All Students are required to upload their individual responses to each of the attached discussion questions for the 2 cases titled "Supply Chain Management at Wal-Mart" and "Wheels Group: Evolution of a Third-Party Logistics Service Provider"
CASE: SUPPLY CHAIN MANAGEMENT AT WAL-MART Discussion Questions 1. Describe Wal-Mart’s supply chain and how it integrates with the other elements of its strategy. 2. If you were in the position of Johnnie Dobbs, what is your analysis of Wal-Mart’s supply chain? Are the company’s supply chain capabilities still a source of competitive advantage? Why or why not? 3. What is your evaluation of the Remix and RFID initiatives? Is Remix and RFID the right place for the company to focus its efforts? 4. Is the company’s target for maintaining inventory growth at a rate of 50 percent of sales growth reasonable? 5. Where do you see the opportunities for Wal-Mart in its global supply chain? 6. What are the concerns for Wal-Mart? SUPPLY CHAIN MANAGEMENT AT WAL-MART 907D01 SUPPLY CHAIN MANAGEMENT AT WAL-MART1 Ken Mark wrote this case under the supervision of Professor P. Fraser Johnson solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2006, Richard Ivey School of Business Foundation Version: 2017-05-30 INTRODUCTION With US$312.4 billion in 2006 sales from operations spanning 15 countries, Wal-Mart Stores, Inc. (Wal- Mart) was the world’s largest retailer. Wal-Mart’s supply chain, a key enabler of its growth from its beginnings in rural Arkansas, was long considered by many to be a major source of competitive advantage for the company. In fact, when Wal-Mart was voted “Retailer of the Decade” in 1989, its distribution costs were estimated at 1.7 per cent of its cost of sales, comparing favorably with competitors such as Kmart (3.5 per cent of total sales) and Sears (five per cent of total sales).2 But by 2006, competitors were catching up. Many of Wal-Mart’s management techniques, which it borrowed and refined after having seen them in action at innovative retailers, were now being copied by others. By 2006, most retailers were using bar codes, shared sales data with suppliers, had in-house trucking fleets to enable self distribution, and possessed computerized point-of-sale systems that collected item-level data in real-time. Although Wal-Mart continually searched for cost saving initiatives, in the most recent quarters, the company had been unable to meet its self-imposed target of holding inventory growth to half the level of sales growth. Wal-Mart’s new executive vice-president of logistics, Johnnie C. Dobbs, wondered what he could do to ensure that Wal-Mart’s supply chain remained a key competitive advantage for his firm. RETAIL INDUSTRY U.S. retail sales, excluding motor vehicles and parts dealers, reached US$2.8 trillion in 2005. Major categories in the U.S. retail industry included the following:3 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Wal-Mart or any of its employees. 2 Discount Store News, “Low distribution costs buttress chain’s profits”, 18 December 1989. 3 www.census.gov, accessed 23 August 2006. For the exclusive use of C. Maldonado, 2022. This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University from May 2022 to Jun 2022. Page 2 9B07D001 Category 2005 (US$ billions) General merchandise stores 525.7 Food and beverage 519.3 Food services and drinking places 396.6 Gasoline 388.3 Building materials and gardening equipment and supplies 327.0 Furniture, home furnishings, electronics and appliances 211.7 Health and personal care 208.4 Clothing and clothing accessories 201.7 Sporting goods, hobby, book, music 81.9 In the United States, retailers competed at local, regional and national levels, with some of the major chains, such as Wal-Mart and Costco, counting operations in foreign countries as well. In addition to the traditional one-store owner-operated retailer, the industry included formats such as discount stores, department stores (selling a large percentage of soft goods, i.e., clothing), variety and convenience stores, specialty stores, supermarkets, supercentres (combination discount and supermarket stores), Internet retailers and catalogue retailers. Major retailers competed for employees and store locations, as well as for customers. The 10 biggest global retailers were as follows: Retailer 2006 Sales (US$ billions) Headquarters Wal-Mart Stores, Inc. 312.4 U.S. Carrefour SA 88.2 France The Home Depot, Inc. 81.5 U.S. Metro AG 66.0 Germany Tesco 63.7 U.K. The Kroger Co. 60.6 U.S. Costco 53.0 U.S. Target Corp. 52.6 U.S. Royal Ahold 52.2 Netherlands Aldi Group 37.0 (est.) Germany Source: Company reports, www.hoovers.com The top 200 retailers accounted for approximately 30 per cent of worldwide retail sales.4 For 2005, retail sales were estimated to be US$3.7 trillion5 in the United States and CDN$572 billion in Canada.6 4 http://www.uneptie.org/pc/sustain/reports/Retail/Nov4Mtg2002/Retail_Stats.pdf, accessed 10 May 2006. 5 http://www.census.gov/mrts/www/data/pdf/annpub06.pdf, accessed 10 May 2006. 6 http://www.cardonline.ca/tools/cma_retail.cfm, accessed 10 May 2006. For the exclusive use of C. Maldonado, 2022. This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University from May 2022 to Jun 2022. Page 3 9B07D001 BACKGROUND OF WAL-MART STORES, INC.7 Based in Bentonville, Arkansas and founded by the legendary Sam Walton, Wal-Mart was the world’s largest retailer with more than 6,500 stores worldwide, including stores in all 50 states as well as international stores in Argentina, Brazil, Canada, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Puerto Rico and the United Kingdom, as well as joint venture agreements in China and a stake in a leading Japanese retail chain. The company had 1.3 million employees (known as “associates”) in the United States and a total of 1.8 million worldwide. It was estimated that Wal-Mart served more than 138 million customers each week. Exhibit 1 presents a summary of Wal-Mart historical financial statements. Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at “everyday low prices” (EDLP) and was best known for its discount stores, which offered merchandise such as apparel, small appliances, housewares, electronics and hardware, but also ran combined discount and grocery stores (Wal-Mart Super Centers), membership-only warehouse stores (Sam’s Club), and smaller grocery stores (Neighborhood Markets). In the general merchandise area, Wal-Mart’s competitors included Sears and Target, with specialty retailers including Gap and The Limited. Department store competitors included Dillard, Federated and J.C. Penney. Grocery store competitors included Kroger, Albertsons and Safeway. The major membership-only warehouse competitor was Costco Wholesale. THE DEVELOPMENT OF WAL-MART’S SUPPLY CHAIN Before he started Wal-Mart Stores in 1962, Sam Walton owned a successful chain of stores under the Ben Franklin Stores banner, a franchisor of variety stores in the United States. Although he was under contract to purchase most of his merchandise requirements from Ben Franklin Stores, Walton was able to selectively purchase merchandise in bulk from new suppliers and then transport these goods to his stores directly. When Walton realized that a new trend, discount retailing — based on driving high volumes of product through low-cost retail outlets — was sweeping the nation, he decided to open up large, warehouse-style stores in order to compete. To stock his new warehouse-style stores, initially named “Wal- Mart Discount City,” Walton needed to step up his merchandise procurement efforts. As none of the suppliers were willing to send their trucks to his stores, which were located in rural Arkansas, self- distribution was necessary. As Wal-Mart grew in the 1960s to 1980s, it benefited from improved road infrastructure and the inability of its competitors to react to changes in legislation, such as the removal of “resale price maintenance,” which had prevented retailers from discounting merchandise. Purchasing As his purchasing efforts increased in scale, Walton and his senior management team would make trips to buying offices in New York City, cutting out the middleman (wholesalers and distributors). Wal-Mart’s U.S. buyers, located in Bentonville, worked with suppliers to ensure that the correct mix of staples and new items were ordered. Over time, many of Wal-Mart’s largest suppliers had offices in Bentonville, staffed by analysts and managers supporting Wal-Mart’s business.