Wal-Mart is a company shaped by its supply chain and the efficiency of its supply chain has made it a leader in the markets it serves.

Sam Walton decided to build a company that would serve a mass market and compete on the basis of price. He did this by creating one of the world’s most efficient supply chains. The structure and operations of this company have been defined by the need to lower its costs and increase its productivity so that it could pass these savings on to its customers in the form of lower prices. The techniques that Wal-Mart pioneered are now being widely adopted by its competitors and by other companies serving entirely different markets.

Wal-Mart introduced concepts that are now industry standards. Many of these concepts come directly from the way the company builds and operates its supply chain. Let’s look at four such concepts:

1. The strategy of expanding around distribution centers (DCs)
2. Using electronic data interchange (EDI) with suppliers
3. The “big box” store format
4. “Everyday low prices”

The strategy of expanding around DCs is central to the way Wal-Mart enters a new geographical market. The company looks for areas that can support a group of new stores, not just a single new store. It then builds a new DC at a central location in the area and opens its first store at the same time. The DC is the supply chain bridgehead into the new territory. It supports the opening of more new stores in the area at a very low additional cost. Those savings are passed along to the customers.

The use of EDI with suppliers provides the company two substantial benefits. First of all this cuts the transaction costs associated with the ordering of products and the paying of invoices. Ordering products and paying invoices are, for the most part, well defined and routine processes that can be made very productive and efficient through EDI. The second benefit is that these electronic links with suppliers allow Wal-Mart a high degree of control and coordination in the scheduling and receiving of product deliveries. This helps to ensure a steady flow of the right products at the right time, delivered to the right DCs, by all Wal-Mart suppliers.

The big box store format allows Wal-Mart to, in effect, combine a store and a warehouse in a single facility and get great operating efficiencies from doing so. The big box is big enough to hold large amounts of inventory like a warehouse. And since this inventory is being held at the same location where the customer buys it, there is no delay or cost that would otherwise be associated with moving products from warehouse to store. Again, these savings are passed along to the customer.

Everyday low prices are a way of doing two things. The first thing is to tell its price-conscious customers that they will always get the best price. They need not look elsewhere or wait for special sales. The effect of this message to customers helps Wal-Mart do the second thing, which is to accurately forecast product sales. By eliminating special sales and assuring customers of low prices, it smoothes out demand swings making demand more steady and predictable. This way stores are more likely to have what customers want when they want it.

Taken individually, these four concepts are each useful but their real power comes from being used in connection with each other. They combine to form a supply chain that drives a self-reinforcing business process. Each concept builds on the strengths of the others to create a powerful business model for a company that has grown to become a dominant player in its markets.

Answer the following questions:

• What are the important lessons learned from Wal-Mart?
• How can EDI improve the IT system of Wal-Mart? Please provide your answer with more advanced systems and technologies.
• With applying the ‘big box” store format, is this a good idea?
• How can distribution centers (DCs) help all Wal-Mart stores?
• Briefly discuss the significance order cycle.
• Mention the three elements of customer service with giving examples