Task 1

Company Overview
Wal-Mart Stores, Inc. (Wal-Mart) is the worlds largest retailer offering a variety of
products under grocery, health and wellness, entertainment, hard lines, apparel
and home categories. The company offers merchandise under various private
label and licensed brands including Equate, Everstart, Faded Glory, George,
Great Value, Hometrends, Mainstays, Marketside and No Boundaries. Wal-Mart
classifies its business operations into three reportable segments: Wal-Mart US,
Wal-Mart International and Sams Club. The company operates discount stores,
supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry
stores, home improvement stores, specialty electronics stores, apparel stores,
drug stores, convenience stores, and membership-only warehouse clubs; and
retail Websites, such as walmart.com and samsclub.com. It implements various
programs such as everyday low prices (EDLP) and everyday low cost (EDLC) to
offer products at low prices. The company operates a network of owned and
leased stores globally. It also retails its merchandise through various e-commerce
websites. Wal-Mart is headquartered in Bentonville, Arkansas, the US. The
company reported revenue of (US Dollars) US$482,130 million for the fiscal year
ended January 2016 (FY2016), which shows a decrease of 0.7% over revenue for
FY2015. In FY2016, the companys operating margin was 5%, compared to an
operating margin of 5.6% in FY2015. In FY2016, the company recorded a net
margin of 3%, compared to a net margin of 3.4% in FY2015.
As of June 20, 2016, it operated 11,527 stores under 63 banners in 28 countries
and e-commerce Websites in 11 countries. Wal-Mart Stores, Inc. was founded in
1945 and is headquartered in Bentonville, Arkansas.
Optimisation
Retail giant Walmart stocks products are made in more than 70 countries and
at any given time, operates more than 11,000 stores in 27 countries around the
world, and manages an average of $32 billion in inventory.
With these kinds of numbers, having an effective and efficient supply chain
management strategy and system is imperative. The entire organisation is
committed to a business model of driving costs out of supply chains to enable
consumers to save money and live better.
Over the past ten years, Walmart has become the worlds largest and arguably
most powerful retailer with the highest sales per square foot, inventory turnover,
and operating profit of any discount retailer. In its transition from regional retailer
to global powerhouse, the organisation has become synonymous with the
concept of successful supply chain management.
Walmart began with the goal to provide customers with the goods they wanted
whenever and wherever they wanted them. The company then focused on
developing cost structures that allowed it to offer low everyday pricing. Walmart
then concentrated on developing a more highly structured and advanced supply
chain management strategy to exploit and enhance this competitive advantage
and assume market leadership position.
Fewer Links in the Supply Chain

Walmarts supply chain innovation began with the company removing a few of
the chains links. In the 1980s, Walmart began working directly with
manufacturers to cut costs and more efficiently manage the supply chain.
Under a Walmarts supply chain initiative called Vendor Managed Inventory
(VMI), manufacturers became responsible for managing their products in
Walmarts warehouses. As a result, Walmart was able to expect close to 100%
order fulfilment on merchandise.
In 1989, Wal-Mart was named Retailer of the Decade, with distribution costs
estimated at a mere 1.7% of its cost of sales far superior to competitors like
Kmart (3.5%) and Sears (5%).
The companys supply chain has only become more effective since then.
Strategic Vendor Partnerships
Walmart embarked on strategic sourcing to find products at the best price from
suppliers who are in a position to ensure they can meet demand. The company
then establishes strategic partnerships with most of their vendors, offering them
the potential for long-term and high volume purchases in exchange for the
lowest possible prices.
Furthermore, Walmart streamlined supply chain management by constructing
communication and relationship networks with suppliers to improve material flow
with lower inventories. The network of global suppliers, warehouses, and retail
stores has been described as behaving almost like a single firm.
Wal-Marts whole thing was collaboration, Crowell said. Thats a big part of
what made them so successful.
Cross Docking As Inventory Tactic
Cross docking is a logistics practice that is the centrepiece of Walmarts strategy
to replenish inventory efficiently. It means the direct transfer of products from
inbound or outbound truck trailers without extra storage, by unloading items
from an incoming semi-trailer truck or railroad car and loading these materials
directly into outbound trucks, trailers, or rail cars (and vice versa), with no
storage in between.
Suppliers have been delivering products to Walmarts distribution centres where
the product is cross docked and then delivered to Walmart stores. Cross docking
keeps inventory and transportation costs down, reduces transportation time, and
eliminates inefficiencies.
Walmarts truck fleet of non-unionized drivers continuously deliver goods to
distribution centres (located an average 130 miles from the store), where they
are stored, repackaged and distributed without sitting in inventory. Goods will
cross from one loading dock to another, usually in 24 hours or less, and company
trucks that would otherwise return empty back haul unsold merchandise.
Using cross docking, products are routed from suppliers to Walmarts
warehouses, where they are then shipped to stores without sitting for long
periods of time in inventory. This strategy reduced Walmarts costs significantly

and they passed those savings on to their customers with highly competitive
pricing.

Qualitative Analysis
Wal-Mart overall has a 4.2% cost advantage over its average competitor (based
on percentages of net sales), which breaks down as follows:
COGS are actually higher at Wal-Mart. This is consistent with Wal-Marts
partnership relations with suppliers that are aimed not at squeezing suppliers but
at producing cost reductions in distribution from improved cooperation and IT
integration.
Advertising expenses are lower given the EDLP strategy: no promotion folders
need to be composed and distributed. In addition Wal-Mart probably realizes
economies of scale through nation-wide TV advertising.
Rent per square meter is actually higher for Wal-Mart ($8,8/sq.ft. vs. $4,4/sq.ft)
though this better locations apparently pay-off as Wal-Mart has lower rent
expenses as % of sales.
Inbound logistics: Cross-docking and other distribution improvements result in
cost savings of 1.1% of net sales.

IT costs are higher than those of Wal-Marts competitors. However, these

additional costs are offset by benefits on many fronts: (a) higher sales/sq.ft
through better forecasting of demand, (b) (b) lower supply chain costs through
integration with suppliers, (c) more effective communication both internally and
externally, and (d) lower shrinkage costs (due to improved tracing)
A portion of the cost savings, which the chart above identifies as other
operating costs remain unallocable to specific categories. We believe that these
additional cost savings are principally due to economies of scale in Wal-Marts
distribution system that simply dwarfs those of its competitors. In addition, we
suspect that staffing at Wal-Mart stores is leaner than those of its competitors, so
that employee costs are relatively low at Wal-Mart (on a per square foot basis),
even taking into account the generous benefit schemes.
Sales/sq. ft. comparison shows that the combination of its competitive
advantages lead to higher sales ratios. We believe that this is merely the result
of (a) its low prices, (b) its corporate culture, and (c) its insight in purchasing
behaviour that allows them to eliminate bad-selling SKUs.
We should also consider ADLP as a competitive advantage as Wal-Mart is the
only player able to offer lower prices than competition in a sustainable matter
Quantitative Analysis
Despite its growing revenue, the company underperformed as compared with the
industry average of 2.0%. Since the same quarter one year prior, revenues
slightly increased by 0.1%. Growth in the company's revenue appears to have
helped boost the earnings per share.
The stock has not only risen over the past year, it has done so at a faster pace
than the S&P 500, reflecting the earnings growth and other positive factors
similar to those we have cited here. Turning our attention to the future direction
of the stock, it goes without saying that even the best stocks can fall in an
overall down market. However, in any other environment, this stock still has
good upside potential despite the fact that it has already risen in the past year.
Net operating cash flow has significantly increased by 54.49% to $8,738.00
million when compared to the same quarter last year. The firm also exceeded the
industry average cash flow growth rate of 40.81%.
The net income growth from the same quarter one year ago has exceeded that
of the S&P 500, but is less than that of the Food & Staples Retailing industry
average. The net income increased by 8.6% when compared to the same quarter
one year prior, going from $3,475.00 million to $3,773.00 million.
The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that
of the industry average, implying that there has been a relatively successful
effort in the management of debt levels. Even though the company has a strong
debt-to-equity ratio, the quick ratio of 0.19 is very weak and demonstrates a lack
of ability to pay short-term obligations.
Part of the goals of Walmarts operations management is to maximize
productivity to support the minimization of costs under the cost leadership
generic strategy. There are various quantitative and qualitative criteria or

measures of productivity that pertain to human resources and related internal

business processes. The most notable of these productivity measures/criteria at
Walmart are:

Revenues per sales unit

Stockout rate
Duration of order filling

The revenues per sales unit refers to the sales revenues per store, average sales
revenues per store, and sales revenues per sales team. Walmart is interested in
maximizing revenues per sales unit. The stockout rate is the frequency of
stockout, which is the condition where inventories for certain products are
already empty or inadequate. Walmarts objective is to minimize the stockout
rate. The duration of order filling is the amount of time consumed to fill inventory
requests at the stores. Walmarts objective is to minimize the duration of order
filling. The satisfaction of these objectives contributes to the companys
performance in operations management.
Monitoring
In its relentless pursuit of low consumer prices, Walmart embraced technology to
become an innovator in the way stores track inventory and restock their shelves,
thus allowing them to cut costs.
Technology plays a key role in Walmarts supply chain, serving as the foundation
of their supply chain. Walmart has the largest information technology
infrastructure of any private company in the world. Its state-of-the-art technology
and network design allow Walmart to accurately forecast demand, track and
predict inventory levels, create highly efficient transportation routes, and
manage customer relationships and service response logistics.
For example, Walmart implemented the first company wide use of Universal
Product Code bar codes, in which store level information was immediately
collected and analysed, and the company then devised Retail Link, a mammoth
Bentonville database. Through a global satellite system, Retail Link is connected
to analysts who forecast supplier demands to the supplier network, which
displays real-time sales data from cash registers and to Walmarts distribution
centers.
Suppliers and manufacturers within the supply chain synchronize their demand
projections under a collaborative planning, forecasting and replenishment
scheme, and every link in the chain is connected through technology that
includes a central database, store-level point-of-sale systems, and a satellite
network.
What made Walmart so innovative was that it has been sharing all these
information with all their partners and back in the days, a lot of companies
werent doing that. In fact, they were using third parties where they had to pay
for that information.
Walmarts approach means frequent, informal cooperation among stores,
distribution centers and suppliers and less centralized control. Furthermore, the
companys supply chain, by tracking customer purchases and demand, allows

consumers to effectively pull merchandise to stores rather than having the

company push goods onto shelves.
In recent years, Wal-Mart has used radio frequency identification tags (RFID),
which use numerical codes that can be scanned from a distance to track pallets
of merchandise moving along the supply chain. As inventory must be handled by
both Wal-Mart and its suppliers, Wal-Mart has encouraged its suppliers to use
RFID technology as well.
Even more recently, the company has begun using smart tags, read by a
handheld scanner, that allow employees to quickly learn which items need to be
replaced so that shelves are consistently stocked and inventory is closely
watched.
According to researchers at the University of Arkansas, there was a 16%
reduction in out-of-stocks since Wal-Mart introduced RFID technology into its
supply chain. The researchers also pointed out that the products using an
electronic product code were replenished three times as fast as items that only
used bar code technology.
In addition, Wal-Mart also networked its suppliers through computers. It entered
into collaboration with P&G for maintaining the inventory in its stores and built
an automated re-ordering system, which linked all computers between P&G
factory through a satellite communication system. P&G then delivered the item
either to Wal-Mart distribution centre or directly to the concerned stores.
Walmarts supply chain management strategy has provided the company with
several sustainable competitive advantages, including lower product costs,
reduced inventory carrying costs, improved in-store variety and selection, and
highly competitive pricing for the consumer. This strategy has helped Walmart
become a dominant force in a competitive global market. As technology evolves,
Walmart continues to focus on innovative processes and systems to improve its
supply chain and achieve greater efficiency.
A close look at Walmarts supply chain and inventory operations definitely
provides valuable learning points that businesses can take and apply to their
own operations.
Even Army Col. Vernon L. Beatty, who commanded the Defense Distribution
Depot in Kuwait, spent a year with Wal-Mart as part of the militarys Training with
Industry program.
Supply chain management is moving the right items to the right customer at
the right time by the most efficient means, Beatty said in article about his
experience. No one does that better than Walmart.

Modelling
Wal-Mart is the biggest corporation in the world. It owns 6,689 stores in 15
countries worldwide and employs 1.3 million workers in the United States and
500,000 abroad, as well as millions more in the factories of its suppliers. Because
of the company's enormity, its business model has a huge influence on workers,
businesses and communities around the world.

Wal-Mart's international segment dragged down its first-quarter results, posting a

6.6 percent drop in revenue. Without the impact of a stronger dollar, Wal-Mart
said the segment would have seen sales increase 3.4 percent.
Wal-Mart is expanding outside the United States, particularly in markets where it
entered by acquiring a strong retailer. Still, given Wal-Marts formidable record at
home, the companys recent setbacks have exposed a rare vulnerability
overseas.
Starting from scratch 14 years ago, Wal-Mart International has grown into a $63
billion business. It is the fastest-growing part of Wal-Mart, with nearly 30 percent
sales growth in June, compared with the same month last year. Even subtracting
one-time gains from acquisitions, it grew at nearly 12 percent, about double the
rate of Wal-Marts American stores.
Sustaining that pace is critical for Wal-Mart, because high fuel prices have helped
sap the buying power of Americans. In June, store traffic in its home market
declined. Wal-Mart estimated that its sales in the United States in stores open at
least one year would increase only 1 percent to 3 percent in July.
Wal-Mart Germany, with 85 stores and $2.5 billion in sales, is almost a footnote
for a company focused on Asia and Latin America. But the problems it
encountered here have echoes elsewhere. For example, it never established
comfortable relations with its German labor unions.
The retailer has been trying to jump-start stalled growth in China, recently
announcing plans to open 115 new stores there by 2017. It's also ramping up
expansion plans in Canada, and said earlier this month that it will take over 13
locations from Target's brief stint there. David Cheesewright, head of Wal-Mart
International, noted particular weakness in the competitive U.K. market.

Automation
Walmart just patented a system based on mini-robots that can control shopping
carts, as well as complete a long list of duties once reserved for human
employees.
Walmart was granted a patent for a new system that allows shopping carts to
drive themselves, untouched by customers and employees. However, the system
goes far beyond self-driving carts, with details on automated devices that can do
much of the work a human employees would do.
According to the patent, "motorized transport units" are tools that attach to
shopping carts, allowing the carts to drive freely around the store, be summoned
to customers, and move safely into docks instead of clogging up parking lots.
The system uses a combination of sensors, video cameras, a wireless network,
and a central computer.
But, Walmart's plans are bigger than cleaning up carts more efficiently. These
motorized units can also potentially move containers; scan, retrieve, and deliver
products; check inventory; retrieve trash; and even connect with customers. And,
the patent says that Walmart is not limiting what else the motorized units can be
configured to do.

While the patent describes the motorized unit's role as enhancing a shopping
experience and assisting customers or employees, the new tech could be bad
news for Walmart employees.
Walmart has come under fire for a number of issues with staffing and employees
in recent months.
More than 200 violent crimes have been committed so far this year at Walmart
locations across the US, with Bloomberg arguing that the rise in crime is linked to
the retailer understaffing stores. Cost-cutting policies that started in the early
2000s resulted in a drop in store quality, while the loss of greeters and the rise of
self-checkout scanners made shoplifting and other illegal activities easier to
engage in without employees noticing.
The patent's authors argue that the new, tech-heavy system could improve
customers' in-store experience and solve problems that Walmart employees
cannot.
"In a modern retail store environment, there is a need to improve the customer
experience and/or convenience for the customer," reads the patent's background
section, which notes issues including insufficient employees in peak hours,
under-trained workers due to high-turnover rate, messy aisles, and theft.
"All of these issues can result in low customer satisfaction or reduced
convenience to the customer," the patent continues. "With increasing
competition from non-traditional shopping mechanisms, such as online shopping
provided by e-commerce merchants and alternative store formats, it can be
important for 'brick and mortar' retailers to focus on improving the overall
customer experience and/or convenience."
Further, the benefits of a more-fully automated store are particularly appealing
for retailers as labour costs rise, according to analysts.
While Walmart CEO Doug McMillon announced $2.7 billion in spending on wages
and training last year, labour activists argue that the retailer still underpays
employees and continue to call for higher pay.
Walmart has not provided any information regarding if or when the new system
would roll out in stores.
With robots that can drive shopping carts and preform a wide array of other
employee duties, Walmart could cut the number of employees on payroll while
also improving customer experience. Automation is already taking over the fastfood industry - and it looks like the budget retail business might be next.
Wal-Mart is also working on geo-mapping its stores in the mobile application so
shoppers who activate the in store mode while shopping can type in an item
such as toothpicks and the map will show them the aisle and map the location
out for easy retrieval, according to Justin Toupin of WalmartLabs.
Geo-mapping is being tested in 10 stores, including Store 100 in Bentonville. He
said the tech team is working with store operations to implement the store
layouts more broadly. They are doing it without RFID, a spokesman said.
The full store map serves like a personal shopping assistant, Toupin said.

Wal-Mart also has worked on a responsive design to its website and mobile
application that allows users more flexibility with screen display. The new design
is now part of Walmart.coms check-out page and will gradually be integrated
throughout the site.
Lastly Sams Club gave reporters a glance at its Data Cafe which is a high tech
center that crunches data from 100 different sources to help the clubs and stores
with merchandising, tracking promotions, heading off logistics delays and other
operational issues.
One application of the data gleaned is to track return trips and then tweak the
promos sent to the club member that reflects items they will more likely choose
rather than just generic and random offers. The retailer said this focused
marketing approach is helping drive more sales from repeat shoppers.

References:

http://www.supplychain247.com/article/incredibly_successful_supply_chain
_management_how_does_walmart_do_it
The Street Ratings
http://callisto.ggsrv.com/imgsrv/FastFetch/UBER1/309223_GDRT35083FSA
https://www.bloomberg.com/news/articles/2016-06-14/wal-martexperimenting-with-robotic-shopping-cart-for-stores