Wal-Mart – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Wal-Mart’s “Checkout Promise” to Speed Queues

Wal-Mart's "check-out promise" aims to alleviate chronic long lines — Wal-Mart’s “check-out promise” aims to alleviate chronic long lines

My mother-in-law recently commented that she won’t shop at Wal-Mart anymore, primarily because the checkout lines are too long. It turns out she is not alone. The Wall Street Journal (Aug.15, 2014) writes that “to lure more customers this holiday season, Wal-Mart is promising to staff each of its cash registers from the day after Thanksgiving through Christmas during peak shopping times.” The move, called the “checkout promise,” is aimed at addressing my mother-in-law’s very complaint.

“Taking the possibility of waiting in long lines off the table will attract more people into stores,” says the chief merchandising officer. The move comes as Wal-Mart has struggled to win back U.S. shoppers after 7 straight quarters of falling traffic. Many customers have ditched the chain in favor of quicker trips to smaller rivals. The company also has battled with complaints about too many out of stock items and empty shelves. Refilling shelves alone could bring back $3 billion in sales.

Wal-Mart’s supercenters typically have about 30 traditional checkout lanes—giving it more than 100,000 across the U.S.—but the number that are staffed varies throughout the day. It has made aggressive use of technology to cut back on labor costs and more precisely schedule checkout lanes based on real-time demand. But the drop in traffic and customer complaints have forced it to reassess the economics of that approach. After increasing the number of self-checkout systems across its 4,000 U.S. stores, longer lines began forming at its staffed checkouts to deal with customers with more complicated and time-consuming transactions, such as shoppers who use coupons.

The company also recently nixed “Scan & Go,” a program which allowed shoppers to use their mobile phones to scan items as they walked through stores and pay at self-service kiosks, skipping the cashiers’ lines. Wal-Mart said the process was too complicated for customers.

Classroom discussion questions:

1. How has technology complicated Wal-Mart’s queues?

2. What other approaches could the company try to speed up lines?

OM in the News : Wal-Mart’s Green Initiative

In our new chapter, called Sustainability in the Supply Chain, we note Wal-Mart’s role in developing a sustainable product index. A leader in making its operations more environmentally sound, Wal-Mart’s impact on global supply chains is the topic of an interview in The Wall Street Journal (April 9, 2014). Here is what CEO Michael Duke has to say:

It’s not about a corporate team. It’s about getting 2 million people who work for Wal-Mart excited all over the world about sustainability. But also our partners that we work together with. How do we create a company that has zero waste? But we’ve established a goal to reduce energy consumption. We want to have a reduction of 20% of energy consumption, kilowatt-hours per square foot.

This past year, we established something for our merchandising. It relates to the sustainability index, which lets us measure the products that we sell related to sustainability, from the footprint all the way through to the consumption and the full life cycle of the product. It causes the merchants then to look at everything that we sell and say, “How do we improve the index?

Working with our suppliers, we went to more concentrated, taking water out of liquid laundry detergent. So the liquid detergent that was this big of a bottle became [a smaller] bottle, but did just as many laundry loads. Recently, we’ve worked with Clorox, and now bleach is that way.

We’ve had a big initiative in other countries to try to raise the bar with factories on how product is manufactured. We kicked off with several hundred suppliers in China to increase energy efficiency, create more sustainable production practices throughout China. We kicked off this past year a big initiative on product made in the U.S. With rising cost of energy and moving product all over the world, it makes more sense in the long-term for more product to be made closer to the consumer.

Classroom discussion questions:

1. Why has the firm made this “green initiative”?

2. What is the sustainability index?

OM in the News: Wal-Mart Ramps Up Global E-Commerce

A worker at Wal-Mart's "dark store" in Mexico City — A worker at Wal-Mart’s “dark store” in Mexico City

Wal-Mart says it has cracked the code for speedy, same-day grocery delivery—in Mexico. As retailers like Wal-Mart and Amazon.com rush to expand home delivery in the U.S. to groceries, the retail giant is looking across the border for help: Its high-end Mexican grocery chain, Superama, already delivers groceries in as little as 3 hours.

Wal-Mart has ramped up its global e-commerce operations over the past few years, writes The Wall Street Journal (Feb. 19, 2014), in hopes of catching up to online rival Amazon.com. The company vowed to match Amazon’s service offerings within 2 years. Currently, only about 2% of Wal-Mart’s sales come from the Web.

The company has been testing home-grocery delivery in Colorado and California, but it hasn’t announced a timeline for taking the service nationwide. It is also experimenting with grocery delivery in such cities as Buenos Aires and Santiago, Chile. Wal-Mart says it is “committed to being the online global leader in grocery delivery.”

Mexico provides $27 billion in sales and contributes 6% of the company’s global sales. Superama helped Wal-Mart achieve a 92% market share in the home delivery of groceries in Mexico. A fifth of its grocery orders arrive via mobile-phone apps, computers and tablets. The service is strongest in Mexico City, where much of Mexico’s wealth is concentrated. The capital’s snarled traffic and cramped grocery stores make delivery from Superama appealing for the well-to-do.

The majority of the grocery deliveries in Mexico come from supermarkets that are open to the public. But in the future, Wal-Mart de México plans to deploy more “dark stores”— spaces used exclusively to fulfill online orders. Such “closed” stores are more efficient: Wal-Mart’s inaugural dark store in Mexico City handles the same volume of orders as 5 stores open to the public.

Classroom discussion questions:
1. Why is Wal-Mart pursuing this global strategy?
2. What has happened to previous firms who entered the on-line grocery business in the US?

OM in the News: Wal-Mart vs. Amazon Logistics

This Wal-Mart hub sends supplies out to physical stores

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?

OM in the News: Wal-Mart’s Disappearing Inventory

Margaret Hancock has long considered the local Wal-Mart superstore her 1-stop shopping destination, writes BusinessWeek (April 1-7, 2013). No longer. During recent visits, the Delaware accountant says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics. The cosmetics section “looked like someone raided it,” said Hancock. “If it’s not on the shelf, I can’t buy it.”

Tim White, a California attorney, added that while long checkout lines irritated him, “the number-one reason we gave up on Wal-Mart was its prolonged, horrible, maddening inability to keep items in stock. The store would go weeks without products he wanted to buy, such as men’s dress shirts, which he found only in very large or small sizes and unpopular colors.”

It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves. In the past 5 years, the retailer added 455 U.S. stores, a 13% increase, but its employee count dropped by about 20,000, or 1.4% to 1.4 million workers. A thinly spread workforce has other consequences: longer check-out lines, less help for shoppers and more disorganized stores. Last month, Wal-Mart placed last in the American Customer Satisfaction Index, the sixth year in a row the company had taken the last spot–and Bloomberg News reported that the company was “getting worse” at stocking shelves. Retailers consider labor — usually their largest controllable expense — an easy cost-cutting target. But eventually, customer service and customer satisfaction deteriorate.

Years ago, Wal-Mart supervisors drilled a message into employees’ heads: “In the door and to the floor.” That mantra now seems impossible to execute as the firm has become entangled in what one expert calls a “vicious cycle” of under-staffing. Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets.

Discussion questions:

1. Why can’t Wal-Mart keep its shelves fully stocked?

2. What suggestions do you have for dealing with this OM problem?

OM in the News: Wal-Mart Checks Out Mobile Checkout

How can operations management play a role in cost savings at Wal-Mart? Check out this quote from The Wall Street Journal (Sept.1-2, 2012): “The company says it spends $12 million per second on cashiers’ wages in the U.S.” At $12 million per second, it is no wonder that Wal-Mart is testing a checkout system that allows shoppers to use their mobile phones to scan items as they walk through stores and pay at self-service kiosks, skipping the cashiers’ lines.

Called “Scan and Go,” the mobile-payment app is the latest attempt by the Wal-Mart OM group to reduce long checkout lines. The system does not yet allow customers to pay with their mobile device, but is meant to make scanning easier for them. Wal-Mart also just announced plans to add more self-checkout lanes, as only 1,600 of the 4,500 Wal-Mart and Sam’s Club stores in the U.S. include this option.

Retailers have been using self-checkout for more than a decade to try to reduce labor costs and speed up transactions, but not all chains have been happy with their experiences. Companies like grocery chain Albertsons and housewares giant IKEA are actually eliminating self-checkout, citing lost revenue, theft, and lack of interaction with customers. Many shoppers also complain the self-service systems are balky.

The scanning idea could serve as a loyalty program for Wal-Mart, which does not issue discount cards to customers in exchange for the ability to collect data on their shopping habits. Scanning will allow the firm to collect data on what customers buy and how long they spend in stores–and to send shoppers coupons for competitive products in real-time as they scan items. “If you scan peanut butter and immediately a $2-off coupon pops up to buy a competing brand, Wal-Mart can change customer’s behaviors right there in the aisle,” says an industry consultant.

Discussion questions:

1. What are the advantages of mobile scanning/checkout?

2. Why are self-checkouts not universal?

OM in the News: Is Wal-Mart’s Sustainability Index Sustainable?

Two years ago, Wal-Mart CEO Mike Duke dropped a bomb on the retailing world when he announced that his firm would be creating a “sustainability index” to measure the environmental and social impact of every product sold in its stores. Wal-Mart had not suddenly turned green (see our blog of May 17, 2011 )–it turns out that a vast amount of money is to be made by reducing energy and waste up and down the supply chain. Duke’s message suppliers was clear: “Treat the planet well and get prime access to its 200 million customers each week; pollute and despoil, and you will be shunned”.

But as Fortune (July 25, 2011) reports, Wal- Mart had no idea how hard the job of creating the index would be. Five million dollars into the project, it has only examined 7 products closely so far. The trouble with a scoring system (and others have tried it), is that in the end consumption is about trade-offs. How much phosphate was used to make a laundry detergent? How much waste was generated by the zipper factory in China? Is soil erosion less important than carbon emissions? A company may get high marks for recyclable packaging, but Stonyfield reduced its carbon footprint by switching to yogurt cups that aren’t recycled. (Cups made from plants, it turns out, generate fewer greenhouse gasses than recycled plastic ones). And Patagonia’s switch to organic cotton for jeans (from synthetic fabrics) now requires 1,200 gallons of water to manufacture a single pair!

Many companies in the developing world don’t even recognize the words “corporate sustainability policy”. Hank Paulson says he asked the manager of a Chinese factory about the belching smoke pouring out of his plant. The response: “See those two camels and a goat? When they fall over from pollution, we turn off the factory”.

Discussion questions:

1. Why is the index so hard to create?

2. Name some products with trade-offs that would impact their score.

OM in the News: Wal-Mart Under Pressure to Monitor its Global Suppliers’ Treatment of Workers

The New York Times (May 31, 2011) reports today that Wal-Mart will be facing pressure, at the company’s annual meeting in 3 days, to monitor and disclose how its global suppliers treat their workers. The New York City pension fund, which owns shares in the company, plans to ask Wal-Mart to require vendors to document working conditions in their factories. “They put tremendous pressure on their suppliers to cut money out of the system”, says a fund exec, instead of improving workplace safety and worker rights.

A Bangladeshi labor organizer complained that many of the factories in her country that make goods for Wal-Mart mistreat their workers. “Very often, first of all, the factory does not enforce the law regarding minimum wages. We haven’t seen any Wal-Mart suppliers give a living wage to workers”, she said. The pension fund proposal asks for yearly reports that include measurements of performance on workplace safety and human rights, using international standards.

Wal-Mart opposes the request, saying it is too hard to get suppliers to issue reports. This might threaten the availability of products from companies that do not comply. Wal-Mart’s spokesman adds, “We expect our suppliers to meet or exceed these (workplace) standards. A supplier’s failure… may jeopardize that supplier’s continued business relationship with Wal-Mart”.

Ironically, in the environmental field, Wal-Mart has successfully become a world leader in creating metrics for reducing packaging and for sustainability across the whole 100,000 member supply chain (see our blog last week on the topic). But the topic of human rights is a separate issue.

Discussion questions:

1. Why does Wal-Mart oppose reporting on human rights issues such as this?

2. How does this compare with the company’s drive towards sustainability?

Good OM Reading: The Unlikely Story of Wal-Mart’s Green Revolution

It was clear that Wal-Mart was taking a leadership stand in sustainability when we wrote the Supplement 5 case study Environmental Sustainability at Wal-Mart 2 years ago. However, an excellent book called Force of Nature: The Unlikely Story of Wal-Mart’s Green Revolution, by Edward Humes (Harper Business, 265 pages), has just been published that will bring the case alive to your students. If you are to read one book on the company that is leading this unlikely second industrial revolution, this would be it.

That’s because Wal-Mart, long the target of environmentalists who hate its big-box footprint, and others who feel it has destroyed small town businesses by the 1,000’s, has created nothing less than a green revolution. And as we see in Force of Nature, it is spreading this unprecedented makeover worldwide. But the real story behind the changes at one of the world’s least earth-friendly companies is when river-guide turned consultant, Jib Ellison, enters CEO Lee Scott’s office.

Ellison singlehandedly persuades Scott that sustainability isn’t just for tree huggers–that it really meant eliminating waste and saving money. Hitting Wal-Mart at just the right moment, when it was plagued by bad PR and a slew of lawsuits, Ellison convinced the firm’s execs that building sustainability into the business would create a powerful competitive edge. Wal-Mart did not embark, as the author says, on this course out of a sense of doing-good, but started with the attitude that it would give a PR boost…and also be profitable. It also was meant to appeal to a new generation of female shoppers who would leave for Target if Wal-Mart did not embrace sustainability.

Just a few of the recent changes: reducing packaging sizes (saving $3.4 billion a year while reducing trash), installing electric generators in refrigerated trucks (so they don’t have to idle overnight), donating 127 million pounds of food (that would otherwise be destroyed) to food banks, cutting printouts at stores (and saving 350 million pieces of paper and $20 million), making organic, earth-friendly, and natural products widely available, and forcing 100,000 manufacturers who supply products Wal-Mart sells to become more sustainable!

OM in the News: Wal-Mart’s Drive to Squeeze the Supply Chain

Wal-Mart trying to squeeze more out of its supply chain? Not exactly shocking news, but here is a new twist in BusinessWeek (Oct. 7, 2010). With the title VP for International Purchase Leverage (I don’t think I have heard that one before), Hernan Muntaner is convinced he can get even better deals from suppliers by consolidating Wal-Mart’s purchases with its current partners. For example, Muntaner wants to buy potatoes jointly with Pepsi’s Frito-Lay, so that both can get lower prices.

Although Pepsi doesn’t seem interested so far, and may indeed be more sophisticated than Wal-Mart in procuring raw materials like potatoes, Muntaner has already signed on a sugar supplier in England and a paper supplier in Chile. “We can do this with anything that is sold”, he says.

Collaborative sourcing, as Wal-Mart calls it, is detailed in a book by that title by Michael Philippart, Christian Verstraete, and Serge Wynen.

Discussion questions:

1. Why might suppliers be wary of the new Wal-Mart push?

2. Look at the Ethical Dilemma in Ch.11 that compares Wal-Mart to Sears. Does this purchasing concept tie in to the ethical issue?