Apr 27, 2021

Walmart’s Massive Investment In A Supply Chain Transformation

This article was originally published on Forbes.

Walmart WMT +0.2% has been very open about what it takes to better compete with Amazon AMZN +1%. Following their fourth quarter results, top executives talked about their supply chain and omnichannel strategy at a high level. Bruce Biggs, an executive vice president at Walmart, summarized the investments by saying the retailer is spending on increased fulfillment capacity, supply chain, automation, and technology. This new infrastructure will allow the retailer to expand ecommerce assortment while reducing both shipping time and cost. Walmart is making investments in warehouse automation in distribution centers to deliver aisle and department-ready pallets to stores. Walmart is also investing pickup and delivery capacity.

On March 21st, David Guggina – the senior vice president supply chain, product, and engineering –  filled in more detail on the specifics of their supply chain journey while speaking at Blue Yonder’s virtual Icon user conference. Blue Yonder is a leading provider of supply chain software solutions including several solutions that will be mentioned in this article – demand management, inventory optimization, replenishment, warehouse management, warehouse control systems, yard management, and transportation management. 

Walmart’s fiscal 2021 ended on January 31st. With $555 billion in sales, the world’s largest retailer grew by 6.8%. Walmart’s operating income was $22.5 billion, 4.1% of sales.

Amazon is smaller. Amazon’s fiscal year ended on December 31st. The company had $341 billion in retail revenues. Amazon is less profitable. Retail operations had an operating income of $9.4 billion, just 2.8% of sales. But with 38% year over year growth, they are growing much faster than Walmart. If this continues, it will not be too many years before Amazon is the world’s largest retailer. 

Around the world, ecommerce is growing much faster than in-store sales. Walmart knows this. Brick and mortar retailers that do not have a strategy to grow sales based on an omnichannel strategy are going out of business with an increasing frequency. Walmart has been working to pivot to omnichannel for several years to help speed growth. For Walmart, “omnichannel” is defined as a customer-centric experience that seamlessly integrates ecommerce and retail stores into an offering that saves time for consumer.

Walmart’s U.S. ecommerce sales contributed approximately 5.4% of comparable sales last year. Walmart defines ecommerce sales as those that originate online but which be fulfilled by either dedicated ecommerce fulfillment sites or by leveraging their stores. The store omnichannel services include pickup at store, ship from store, and digital pharmacy fulfillment options. The company has 7,300 pickup and 5,200 delivery locations globally. 

The US is where Walmart’s digital transformation is centered. Walmart’s investment in ecommerce, supply chain, and technology in the US was over $11 billion over the last two years. For retailers, remodeling stores and building new stores is usually where most of the capital has historically been spent. At Walmart, their digital transformation – spending on ecommerce and supply chain technologies, combined with new investments in supply chain infrastructure – represented 72% of their strategic capital expenditure in the US for their 2020 and 2021 fiscal years. 

Mr. Guggina talked about how Walmart is approaching their supply chain transformation. “For many of our customers, saving time is as important as saving money.” That has led to growth in ecommerce. But Walmart will not abandon their strategy of being a low-cost provider – what the company calls “everyday low prices.” Low prices translate into having a focus on cutting costs; this in turn means having an efficient supply chain. 

But there is tension between price leadership and service. In a store, customers have access to 100 to 150,000 stock keeping units (SKUs). But when a consumer goes online, they can access hundreds of millions of items. But there is a challenge around slow selling items. Where should slow movers be held so that orders can be fulfilled both economically and with speed. 

Delivering many items ordered online quickly depends upon shorter lead times and the ability to support a variety of fulfillment options such as curbside pickup or ship from store. Distribution centers that traditionally just replenished a given set of stores will be increasingly asked to also fulfill ecommerce orders. Mid-mile and last mile transportation capabilities need to be improved. “That is a steep ask for any supply chain,” Mr. Guggina stated. 

This is where Walmart seeks more “precision.” The use of demand management, inventory optimization, and replenishment applications can help this retail behemoth achieve much better inventory placement and fulfillment flexibility. Investing in supply chain applications also, Mr. Guggina asserts, helps them with their “relentless cost focus.” 

The pandemic created a challenging year for their supply chain. “I’m glad we had our leadership and strategy in place,” Mr. Guffina said. “The pandemic propelled our omni strategy ahead by 3 to 5 years.” Pick up at store and home deliveries grew quickly because of the pandemic. 

So besides forecasting, inventory optimization, and replenishment, how are those billions of dollars being spent in the supply chain area? 

Walmart is reducing packaging waste by right sizing packaging; for some products packaging might not be required at all. This initiative requires capturing product dimensions and other product attributes with higher accuracy. The packaging algorithms do not work if this data is not up to date. 

In their distribution centers, Walmart is modernizing their warehouse management system (WMS). The system, which will launch later this year, will have better labor planning, as well as providing better inventory control. 

Walmart is making extensive investments in warehouse automation. The company has deployed autonomous mobile robots for moving pallets. The retailer is also investing in the use of automation for picking/putting to and from containers. There are large investments in sortation equipment; sortation systems automatically sort products down the correct shute as they move through a warehouse on a conveyor. When it comes to these projects, warehouse control systems are used to interconnect the automation assets – the hardware – with the warehouse management system software.

Investment is being made in a highly automated warehousing solution from Witron surrounding produce. Vegetables and fruits will be able to be delivered more quickly and cheaply as a result. 

In transportation, Walmart is engaged in numerous projects. The company is doing a proof of concept to see if trucks can move about autonomously in their yards. The autonomous trucks will need to be integrated to an improved yard management system for this. That will lead to better flow in their yards. 

There are experiments with over the road autonomous trucks. There is work being done to improve optimization associated with trucks moving inbound from suppliers to their distribution centers. There is also a project surrounding freight matching and freight pay. Not surprisingly, a command center visibility solution is being developed. 

There are also new tools and applications for the cab of a truck. Their 11,000 drivers will have new onboard computers. Last mile will be improved as stores increasingly become a starting point for consumer deliveries.   

“We are moving faster than ever, Mr. Guggina said. “We are partnering with Blue Yonder to help to continue to transform our supply chain.” Walmart has been known as a company that developed many of their applications in-house. “The days of buy versus build are over.” Walmart has shifted being a buyer of supply chain software. 

Over my 25-year career, I have heard executives from several supply chain software vendors say that Walmart was using their solution in some part of their operations. Unfortunately, they said, they were not allowed to publicly name Walmart as a customer. Having a Walmart executive give the keynote at the Blue Yonder user conference, and publicly name Blue Yonder as a key solution partner, is a noteworthy occurrence.

Image via Forbes

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