Few have done better than Wal-Mart when it comes to retail logistics—the art of ordering, transporting, stocking and tracking merchandise, writes The Wall Street Journal (June 19, 2013). Wal-Mart pioneered a sophisticated hub-and-spoke distribution network which uses warehouses to service stores less than a day’s truck drive away so it could remove middlemen, quickly replenish shelves and reduce costs. At its distribution centers, scanning technology tracks merchandise as it flows at 6 miles per hour on 12 miles of conveyor belts onto trucks. Some items spend less than 45 minutes in warehouses.
Supply trucks crisscross the country and arrive daily at Wal-Mart’s more than 4,000 U.S. stores. Shipments are based on real-time data of shopper purchases, transmitted by the second as employees scan items at store checkouts. But with its e-commerce operations, which began in the late 1990s, Wal-Mart has been less exacting, instead relying on makeshift spaces carved out of store-serving warehouses and third-party operators to handle the load. Electronics ordered from Walmart.com are often delivered by companies like Ingram Micro which transport Apple tablets or Samsung phones to shoppers without ever going through Wal-Mart’s warehouses.
By contrast, Amazon has spent 15 years building its e-commerce network, with more than 40 U.S. warehouses within 35 miles of major cities. “As Amazon’s bets on infrastructure pay off, it can sell products at lower costs and puts even more pressure on other retailers,” says one industry expert. Wal-Mart now plans to spend roughly $430 million this year on e-commerce investments, including a logistics system tailored for Web orders. It is building distribution centers, but also will use stores as mini distribution centers. While logistics costs account for 3% of the price of an average “shopping basket” in stores, they make up 15% of the price of online orders.
Discussion questions:
1. What is Amazon’s logistics advantage?
2. How did Wal-Mart stumble in the move to electronic shopping?
It seems that, at least in my experience, regular Walmart doesn’t seem to talk to e-Walmart. I hope that the company is looking at having the two systems work together, rather than creating an entirely separate system for it e-business. My Ph.D. student, Jon Jackson, relays a story of what can happen when the two systems don’t talk to each other:
“I recently tried to purchase a video game (FIFA 13) through the local Pullman, Washington, Walmart only to find that it was out of stock. I then thought I would try the online-to-store purchasing option on Wal-Mart.com. I bought the game online with the assumption that I would receive one of the games in the next shipment from the local distribution center (DC). I had been to the local DC (in Oregon) and knew that a truck comes to the local store every day.I bought the game using this option and felt that my game could only be a few days away.
I waited, and I waited, but still no email notification. I decided to call the local Pullman Wal-Mart and ask if they had any FIFA 13 games in stock. The helpful attendant said yes they had 5-6 copies. Now I am thinking, ‘Why in the world have I not been notified?!??!’ Needless to say, I went down to the store and bought the game off the shelf (for the same price that I paid online) and went home that evening and began playing.
Three or four days later I got my notification email. Being the curious Operations Management graduate student I went down to the store to see what kind of wacko system they used to fill online back orders that could easily be filled with in-store inventory (i.e. the game was available in both channels). I found out that my game was shipped BY ITSELF in what looked like a UPS packaging from CINCINNATI! I informed the attendant of my experience and all he could muster was, ‘Does that mean you would like to return this copy?’ Needless to say the answer was yes, and I haven’t used their online to store option since…”
The obvious question from Jon’s experience is, “Why couldn’t his online order be filled from local store inventory?” The consumer got his product, but during the process Walmart wasted a lot of money. Even if Jon had not purchased the product locally, it still appears to be much more expensive to single-ship a product across country than to fill the order via the regular (and typically speedy) distribution system.
Thanks for a great comment, Chuck. Jon’s experience tells a very good story and indicates how far Wal-Mart has to go.
Amazon continues to be the industry leader and the benchmark against which all logistics are judged. I just returned from a Material Handling Institute meeting where one attendee asserted that Amazon’s average per order fulfillment cost was less than $4 (handling plus shipping). Amazon is growing by leaps and bounds, building more distribution centers around North American to shorten the “last mile” delivery distance to their customers.
I also heard that Amazon’s next target is same-day fulfillment. That is, order by noon, receive by night. As long as Amazon stays efficient, it will be near impossible to compete with its economies of scale.