Walmart Reworking Its Supply Chain Management Systems

In the mid-1980s, Walmart founder Sam Walton and company CEO David Glass came up with a revolutionary idea. Up until then, traditional brick-and-mortar stores had engaged in an age-old process of buying and selling merchandise. A store would order products from suppliers, sell the products to customers, reorder more products when stocks became low, and so on. Products that did not sell would be returned to the supplier or sold at a discount. At regular periods, store employees would conduct inventories to check the supply level of all products. Walmart was already a technological leader in this process. As early as 1977, Walmart had deployed a companywide computer network for ordering and reordering products from suppliers. In 1983, the company implemented a bar code system to scan point-of-sale (POS) data. The following year, company employees began using handheld devices to reorder merchandise. The devise could scan a label, provide a description of the merchandise found on the shelf, and display information about prior quantities ordered.

But Walton and Glass wanted to go beyond that. They wanted to leverage Walmart’s technology to introduce a whole new way of getting merchandise into and out of their rapidly growing number of stores. This new method became known as vendor-managed inventory (VMI). Rather than having Walmart’s employees track merchandise on the shelves, Walmart would make its sales and in-stock data available to suppliers who would then issue a replenishment request and send the merchandise to Walmart. This new data-driven supply chain system improved in-stock inventory rate, reduced physical warehousing costs, and helped the stores become more responsive to customer demands. Moreover, the system moved most of the costs and responsibilities associated with replenishment to Walmart’s suppliers.

To provide historical purchasing and customer behavior data, Walmart created a data warehouse prototype in 1990 and the Retail Link database system in 1992. The company spent $4 billion on the system and took years to perfect it. By 1996, vendors were able to access Retail Link through the Internet. Retail Link became a model of supply chain success. Today, Walmart suppliers use Retail Link to review the need for orders every day on every item in every store.

Walmart also developed the use of unique cross-docking systems. Cross docking allows suppliers or manufacturing plants to ship products packaged for individual stores so that store shipments can be easily moved from the incoming dock to the outgoing dock without having to be first moved to a storage location in the warehouse. Cross docking takes place in distribution centers located on average 130 miles away from each store. Products flow from one loading dock to another within 24 hours. At the end of the cross-docking process, the merchandise is repackaged and sent to the retail store.

Walmart passed its cost savings on to its customers, propelling the company to its current position as the largest retailer on the planet. Between 1993 and 2001, Walmart went from conducting $1 billion in transactions a week to $1 billion in transactions every 36 hours. Today, Walmart conducts $1 billion in transactions in just under 28 hours. The company employs over 2.2 million associates in over 11,000 stores in 27 countries, serving over 200 million customers each week.

In 2013, the retail giant’s continued success was threatened as it began to suffer acutely from an “empty-shelf” syndrome. Customers, who had come to rely on Walmart as their one-stop, lowpriced retail solution, encountered out-of-stock signs and could not locate the products they needed within the store. Bloomberg News broke the story, and people began to wonder what had happened to the once-reliable retail giant. Finally in 2014, Walmart admitted that it was working on improving its in-stock supplies. It turned out that between 2008 and 2014, Walmart had allowed U.S. staff at Walmart and its sister-chain Sam’s Club to fall by 20,000 employees—all while opening more than 650 new stores. There simply were not enough workers on hand at the retail chains to carry the merchandise to the right shelf.

Richard Reynoso, an overnight stocker at Walmart for over three years, explained to a reporter investigating the story that he and his coworkers often had to work outside their assigned departments. Each night he might have to restock items in the Hardware, Sporting Goods, Auto, or Toy departments. “Some people don’t know where things are supposed to go, so the merchandise ends up getting scrambled everywhere,” Reynoso explains. “Either that or they don’t have enough time to put it in the real spot.”

Walmart has recently committed itself to increasing labor hours, recognizing its low labor investment in the United States as a significant problem. Additionally, the company is trying to curb inventory growth in order to cut costs and reduce the amount of slow-moving merchandise on its shelves. In recent years, inventory growth has exceeded sales growth, cutting into the profit of the retail giant.

As part of its efforts to better manage its inventory, Walmart is planning to roll out a new global replenishment and inventory control system. The Global Replenishment System (GRS) will provide a better forecasting engine for Retail Link and should help Walmart streamline inventory. The main goal is to provide “just-in-time” inventory, so that products sit on shelves for as short a time as possible before being replenished. The system is now being tested with a handful of Walmart’s larger vendors. The company hopes that this new system, along with increased labor hours, will help it overcome its recent shelving woes.

Meanwhile some critics have viewed Walmart’s Retail Link program and its approach to inventory management as a means through which the company has gained complete control over suppliers. “At the heart Walmart’s offer to share its software program,” writes Sam Hornblower of Frontline, “was a Faustian bargain for suppliers: Use our Retail Link program, play by our new rules, and we will be your gateway to sales beyond your wildest dreams. Or refuse, and be shut out of America’s dominant retail chain. In fact, by sharing Retail Link, Walmart gained command over its suppliers and effectively penetrated their executive decision-making.”

Indeed, the learning curve to master Retail Link is a steep one, particularly for companies that have little expertise with POS data analysis. Small suppliers often spend thousands of dollars on training. New suppliers need to be trained to use the system effectively. A Retail Link user group was also formed to support Retail Link users. Furthermore, reaching the replenishment managers at Walmart can be challenging for suppliers. The reordering system, though automated, does not run perfectly, and each Walmart replenishment manager is responsible on average for 75 suppliers and 700 products. Hence, when the process goes wrong, suppliers can have a hard time reaching their Walmart contact to get the ordering back on track.

Yet the opportunities offered by Retail Link and the future GRS are enticing. Small, lean, but technologically savvy companies can gain access to the 200 million customers who traipse through the aisles of the one-stop retail giant weekly.

Outline a strategy that could be used by Walmart to encourage vendors to not just accept the new GRS system and processes but to embrace them. What will it take to implement these measures?