Wal-Mart Takes Back Its Supply Chain, IT In The Spotlight

Written by Frank Hayes
May 26th, 2010

Supply chains don’t get a lot of love from IT. They’re not sexy; no customer-facing payment systems or kiosks to love, just pallets, diesel and rubber. But Wal-Mart is about to change that. Retail’s $405 billion gorilla is taking over the trucks that deliver products from thousands of its suppliers. That may not sound like it has much to do with IT, but boy, does it ever. True to its contrarian roots, Wal-Mart is turning just-in-time inventory inside-out–and taking back its supply chain.

Officially, Wal-Mart hasn’t said anything about IT’s role in the trucking plan, which is spearheaded by Transportation Vice President Kelly Abney. Abney says it’s all about squeezing out costs by keeping Wal-Mart’s own trucks busy and by accepting delivery of merchandise at the supplier’s loading dock instead of at a Wal-Mart distribution center. Wal-Mart figures it can cut wholesale prices by 6 percent if it hauls the merchandise itself. The company is also positioning the change as a benefit for suppliers, who can “focus on what they do best, manufacturing products for us,” Abney told Bloomberg news.

But Wal-Mart isn’t in the trucking business any more than its suppliers are, and just squeezing out a little savings in fuel costs would be a wasted opportunity. By stretching its supply-chain perimeter though, Wal-Mart will get much better control over the inventory coming in: when it arrives, how it arrives and how quickly it can be turned around. And that’s all about IT.

Right now, Wal-Mart begins tracking every pallet as soon as it’s delivered to a distribution center. When the RFID tags on the pallets are scanned there, the information is linked to what EDI documents say should be in the shipment. That’s when any unpleasant surprises show up, such as missing pallets or delayed shipments. At that point, there’s nothing the truck driver can do about those problems but shrug. By the time the truck has arrived, the inventory system is at the mercy of suppliers.

Those delivery surprises are enough of a problem for Wal-Mart that in February the company began imposing a 3 percent penalty for any merchandise that is not delivered on time.

In the new regime, when a Wal-Mart driver picks up a load at a supplier’s loading dock that same driver will have to scan each pallet’s RFID tag as it’s loaded. The driver will then transmit the data so it can be matched up in real-time with EDI documents that specify what’s in the shipment. Sending that data ahead doesn’t just give Wal-Mart the inventory information a few hours earlier. It gives the retailer the chance to have unpleasant inventory surprises corrected in minutes at the supplier’s loading dock, not days later.

Once the pallets are on the truck, Wal-Mart also gains complete control over when that truck will arrive at the distribution center. Such knowledge creates much more predictability for arrival times, which in turn produces better scheduling options for the loading dock. It also means faster turnaround times. And, stores will know what they’re getting, and when.

By taking over the trucking, Wal-Mart is turning conventional just-in-time inventory on its head. Instead of being at the mercy of suppliers to deliver whatever shows up on the truck, Wal-Mart is literally going after it.

That reverses conventional wisdom, which says to leave things like delivery from suppliers and other non-core functions for the business, to someone else. But Wal-Mart has never shied away from being a contrarian. After all, this is the company that started out by putting stores in tiny rural towns where no other chain retailer would go.

Sending its trucks to pick up the goods lets Wal-Mart’s inventory systems reach all the way to its suppliers–not just figuratively, but physically. That gives Wal-Mart better inventory accuracy, visibility and predictability. And that, in turn, makes those trucks part of a core function.

So much for diesel and rubber.


2 Comments | Read Wal-Mart Takes Back Its Supply Chain, IT In The Spotlight

  1. j. cervenak Says:

    Mr. Hayes, thanks for a fresh, well written update and perspective on WM’s approach to the classic technique of backhaul.

    Going back to ICC / Lenoir Chair days savvy retailers have been looking to “not ride empty,” to take early control of goods, scan pallets (pallet licenses) and impose penalties for late delivery, mixed pallets as well as a score of Routing Guide/Instruction violations. What was missing was the virtual communications available today.

    To WM’s credit they are doing a magnificent job of putting it all together … the beauty of WM is that they are 360 in their approach to savings and have magnificently perfected the techniques of the BHAG (big hairy audacious gorilla – thanks Tom Peters).

    An in-depth at the WM process used to come to this decision and their evaluation of the side-effects/consequences would be most beneficial to the reader.
    Thanks again.

  2. Cristian Vila Ortiz Says:

    Honestly, nothing is being turned upside down, this kind of analysis, that only sometimes defies conventional wisdom, has been done for years.
    It just happens that is about WM, and that is news.


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