Remember the Titans: Lessons in supply chain management from Walmart founder Sam Walton

by Anant Gupta

The world’s largest retailer has incorporated technology at the core of its supply chain operation to outrun the competition in the retail industry.

Walton’s legacy lives on in the Walmart chain

Be it any part of America, you are sure to cross a Walmart store whenever you drive more than five miles. You are certain to purchase a product at its best price at that Walmart store. And nowadays, if you plan to buy groceries online, Walmart will carefully select the freshest stock and even load it in your car, whenever you choose to arrive. Such customer perks from shopping at Walmart are not incidental. They have been crafted deliberately, with great care and thought, by none other than the founder of Walmart—Sam Walton.

Mr. Sam’s journey into retailing

Samuel Moore Walton, the founder of WalMart. Credits: Success Story

Rough, determined and enterprising–these terms would sum up Sam Walton alright.

Born in Arkansas, Sam was always a star achiever. His first success in high school came in eighth grade, when Sam was elected the youngest Boy Scout in history. After high school, he went on to study at the University of Missouri. Though later he wished to pursue management from Harvard, lack of funds pushed him into working at J.C Penney as a management trainee.

Walton distinguished himself from his peers through his love for serving customers and delighting them through his services. Determined to serve customers in that fashion, Walton decided to open his own store. In 1945 with a $25,000 loan from his father-in-law, Walton opened his first store—a Ben Franklin art & craft supplies store in Newport, Ark.

By the early ’60s, Walton and his brother, James, owned 15 Ben Franklin franchises.

The foundation of Walmart – a revolution in retail industry

K-Mart and Walmart started out around the same time in 1962. While Kmart’s strategy was to target the entire US by opening stores in scattered locations, Walmart chose to open new stores through a different route. Their first Walmart store opened in Rogers, Arkansas – a sleepy town with a population of around 10,000. After their first store’s spectacular success, Walton could well have been tempted to try out more dense, fancier locations. However, Walton decided to open a new store close to the first one at Harrison, Arkansas which was just 50 miles away. All other openings after that were also within the same radius of a new store. It was only after Walton had opened more than 20 stores did Walmart land up in another state.

Supply Chain Lesson #1: Spread your network inside out, not the other way round

Walton’s unusual strategy of continuously opening stores within close distance of each other, especially in rural states such as Arkansas was based on sound business strategy. The store locations were planned so that Walmart’s main distribution centre (DC) would be at the heart of each store. This helped Walton to keep the same distribution centre for each store, compared to other retailers, where each store was more than 200 miles from the DC. Walton capitalized by drastically cutting down transit time from the DC to a Walmart store, thus ensuring the items on the shelves were replenished quickly.

Supply Chain Lesson #2: Predict the demand correctly to stock the optimum inventory

Walmart’s signature ‘Everyday Low Prices’ combined customer-centricity with business acumen. While customers all over the world were assured of discounted everyday items, a move unprecedented in those times, Walton also had an ace up his sleeve. By avoiding sales during festive occasions and national holidays, Walmart remained unaffected by huge spikes in demand during those periods. Consequently, inventory planning was not thrown into chaos, and the demand for goods could be predicted by analysing the buying patterns of the local residents over a period of time.

Supply Chain Lesson #3: Embrace technology to improve efficiency

Radio Frequency ID (RFID) codes on tags. Walmart got there first. The implementation of this technology has aided Walmart in maintaining the position of low cost leader in the retail industry. RFID is able to allow Walmart to access information that can uniquely identify products. For instance, exact specification of a certain package along with other information like where and when the product was made, its current location and status during production. This helps Walmart to centrally track all products through their lifecycle, right from when they are manufactured to the time they reach a Walmart store. When a product arrives at its docking center, all divisions in the supply chain are alerted. If a product is being bought off the shelves very fast, the manufacturers would be alerted to increase production.

Universal Product Code to uniquely identify every item and its lifecycle. Walmart pioneered that. Digital network of all Walmart stores to share sales data, stock requirements and total footfall – no prizes for guessing who implemented that first.

Always on top to adopt technology and integrate it with their supply chain practices, Walmart achieved efficiencies unheard of in the retail industry. In 1989, Wal-Mart was named Retailer of the Decade, with distribution costs estimated at a mere 1.7% of its cost of sales – far superior to competitors like Kmart (3.5%) and Sears (5%). The integration of technology at the core of Walmart’s supply chain is a major factor for Walmart bringing down expenses to never-before-heard levels.

Supply Chain Lesson #4: Want some space? Make your warehouse your Walmart store

Walmart’s iconic big-box store doubles up as a warehouse to store large amounts of inventory. Not only does it ensure a variety of products on offer, it eliminates any delay in transferring a product from the warehouse to the store shelf (assuming the product to be present in the warehouse).

Supply Chain Lesson #5: Make vendors your partners

Walton maintained a great relationship with customers, employees and vendors alike. Part of his success can be attributed to his inclusiveness and giving complete autonomy to different people over operations. One such move was the vendor-managed inventory model. In this model, suppliers have access to data from Walmart’s information system, such as data on current inventory levels and the rate at which certain goods are sold. This enables the vendors to decide when to send additional goods to Walmart, while the company centrally monitors and control the actual transit of goods.

The benefit of vendor-managed inventory model is twofold. First, it enables the supplier to get an update about the quantity and consumption of goods in real time. This allows the vendor to replenish fast-selling goods almost instantaneously. Not only the vendors, but Walmart saves on the expense it would incur if they had to assign a personnel to monitor inventory and report shortages. By transferring power to the hands of the vendor, Walmart has freed up its personnel to focus on other divisions of the supply chain.

How these practices propelled Walmart to market leadership

Through consistency and integration of advanced technology, Walmart has taken giant strides and emerged as the leader of the retail industry. The supply chain innovation has been critical for Walmart to call itself the largest retailer in the world, have the largest sales revenue exceeding $500 billion (figures for FY ’18), employ over 2.3 million associates worldwide & operate in over 25 countries with 11,500+ stores. However Walmart’s real success has been the way it has always believed in selling customers products at the lowest prices. That’s where both Walmart and the customer have struck a goldmine, and made the world a more affordable place to live in.

Remember the Titans is a weekly ode to the inventors, geniuses, and business pioneers who left the world better than they got it. Check out stories of other Titans here.

---