Presented to: Miss Maheen Shafqat

Group members: Umair Islam Sheraz Sirfraz Quraishi Madeeha Azmat Rafia Saman

5th March 2013

Background and History:

In 1962 Sam Walton made his Wal-Mart Discount City, be that as it may before going to the chance of Wal-Mart; Sam Walton possessed various Ben Franklin Store Chains. Basically in having this earlier encounter of owning more diminutive variety stores and managing its franchised supply chain network, this permitted Mr. Sam Walton to study different business thoughts and likewise was fit to specifically buy stock in mass from new suppliers and afterward transport the aforementioned products to his stores straight. After this the chance of discount retailing was first developed and was set to come to be a major impact in future business. In the early years the Wal-Mart competitive advantage was its supply chain. As a matter of fact, as taken from the case, Wal-Mart was voted Retailer of the Decade in 1989.

Supply Chain of Wal-Mart

As said above the starting focused point of interest for Wal-Mart was its supply chain administration. Basically an effective supply chain is the key to maintain their clients fulfilled with the vow of low prices. The main reason behind its comparative advantage was the inability of the competitors to keep up to updates in legislation and the principle change might be the evacuation of resale price maintenance, which had anticipated retailers from marking down stock. There are three main things in which supply chain of wal-mart outperformed that are: Logistics Purchasing & Retail decisions Restricting the generally speaking bullwhip impact of the supply chain.

Logistics
Arkansas that Walton invested early in a distribution center, contributed an increase in profits by cutting down his expense for every unit. Moreover the companies store was located near the highways which resulted in lower distribution costs. The main features of Wal-Mart logistics include. Back-haul income, transportation of unsold stock on trucks that might be else wise vacant.

Average distribution centre to store was approximately 130 miles. Working with suppliers to standardize case sizes and marking. Non-unionized and in-house drives delivered merchandises to U.S. Cross docking or administer exchanges from inbound or outbound trailers without additional space.

A different fundamental usage of Wal-Marts store network is its in-house non-unionized truck drivers. Utilizing trucks as a mode as transportation will give adaptable focus-to-focus service, delivering little amounts with less hazard. Moreover since the appropriation focuses are on normal 130 miles far from retail stores its moderately economical particularly with the quick thought of back-pulling. When a manufacturer or distributor can find a way to bring a product back instead of having the truck make an empty backhaul, it's like sharing the transport cost with another distributor. Secondly, The cross docking framework was started by Wal-Mart this enhancement permits a dispersion focus to regulate incoming shipments straight to a crossdocking framework, products are conveyed to a warehouse on a nonstop premise, where they are archived, repackaged, and disseminated to stores without sitting in stock.

Purchasing & Retail decisions

Wal-Mart has conclusively advanced a discount retailing framework which increments the supply chain administration of their business. This is done by sufficient deliberations with suppliers in the numerous key ascribe to supply chain management. This basically incorporate expanded qualified information, collaboration, communication and trust around Wal-Mart and its suppliers worldwide which further more commits to effective forecasting and planning. The main features of Wal-Mart in respect to purchasing and retailing decisions include: Category captains ( for making the best use of shelf space ) The capacity to transact with suppliers for a single invoice cost and did not pay for Work promoting and discounting.

Suppliers receive installments fully on Wal-Marts terms. The presentation of merchandise by storewide templates. Customized products according to their locations.

The Bull Whip Effect

With the help of collaboration planning, forecasting, and replenishment (CPFR) there is a reduction in bull whip effect and it also enhances companys relationship with suppliers. Secondly by using CPFR model there is reduction in costs and improved service level which is a key factor. An advantage of lessening the bullwhip impact in its supply chain administration strategies is lessening the lack of determination and bringing down the inventory level required in house. Lack of determination will have the negative impacts on incomplete orders between Wal-Marts distribution center. Lastly in having a sufficient supply chain administration framework set up it will bring down the inventory level required in house and protect opposite inventory network doubt.

Information Technology
According to Mr Sam Walton Information Technology interfaced all aspects of the supply chain. Information Technology had a direct link with the growth of the business; hence IT was a key factor in positively contributing in the performance of the business. The main features of Wal-Mart in respect to information technology include Implementation of UPC bar codes. Permitted senior administration to telecast video messanges to store. Introduction of retail link in 1990. vendor-managed inventory program (also known as continuous replenishment)

Vendor management programs needed suppliers to administer inventory level at the association's distribution centers, based on agreed-upon service levels. Secondly Retail Link was an enormous go in the right heading for Wal-Mart information system framework. This

framework was, assessed at 570 terabytes, which Wal-Mart guaranteed was greater than every last trace of the settled pages on the web. This database is basically connected to internal analysts and the suppliers network by which every bit of the information data is sent to the retail connection database through a worldwide satellite transmission. As compared to other competitors this satellite system is the biggest competitive advantage of Wal-Mart.

Two future objectives for Wal-Mart are the initiatives of Remix and RFID
Radio Frequency Identification Tags
The main aim of RFID was to increase the ability the tracking the inventory by increasing in-stock rates at store level. However the major destruction with this framework is that it will take around 17 cents for every tag hence raising the costs for every unit. In any case, the essential preference to neutralize this value is having the ability to find inventory that may be lost or mislabeled out of stock and moreover replenish things on store shelves at a faster rate. Likewise, Wal-Mart retail stores might be able to put RFID tag readers in some parts of the store which permits managers to stay informed regarding the area of their stored inventory. Wal-Mart is adjusting it, yet hoping for suppliers to quicken the RFID growth.
REMIX

As mentioned above the worldwide satellite system, it was basically beneficial for the Wal-Mart in its recent years especially to introducing fast moving consumer goods. But, the remix strategy has changed the distribution methods for fast moving consumer goods which are now cross docked in smaller warehouses which have fewer automation processes from farmer to retail stores. Moreover, the change in the distribution strategy of one distribution center serving multiple stores to adding food distribution centers as well to handle fast moving consumer goods is a future initiative by Wal-Mart.

Quantitative Analysis

Calculation of Walmart sales from each countrys operations Total number of countries in which Walmart operated = 15 Total Sales = $ 312.4 Billion sales from each countrys operations = 312.4/15 = $20.82667 Billion That means every country is contributing approximately $20.8 Billion towards Walmart total revenue.

It consists of over 6,500 stores worldwide with a total of 1.80 Million employees worldwide. 30% of the US retail sales were contributed by the top 200 retailer. Calculation Sale of US = $3.7 Trillion Contribution by 200 Top retailers = 3.7 * 0.3 = $1.1 Trillion Hence approximately $1.1 Trillion of sales was contributed by the top 200 retailers.

Sales to Wal-Mart accounted for 17.5% of P&G and 13% of Gillettes sales revenue, before the acquisition of both.

Walmart consisted of 75,000 people on its logistics division and information systems division of which there were 7800 drivers for transporting the goods.

The percentage composition of 200 key suppliers to the overall suppliers Calculation Total suppliers = 90000 Key suppliers = 200 %age of key suppliers= 200/90000 = 0.00222 = 0.222 %

There were Low price levels varying from 8 to 27 percent, that is for example if a particular good costs $200 then it could be sold between $184 to $146. There were around 3,900 stores that operated in US in the year 2006. The average distance of each distribution center from the store was approximately 130 miles hence it is relatively inexpensive.

During mid 2006, Wal-Mart was forced to pull out of Korea by selling its 16 stores to countrys biggest discount chain and exited the German market with a loss of about $1 billion.

There was dip in the interest coverage ratio in 2002 because of increased interest expense in that year which was a result of a long term loan of about 3000 million dollars taken in 2000. Overall there was increasing trend which shows that Wal-Mart overall had an increasing capacity to repay its interest payments.

A ratio showing how many times a company's inventory is sold and replaced over a period. There was overall an increasing trend of the ratio meaning that from year 2000-2006 more and more inventories were being converted into sales except in the year 2005 where there was a slight dip in the turnover.

2001 Avg. days to sell 52.24 inventory

2002 49.37

2003 47.55

2004 46.84

2005 46.81

2006 47.03

Talking about the Average days to sell inventory, it basically shows how long it takes a company to turn its inventory into sales. It is taking too much time in converting the inventory into sales by which more inventory is piling up which further increases cost.

COGS means all the cost incurred to produce a product. Wal-Mart is almost in the middle among its competitors. High COGS is not a good signal it means the goods being produced are at a higher per unit cost. Wal-Mart would surely want to reduce this ratio so it able to increase its GP which would increase it NI.

Percentage increase in sales was experiencing good positive change. Meaning firm was greatly improving its profitability. But the area which needs a greater attention would be increase in inventory from year 2001-2002 and 2002-2003. During these two periodic years % increase in inventory was almost doubling. Reasoning of the doubling cannot be found from the case study due to less information available.

Conclusion & Recommendations Regardless of the way that Wal-Mart has a powerful logistics and distribution framework it is still not equipped to uphold an offset between the inventory and sales levels. Moreover highlow discounting used resulted in inventory pile up mainly due to fluctuations. There was an excess inventory of approximately $6 Billions moreover inventory increases more rapidly as compared to the sales. Maintaining inventory was a major challenge for Wal-Mart as they were attempting to lessen costs and enhance customer services in an every expanding degree intense business nature. Wal-Mart can manage its inventory by following methods: Improve your forecasting Use mathematical forecasts methods like

Winters Use demand rather than sales to forecast where possible Exponential smoothing Regression

Eliminate obsolete stock Basically get it off the obsolete stocks , and use that warehouse space for productive inventory. Reduce variability of demand and supply Variability is highly correlated with lead time; shorter lead times generally have less variability. Identifying the volatility and discovering the cause will reduce the variability in the supply chain and lower inventories.

Centralize your inventory With the help of centralization, a reduction in order quantities may be possible. With ordering to only one location, you may be able to increase your order frequency, thus lowering your overall order quantity. Order more frequently Order little and often: this reduces the cycle stock. Ordering twice as often will halve the cycle stock. Improve supply chain management. By streamlining the entire supply chain, a company can reduce inventory, improve time to market, compress cycle times, free up more cash, decrease costs and improve profitability.