walmart appears equally committed to combine using dedicated e-commerce DCs with order processing from at least some of its local stores.

As we reported earlier, Walmart is testing the concept in 35 stores currently and plans to expand it to 50 sometime this year. (See Multi-Channel Fulfillment Wars Continue on, as Walmart Makes a Lot of News.) Both Walmart and Amazon are also testing same day delivery services in select metro markets.

Walmart says it building out "flow path optimization technology" to determine the optimal fulfillment point for a specific order, SKU and geography, which could be a traditional DC, a dedicated e-ecommerce DC, or a local store, thinking its 4000 store US footprint will give it a real advantage over Amazon's 40 facility (and still growing) US DC network. (See graphic below - sourced from the Wall Street Journal, which sourced its information from SCDigest's own Expert Insight columnist Marc Wulfraat of MWPVL International.)


Neil Ashe, Walmart's president of global e-commerce, says he was recently asked at a board of directors meeting how long the effort would take and how much it would cost.

"It will take the rest of our careers and as much as we've got," Ashe said, according to the Wall Street Journal. "This isn't a project. It's about the future of the company."

What do you think of the Walmart e-fulfillment story so far - and how fast do you think it can catch up? Let us know your thoughts at the Feedback button below.

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