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 Do
s, 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 XXXXXXXXXX; (e) XXXXXXXXXX; www.iveycases.com.
Copyright © 2006, Richard Ivey School of Business Foundation Version: XXXXXXXXXX
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
eginnings 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
o
owed 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. Do
s, 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, ho
y, 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
etailers 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 XXXXXXXXXXU.S.
Ca
efour 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
eports/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
oad 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
uying 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 co
ect 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.