Wal-Mart has been the leader in using cutting edge technology for its supply chain processes. For logistics management EDI (electronic data exchange) helped it to establish direct links with the stores. EDI also helped the company to place orders directly with the suppliers electronically. EDI reduced the order processing time and the distribution centers could also plan the dispatch of goods to the stores. The POS (point-of-sale) scanning system helped to keep track of the items sold at each store. This required the suppliers to place bar codes on each and every item. The satellite communication system (SCS) helped to establish virtual communication links between all Wal-Mart stores and distribution centers with company headquarters. They used voice recognition Talkman terminals (VRTT) and the wireless LAN that helped them to detect the location of the product at the distribution centers.
Through the use of IT they could achieve just-in-time inventory replenishment at most of their stores. By using the EDI for placing orders electronically, the company could decide on the optimum orders to be placed and it helped to negotiate the best prices. Thus the company’s cost of sales worked out to be 2-3% which is much below the industry average. By placing the bar code on every item they had ready information on the product, manufacturer and price which was passed on to the centralized data warehouse through satellite links. This information helped Wal-Mart to analyze what items sold at what pace and thus helped to decide on the re-ordering quantity. As the computer system of Wal-Mart’s is connected to the suppliers, the suppliers could download through the EDI, the purchase orders along with analysis of the products sold at each store. This helped the suppliers to plan their dispatch while it helped Wal-Mart to avoid over-stocking. Through the use of cross-docking, an advanced logistics technique, Wal-Mart could receive goods and dispatch them to the stores in less than a day. Through the use of technology they could buy the right products at the right time in the right place at the right price.
Wal-Mart used the internet for inventory and procurement management. They used the internet to share the real-time data which helped to determine product-wise demand forecast. Based on the past two years’ data and the fresh data they could make sales projections.
They first started the ‘Retail Link’ that connected Wal-Mart’s EDI network with extranet and it helped to move beyond the EDI. The Retail Link then merged into an internet-enabled supply chain management (SCM) system helped in collaborative planning, forecasting and replenishment (CPFR). The CPFR software helped to obtain real time information on products that sold well and accordingly plan replenishments individually. They then made a logical comparison of two projections and determined major variations. These were then sent to the concerned supplier who then sent its modified projections to Wal-Mart’s managers. The managers then made the final decision regarding the projected sales and the orders to be placed. Thus by using the CPFR< they came up with common forecasts and by mutually agreeing upon the orders, Wal-Mart and its suppliers could reduce excess stocks at its distribution centers and stores. At the same time, the suppliers could plan their production schedules. Under this scheme, for products that were selling well, the software could help at arriving at re-order quantities for individual products or group of products.
Wal-Mart initially started it as a pilot project and having attained success, they attempted to expand the use of this software. They found significant reduction in inventory when they implemented CPFR at Sara Lee Corporation and hence they decided to extend this to thousands of their other suppliers through the web-enabled Retail Link system. Wal-Mart did not succeed in widening the supplier base willing to implement CPFR because it required huge investments in time and money. The suppliers were not willing to invest the time required to develop forecasts and analyze data. They were even reluctant to broaden the implementation of CPFR for more than one product. Even though Wal-Mart’s pilot project was with Warner-Lambert, even after five years Lambert was still operating with traditional computers without totally doing away with paper work.
Wal-Mart followed the strategy to invest and keep its technology updated regularly. After the Retail Link, they launched the global sourcing initiative to achieve higher economies of scale in procuring goods. They developed a single request-for-quote (RFQ) where they asked global suppliers to quote their best prices. Through global sourcing they could deliver better quality products at cheaper prices to their customers worldwide. This was a unique strategy which no competitor of Wal-Mart has been able to follow. This was amply demonstrated when they in association with the supplier of copy paper, Wal-Mart worked towards enhancing the paper quality and launched several products. This resulted in increased sales in several countries.
Having attained success in the process of global sourcing, they switched over from the prevailing VAN-EDI to web-enabled EDI. This saved them millions of dollars in the form of license fees to the private VANs and also ensured greater security of transactions. The communication between each of the parents is faster through this system and the security is better with enabled EDI as the transaction in VAN EDI is through private players.
Another unique feature of Wal-Mart was the introduction of the RFID (Radio Frequency Identification). The RFOD tags are also known as transponders and consist of an antenna and a micro chip, which stored product data. By the help of a low-powered transmitter, the date could be read by converting the radio waves coming from the tag into digital format and transmit it to the computer system. These smart tags are programmable and can store information as per retailers’ requirements. These are some of the unique features that have not been implemented by competitors primarily because of heavy investments required initially.
RFID helped the store personnel to determine the stocks at the store and the distribution centers in real-time. Compared to bar codes, these smart tags could produce data in greater detail and it thus became easier for the company and its suppliers to track data at the individual product level. RFID reduced the workload of the employees as they were no longer required to physically scan the bar codes of the goods entering the stores and the distribution centers, resulting in savings in labor and time. RFID also expected to reduce the incidences of stock-outs at stores. Reducing stock out translates into increase in sales. Another potential benefit of RFID was reduction of merchandize theft at stores. Every year Wal-Mart lost about $2 billion due to thefts but now with RFID if there were attempts to remove the good from the shelf, the smart tags on the goods would immediately alert the store personnel.
The suppliers were apprehensive of the new technologies that Wal-Mart insisted they adopt at every instance. It is not yet a proven technology which was a cause for reluctance expressed by the suppliers. No industry standards were set and besides, RFID could not be implemented in case of liquids or if goods were packed in metal cases. Another challenge is that when the RFID tags run on the conveyor belt, the belts also emit their own radio frequency. This reduces the RFID transmission of the tagged products and if a problem is spotted only a human can rectify it which means it is not possible to totally eliminate the role pf personnel even if RFDI is implemented. The privacy of consumers is not protected because the consumers’ shopping habits can be traced.
It would impose a heavy financial burden on the suppliers as they would have to upgrade their system to keep up with the company’s requirements. To make themselves RFID compatible, the suppliers would have to invest almost $20 million. It would require modifying the supply chain software and revamping the packaging lines and warehouses. The suppliers had to give in at times because otherwise it meant losing our on the orders of Wal-Mart which were voluminous.
Since the suppliers were reluctant to implement RFID, Wal-Mart suggested plans to overcome this reluctance. They decided to implement it in phases. The suppliers would not be required to put the tag on each and every item supplied to Wal-Mart. Instead, the pallet and the crates would be tagged. Wal-Mart suggested that the tagged pallets and crates be initially shipped to three distribution centers in Texas which catered to about 150 stores. Wal-Mart expected that phasing it out would attract the suppliers and once they realized the benefits, they would be willing to switch over totally to RFID.