Walmart – Page 3 – The OM Blog by Heizer, Render, & Munson

OM in the News: Using Drones to Take Inventory at Walmart

drone work in classic warehouse 3d image — Drone working in a Walmart warehouse

Soon, the labyrinthine aisles at Walmart’s distribution centers — stocked high with canned beans, toys and many other products — could also have a low humming sound. The country’s largest retailer, reports Supply & Demand Chain Executive (June 6, 2016), is testing the use of flying drones to handle inventory at its large warehouses, which supply the thousands of Walmart stores throughout the nation. In 6-9 months, the machines may be used in its distribution centers.

At a recent demonstration, a drone moved up and down an aisle packed nearly to the ceiling with boxes, taking 30 images per second. Walmart’s VP of Emerging Sciences and Technology explained that the machines could help catalog in as little as a day what now takes employees about a month. Walmart workers now manually scan pallets of goods with hand-held scanning devices. The drone’s methodical, vertical movements would essentially mimic the path of a person in a forklift who might be inspecting labels and inventory. While a Walmart employee may handle the drone, the technology could mean fewer workers would be needed to take stock or replace missing items.

Walmart is under intense pressure to grow amid an onslaught of low-cost competition, particularly from Amazon. It has committed to spending $2.7 billion on labor and technology to improve its on-line business. Walmart operates 190 distribution centers in the U.S., and each one services 100-150 stores. Millions of items can move through the centers each week and onto a fleet that includes 6,500 trucks and 8,000 drivers to move merchandise throughout the U.S.

Classroom discussion questions:

Why are the drones a potentially important OM tool?
What is Amazon doing to automate its warehouses?

OM in the News: Walmart Promises to Buy American

“We are committed to American renewal,” writes Walmart, with the announcement that it will purchase an additional $50 billion in U.S. products by 2023 . The commitment means a cumulative increase in U.S. manufactured purchases of U.S. products of $250 billion. Items that are made, sourced or grown in American already account for about 2/3 of what Walmart spends to buy products for its U.S. stores.

Walmart says that 1 million new U.S. jobs will be created through this initiative, including direct manufacturing job growth of 250,000, and indirect job growth of 750,000 in the support and service sectors. “Purchasing products closer to the point of consumption enables procurement of the best price, highest quality products and the most reliable sourcing of goods,” adds the firm. The effort allows Walmart to respond to the customer faster, respond to seasonal demands, and mitigates risks such as currency and volatility in port delays. Sourcing U.S. goods improves in-stock rates and sales.

Walmart states that Made in USA is important to its customers for 3 reasons:
– Made in USA is a strong driver of purchase decisions – 2nd only to price
– 85% of women said it is important for a retailer to sell Made in USA products
– Products are perceived to have higher quality if U.S. manufactured

Our coauthor, Prof. Chuck Munson, notes: “The most interesting aspect about this to me is that when Sam Walton was there and I lived in Bentonville back in the 1980s, Walmart had a big “Buy America” program. They were very proud about how they helped local business thrive. Then it was abandoned as they starting sourcing so much from China. Now we see them move back in the other direction. As the biggest retailer, their demand can move the bar on U.S. manufacturing jobs. And they are recognizing once again that their customers (many of whom are manufacturing workers) care about this issue.”

Classroom discussion questions:

Why is sourcing in America advantageous to Walmart?
What has Walmart’s impact been on the sustainability movement in the U.S? (see Supp. 5)

OM in the News: How Walmart Brought About the Light Bulb Revolution

It was the 1990s, the era of Al Gore’s Inconvenient Truth, and consumers were dubious about the new CFLs light bulbs. Why did they cost so much more than incandescents? What was their quality? As a result, nearly three decades after being introduced in the U.S., CFLs were used in only about 6% of homes. In November 2006, Walmart nearly single-handedly changed that. Walmart’s then–CEO, H. Lee Scott Jr., announced an ambitious initiative: The company would sell 100 million CFLs by the end of the following year. These bulbs would save consumers $3 billion in electricity costs and cut U.S. power needs by the equivalent of 450,000 homes.

Lighting manufacturers balked, and Walmart’s critics leveled charges of “greenwashing,” writes Fast Company (Dec. 2015/Jan. 2016). But the retailer went all-in, redesigning displays, increasing selection, educating consumers, and launching an affordable private-label brand. The campaign worked: In 2007, it sold 162 million CFLs. Shipments of the bulbs surged across the U.S., surpassing 400 million. Walmart’s massive purchase of CFLs allowed it to dictate specs to its suppliers: It required Energy Star–rated bulbs that met strict performance standards and got manufacturers to reduce the amount of mercury in CFLs. Walmart’s actions also helped secure passage of the Energy Independence and Security Act of 2007, which ordered the phase out of inefficient incandescent bulbs by 2015.

In the second quarter of 2014, shipments of CFLs surpassed traditional incandescents for the first time. Prices dropped and quality rose. But most experts believe the future belongs to LED bulbs, which are even more efficient than CFLs—and increasingly affordable. Today, a CFL, LED, or next-generation incandescent fills 1 in 3 U.S. light sockets, helping to keep millions of tons of CO2 from entering the atmosphere. A case study of how a company can use its size for good.

Classroom discussion questions:
1. What was the genesis of Lee Scott’s decision? (See our blog of 2011 on the book about Scott).

2. Why was Walmart able to change people’s view?

OM in the News: Walmart’s Inventory Dilemma

At this N.Y. Walmart, the produce section is poorly stocked

The dairy section in the Walmart supercenter near Queens, N.Y., was sparsely stocked. Some gallon jugs of milk were dented, others soiled with what looked like dirt. The meat aisle had run out of ground beef patties and strip steak, and residue streaked some shelves. But the disarray and out-of-stock items at this store appear to be examples of wider inventory problems that Walmart is facing. Last month, the retailer issued a confidential “urgent agenda” memo to its 4,965 U.S. store managers pushing them to improve performance in their grocery departments to maximize the chance that items will sell before their expiration dates. The memo also urges managers to reduce backup inventory to trim costs, but warns them not to exceed weekly employee budgets for their stores.

The inventory problems often stem from Walmart’s failure to have enough employees in its stores to do the many chores needed, like marking down aging items, rotating milk or getting needed goods from the back room to stock shelves. “The fact that they don’t do some of these things every day, every shift, shows what a complete breakdown Walmart has in staffing and training,” says one industry expert (The New York Times, Nov.12, 2014). And a new investment report writes: “If its employees’ growth had kept up with square footage growth in the U.S. over a number of years, Walmart would have 200,000 more employees than its current 1.3 million.”

A visit to the back of the N.Y. store, as well as various YouTube videos shot by employees, point to great clutter and thousands of cases waiting to be put on shelves. A customer service manager at a Louisiana Walmart said, “Understaffing from the sales floor to the front end has greatly affected the store.” She said substantial staffing cuts began in 2010, and added that there used to be 5 customer service managers per shift, while now is there just one. “That,” she said, “sometimes causes long lines and customers having to wait 30 minutes.”

Classroom discussion questions:

1. Why has inventory control been a major OM issue for Walmart?

2. Is this really an inventory problem?

OM in the News: Walmart Toughens Supplier Policies

The Wall Street Journal (Jan.22, 2013) reports that Walmart is warning suppliers that it is adopting a “zero tolerance policy” for violations of its global sourcing standards, and plans to immediately sever ties with anyone who subcontracts work to factories without the retailer’s knowledge. The changes come after Walmart clothing was found at a Bangladesh factory where a fire killed 112 people in November—a factory the company said was no longer supposed to be making its clothes. “Obviously our three-strike policy wasn’t working as well as it could have,” says Walmart’s VP of ethical sourcing.

Here is a summary of the changes:

Starting March 1, Walmart will employ a “zero tolerance” policy to sever ties with suppliers that subcontract work to factories without the retailer’s knowledge; Its previous “three-strike” policy gave suppliers three chances to comply with Walmart’s safety requirements
All facilities in Bangladesh must undergo a mandatory electrical and building safety review
Factories found to have fire-safety related violations have 30 days to take corrective action before being terminated, instead of the previous requirement of six months to a year; all floors and buildings must have a secondary exit, preferably an external fire escape route
New factories must undergo a pre-approval audit before suppliers can do business with them
Suppliers must ensure one of its employees, and not a separate agent, is stationed locally to monitor factory facilities
Walmart will publish a list of factories suppliers are no longer authorized to use on the retailer’s corporate website

“Walmart’s factories are dangerous because they don’t pay adequate prices to suppliers, and because there is no transparency in their monitoring programs,” says the director at Worker Rights Consortium, a nonprofit group. “There is nothing here that changes any of that.”

Discussion questions:

1. Is Walmart doing everything feasible to be “ethically sourcing.”

2. Why has Walmart become a global leader in sustainability?

OM in the News: Walmart’s Supply Chain Passage to India

Unrefrigerated truck goes 140 miles in 7 hrs.

Last fall, following a relaxation in India’s foreign-investment rules, Walmart announced it was planning to open its first stores in the country, tapping into a prized $490 billion retail sector. But to cash in, writes The Wall Street Journal (Jan.,12-13, 2013), Walmart will have to solve a fundamental supply chain problem: how to move goods into stores efficiently in a country that offers big retailers little in the way of modern logistics and is plagued by dilapidated infrastructure.

The hurdles are particularly daunting in the food sector. In the world of perishable goods perishing, India has few rivals. Lacking proper storage facilities, enough refrigerated trucks and adequate highways, the world’s second-largest fruit-and-vegetable producer loses about one-third of its produce ($10 billion) each year to spoilage. India also is bogged down by an entrenched system of government-imposed middlemen that can increase costs by 500%.

After passing through the agents and traders in the Chhutmalpur market, for example, produce moves in trucks on a 140-mile journey to New Delhi, often on a 2-lane road so pot-holed and bumpy that top speeds are 15 miles per hour. The trip may include a visit from local thugs demanding bribes for safe passage. It is just one of many human road hazards in India, such as farmer protests.

With a U.S. fleet of 55,000 tractor-trailer trucks, third-party shippers and its own massive distribution centers, Walmart is accustomed to fine-tooth tracking and direct sourcing. In the face of all this it is unlikely Walmart will try to replicate its U.S. supply chain operations, which are focused primarily around massive distribution centers supporting up to 100 stores.”It’s the least mature market they’ve ever had to enter,” says one expert. “They have to create a new playbook.'”

Discussion questions:

1. Compare Walmart’s efforts to those of Hard Rock (noted in Ch.8) when it entered the Russian market.

2. What will be Walmart’s biggest OM challenge in India?

OM in the News: Walmart vs. Walmart

Although I am not a big fan of shopping at our nearby Walmart Superstore, I respect the company from an OM perspective. It has become a leader globally in sustainability (see the case study in Ch.7) and its feats in supply chain management and logistics are legendary (a fact we discuss in Ch.11). Further, my ever-budget conscience niece continually praises the store for its across-the-board low prices.

But as Businessweek (Dec.14-21, 2012) points out in its recent cover story, the company does not always have its employees best interests at heart. Walmart has been vilified by activists who say the company’s relentless growth has come at the expense of its workers and the law. Since 2005, it has agreed to pay about $1 billion in damages in six different cases related to unpaid work. The largest private employer in the U.S., with nearly 1.4 million workers in 4,602 stores and sales of $464 billion, Walmart’s operations management efficiency has remade the retail industry. Its decisions about workers’ schedules, wages, and benefits likewise ripple through the industry.

Here is a brief history of labor disputes in the company:

1970 Walmart’s lawyer calls Missouri clerks “blood sucking parasites” to stop their union drive.

1992 Sam Walton writes in his autobiography: “I have always strongly believed that we don’t need unions.”

2000 Butchers in a Texas Walmart vote to unionize, spurring votes at other stores. Two weeks later, Walmart closes its 180 meat counters and switches to prepackaged cuts only.

2001 A class action suit claims gender discrimination. Walmart fights the case for 10 years, finally winning a Supreme Court ruling by a 5-4 vote.

2003 Walmart is caught using illegal immigrants to clean stores in 21 states. It pays an $11 million fine.

2004 Workers at a Canadian Walmart unionize. Walmart closes the store the next year.

2005 A California jury fines Walmart $172 million for failing to provide meal breaks to 116,000 workers.

2006 A Pennsylvania judge orders a $188 million payment for Walmart’s failure to pay 187,000 workers for “off-the-clock” work. Weeks later, Walmart settles 63 other class actions over unpaid work for $640 million.

2009 Walmart pays 87,000 Massachusetts workers for shortened breaks and “off-the-clock” unpaid work.

2010 Walmart pays $86 million for failing to pay vacation wages to 232,000 California workers.

Discussion questions:

1. Why does Walmart fight to keep out unions?

2. What issues regarding Chapter 10’s discussion of human resource strategy arise from this article?

OM in the News: Walmart and the Bangladesh Factory Fire

The garment factory fire in Bangladesh last week that killed 112 workers was a horrible tragedy. Emergency exits were padlocked and fire engines could not reach the blaze through dense and overcrowded roads. But the question for your students becomes: what does Walmart do with its clothing suppliers like this one? The Wall Street Journal (Nov.27, 2012) writes: “Walmart said the factory was no longer authorized to make clothes for the retailer, and that it had cut ties to a supplier that subcontracted with the factory without its authorization.”

Walmart’s ethical-sourcing department claims it notified the factory last year that it had found it to be “high-risk” and yanked its business–yet the chain’s clothing was still being produced there when the factory went up in flames. In its 2012 report on global responsibility, the retailer said it had stopped working with 49 factories in Bangladesh because of fire-safety issues. (Garment factory fires have killed over 600 people in the past 6 years).

Labor activists are scolding global companies for tolerating such terrible conditions in Bangladesh. The Journal (Nov.29, 2012) adds that Walmart is well aware of the reputational risks of sweatshop sourcing, trying hard to monitor working conditions among their suppliers. “But determined factory owners, abetted by local authorities can always fool inspectors.” Worth noting is the fact that a country of Bangladesh’s population—approximately 150 million—is greatly dependent on a single industry in which it has no natural advantage. Garment exports earn around $19 billion per year, accounting for 80% of total export. Clothing is Bangladesh’s only major manufactured product.

The garment industry there enjoys special labor rules, including a ban on unionization, and regulated pay rates that depress wages in the name of competitiveness. In this respect, Bangladesh is like China and other East Asian tiger economies, except that Bangladesh hasn’t pushed the economy further up the value chain. Instead, it has skewed investment toward the garment industry.

Discussion questions:
1. What is Walmart’s responsibility in dealing with global suppliers’ safety issues?

2. Why does Bangladesh support this industry so heavily? Why is it afraid of Ghana?