Tuesday, February 4, 2014

Walmart: technology and inventory.

Theme of the week of our Supply Chain Management course is “Inventory.” Inventory management is a crucial step for the entire SC of a company. Its goal is to fulfil suitable levels of customer service while keeping inventory costs within reasonable boundaries.

Focusing on the inventory, Walmart has been able to stand out among similar stores, becoming “the world’s largest and arguably most powerful retailer with the highest sales per square foot, inventory turnover, and operating profit of any discount retailer (see here).”

A considerable percentage of its success is based on technology, starting back in 1975, with the first utilization of an electronic cash register, which was able to keep track of each purchase, providing a constant update of the inventory. In 1983 came the bar code for scanning POS (point-of-sale) data. After almost 20 years, RFID (radio frequency identification) technology literally revolutionized Walmart’s inventory management.

Let’s start with the introduction of bar codes. With the utilization of barcodes, Walmart was able to track “what is being sold … [and] what prices are popular” (see here) obtaining competitive advantage and leverage over its suppliers. As pointed out in the article mentioned above, Walmart’s strategy was quite powerful: 'We want to sell this at a certain price. You make it at a certain price, or we're not going to work with you.' This approach affected Walmart’s SC in two ways: it allowed them to buy products at a lower price and to revise the inventory based on customers’ demand (stocking up on products loved by customers while reducing the not-so-loved ones).

Then, in the early 2000s, RFID technology burst into the scene and immediately had a strong effect on Walmart’s inventory management. The technology was able to identify and track any object, transferring its information from the tag directly to the biggest and most powerful computer in the world involved in inventory management. In this way, there was a substantial  cut of “the volume of excess inventory in Walmart’s massive supply chain,” “by almost one-third,” according to this article, thus decreasing the inventory costs. 
What other technology will Walmart embrace in the next future in order to maximize the result of its SC? Walmart knows the products that its customers buy now, so it might focus on what its customers would like to buy tomorrow.


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