Case Analysis: Supply Chain Management at Wal-Mart

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CASE ANALYSIS: SUPPLY CHAIN MANAGEMENT AT WAL-MART

INTRODUCTION
Wal-mart Stores Inc was the world’s largest retailer and was started by Sam Walton in 1962 who named it as “Wal-Mart Discount City”. However before Wal-mart; Sam Walton owned a number of Ben Franklin Store Chains. Due to this prior experience of owning smaller variety stores and dealing with its franchised supply chain, he learnt various business concepts and also was able to selectively purchase merchandise in bulk from new suppliers and then transport these goods to his stores directly. And then he realized a new trend of discount retailing which was based on driving high volumes of product through low cost retail outlets. He also started a new concept of “Everyday Low Price” (EDLP) strategy which meant that the products were displayed at a steady price and not discounted on a regular basis due to which the demand was smoothed and also Wal-mart did not need to advertise as frequently as the competitors and hence helped in price reductions. In year 2005, the net sales of Wal-mart was 285.222 billion U.S dollars which was 7.7% of total retail sales in U.S that was 3.7 trillion U.S dollars

CHANGES IN SALES AND INVENTORY

(Figures in US$ mn)| 2000| 2001| 2002| 2003| 2004| 2005| 2006| Net Sales| 1,56,249| 1,80,787| 2,04,011| 2,29,616| 2,56,329| 2,85,222| 3,12,427| Growth % (Y-O-Y)| -| 15.70%| 12.85%| 12.55%| 11.63%| 11.27%| 9.54%| Inventories| 19,296| 20,987| 22,053| 24,401| 26,612| 29,762| 32,191| Growth % (Y-O-Y)| -| 8.76%| 5.08%| 10.65%| 9.06%| 11.84%| 8.16%|

From the year 2000 to 2006 net sales have increased 99.95%. In 2001 to 2002 inventory levels grew at only 5.53% and then more than doubled to an increase of 10.65 % in between 2002 and 2003.

(Figures in US$ mn)| 2000| 2001| 2002| 2003| 2004| 2005| 2006| Gross profit (in millions)| 34,424| 40,067| 44,914| 51,317| 57,582| 65,429| 72,036| Gross profit return on Inventory | 178.4| 190.91| 203.66| 210.31| 216.38| 219.84| 223.78| % of Increase from 2000| N/A | 7.01%| 14.16%| 17.89%| 21.29%| 23.23%| 25.44%|

Company| Segment| Sales| COGS| Gross Profit| Inventory| Gross profit as return on inventory| Albertsons Inc. | Grocery| 40,358| 29,038| 11,320| 3,036| 372.86| Costco Wholesale Corp. | Wholesale| 52,935| 46,347| 6,588| 4,015| 164.08| Federated Department Stores| Department| 22,390| 13,272| 9,118| 5,459| 167.03| Gap Inc. | Clothing| 16,023| 10,154| 5,869| 1,696| 346.05| Kroger Co. | Grocery| 60,553| 45,565| 14,988| 4,886| 306.75| Sears Holdings Corp.| General Merchandise| 49,124| 35,505| 13,619| 9,068| 150.19| Safeway Inc. | Grocery| 38,416| 27,303| 11,113| 2,766| 401.77| Target Corp.| General Merchandise and Grocery| 52,620| 34,927| 17,693| 5,838| 303.07| Wal-Mart Stores | General Merchandise and Grocery| 3,12,427| 2,40,391| 72,036| 32,191| 223.78|

Gross profit Wal-Mart is four times the amount of its closest competitor Target. We can see that Wal-Mart is far superior to its competitors in this category. Gross profit return on inventory depicts the firm's ability to turn inventory into cash above the cost of the inventory which is 223.78 % for Wal-mart

CATEGORY WISE SALES IN U.S

Category| 2005 cumm (US $ bn)| Percentage| 2006 sales (US $ bn)| | | | |
General Mechandise Stores| 525.7| 18.38%| 57.41|
Food and Beverages| 519.3| 18.15%| 56.71|
Food services and drinking places| 396.6| 13.86%| 43.31| Gasoline| 388.3| 13.57%| 42.41|
Building materials and gardening equipment| 327| 11.43%| 35.71| Furniture, Home furnishings, electronics| 211.7| 7.40%| 23.12| Health and Personal Care| 208.4| 7.29%| 22.76|
Clothing and clothing accessories| 201.7| 7.05%| 22.03| Sporting goods, hobby, books, music| 81.9| 2.86%| 8.94| TOTAL| 2860.6| 100.00%| 312.4|

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