Walmart, p.23
Walmart, page 23
‘As this partnership is expanded, we will be able to leverage scalability, processing power, and storage capacity, along with software enhancements’, said Jose Hernandez, Walmart’s Chief Technology Officer and Senior Vice President of Infrastructure. ‘Consistent with our sustainability initiatives, this expansion will result in a significant reduction in our data centre power and cooling footprint.’11 Walmart’s Teradata Data Warehouse is now the second-largest civilian database behind eBay. The retailer keeps each POS transaction for two years and then it is paged out to a second tier of storage. This vast reservoir of data has been an invaluable asset for Walmart: ‘This automated process has made it possible for Walmart stores to be in stock consistently and minimize the dollars invested in inventory at the same time – that equals superior service for the customers and reduced capital commitment from the company’.12
Retail Link: a new era for Walmart and its suppliers
Like 1987, 1990 was a monumental year for Walmart’s technology-enabled rise to supremacy: it was the year that the retailer announced Retail Link to its vendors. Retail Link was described as ‘an aggressive step to further our partnership relations by moving beyond electronic data sharing. We desire to provide our vendor partners the quality of information concerning sales trends and inventory levels to facilitate genuine partnering in our mutual goal to serve our customers.’ The system was said to be intended to capitalize on existing barcode and satellite capacities ‘to bring our suppliers closer to our individual stores’.
By 1996, the Retail Link system was being touted as a key component of Walmart’s technological advantage, providing sales data – by item, by store, by day – to vendors. The system was therefore said to save vendors time and expense in planning production and distribution, translating into lower product prices at Walmart.
Walmart was at pains to reiterate the importance of Retail Link in its relationship with vendors in the late 1990s. Starting from the basic information compiled at the checkout, at the shelves, and gathered by associates equipped with handheld computers, Walmart used technology to manage its supplies and inventories not only in the stores, but all the way back to the original source. Through Retail Link, Walmart granted its suppliers access to some of its data, which enabled them to know exactly what was selling, and to plan their production accordingly. This not only helped Walmart keep inventories under control, but also helped the supplier deliver the lowest-cost product to the customer.
With sales and in-stock information transmitted between Walmart and its suppliers in seconds over the internet, buyers and suppliers were privy to the same facts and were thus able to negotiate based on a shared understanding – saving a significant amount of time and energy over more traditional, low-tech systems. Buyers were said to benefit from the supplier’s product knowledge, while the supplier benefited from Walmart’s experience in the market.
In an update to investors in 2000, Walmart once again underscored the fact that Retail Link was one of the core enablers of its success. It was keen to point out its fundamental belief in building a collaborative environment with its suppliers in which both parties worked together to grow both businesses and provide lower retail prices for customers: ‘While some retailers have been reluctant to share sales or other proprietary data with suppliers, Walmart has allowed suppliers this type of access since early 1991. This system evolved into a web-based product called Retail Link.’ It allows the company and suppliers to track merchandise to study how products sell in any store by region or by individual unit. They can also review inventory levels, returns and inventory adjustments. ‘We think sharing information with suppliers allows for better input from them about how to maximize sales and profits. We can then implement best practices and pass the savings on to customers’, Kevin Turner, the company’s Chief Information Officer, said.
Retail Link continues to be an important – and global – cornerstone of Walmart’s success. Suppliers, both big and small, are given a user ID and password to access the system. Retail Link is used to get reports regarding the sales of products, complete online supplier agreements and obtain information about how to do business with the retailer. In the words of Don Soderquist in 2005, ‘No other retailer to date has replicated this system, which is another way that technology has aided Walmart in developing a significant strategic advantage in the marketplace’.13
The false dawn of RFID
It was in 1992 that Walmart first publicly brought up the topic of radio frequency identification (RFID). The advent of RFID put many suppliers (in general, not just those that supplied to Walmart) in a tailspin. On paper, RFID had the potential to revolutionize the world of distribution and retail: the system enabled communication through the use of radio waves to exchange data between a reader and an electronic tag attached to an object, for the purpose of identification and tracking. At the time of its nascent introduction by a variety of retailers, RFID was commonly perceived as having the potential to transform the world of commerce in the way that the barcode did several decades before.
Theoretically, RFID made it feasible for vendors and/or retailers to give each product, or pallet of products, its own unique identifying number to track its whereabouts or progress through the supply chain. For retailers in particular, RFID technology made it theoretically possible to locate pallets in DCs or in the storage rooms at individual stores. Even in this day and age, it is remarkable to what extent retailers can rely on manual checking of stock, opening up the possibility of human error and entire pallets of goods being misplaced.
While barcodes are rightly hailed as one of the greatest developments in the history of the distribution of consumer goods, they are not without their limitations. Barcodes have to be ‘shown’ to readers in close proximity; either by being passed in front of a static reader (such as a pallet being sped past a barcode reader on a conveyor belt in a DC) or, in a scenario familiar to us all, being manually passed over a checkout reader by a member of staff in a retail store. In other words, barcodes rely on proximity and a line of sight between label and reader, and scanners are generally only able to read one barcode at a time. RFID, therefore, marked a huge advantage over barcodes: they can be ‘read’ from a distance; they can be read from within cartons; and they can be read hundreds at a time.
While RFID has become widely used in other areas of life (motorists using turnpikes in the United States will be familiar with the E-ZPass system; commuters in London will need no reminding of the ubiquity of Oyster cards; and other – more esoteric – uses of RFID include tracking high-value casino chips and monitoring livestock), its anticipated impact in the world of FMCG and retail has turned out to be something of a damp squib.
In 1992, Walmart stated that the aim of RFID technology was to achieve ‘the simplification of what we do, elimination of waste and access to more meaningful information’. The retailer added that the advent of RFID enabled it to access better sales and inventory information, thus leading to a better in-stock position.
In February 2004, Walmart received the first pallets tagged with RFID labels in its Fort Worth, TX, distribution centre. They were shipped from Procter & Gamble, Gillette, Unilever, Kraft, Johnson & Johnson, Kimberly-Clark, Nestlé Purina and Hewlett-Packard. At this time, seven Supercenters, supplied by the Fort Worth distribution centre, were involved. Writing around this time, Don Soderquist posited that ‘I am convinced that RFID will become a major breakthrough technology in the years ahead. And Walmart is out in front’.14
Two years later in 2006, Walmart told investors that ‘innovation is taking place in a number of areas. Nowhere is this more evident than in the application of RFID technology. Walmart has been a critical catalyst that has brought this technology to business use and now is helping to foster worldwide RFID standards.’
On the back of this – and despite problems with RFID reading owing to the influences of metals and liquids in grocery distribution – Walmart was striving to roll out the technology at pallet and case level in the United States. Even though Walmart was expressing an aspiration at this stage that single items would be tagged with RFID chips, there were very few, if any, implementations at Walmart of this more granular tagging.
In 2007, the RFID strategy leader at Walmart, Ron Moser, said that the retailer could increase sales by $287 million by fixing just a small portion of its inventory problems using RFID technology. As of late 2007, around 2 per cent of all lost sales were due to the simple fact that a store had run out of an item, but 41 per cent of lost sales were due to inventory problems, according to Moser. He expected RFID to have a bigger impact on the company than barcodes did when that technology was introduced in 1984. With RFID, Moser expected inventory accuracy to improve tremendously. He believed that products would get to shelves faster, thereby reducing lost sales, and that lost or missing merchandise would become a phenomenon of the past. Going forward, the company planned to work more closely with suppliers on RFID. By October 2007, 600 of Walmart’s top suppliers had started using RFID tags at their own expense, in order to comply with Walmart’s initiative. Some of these suppliers had found their own inventory cost savings, but others had not, according to Moser: ‘We have seen suppliers that are getting no benefit out of RFID and use it only because we told them to. We’ve got to work with these suppliers to help them find cost savings and other benefits from the technology.’15
In July 2010, Walmart started to sell menswear such as jeans tagged with RFID labels in an effort to gain easier control of its inventory. This initiative marked the start of the retailer’s new approach to RFID technology after some of its past projects were discontinued. The clothes were RFID-tagged by the suppliers at the point of manufacturing with EPCglobal’s second-generation ultra-high-frequency (UHF) RFID standard tags. The new programme concentrated on those types of products that have multiple SKUs and are, therefore, a challenge to manage from an inventory perspective, according to Myron Burke, Walmart’s Director of Store Innovation, who was leading the retailer’s electronic product code (EPC) programme in the United States. ‘We are addressing the opportunity to improve inventory accuracy and inventory availability’, Burke said. ‘We have been working collaboratively with suppliers on a strategic basis to make this part of our systems.’ Unlike previous efforts, in which Walmart required suppliers to tag items by a certain date, the retailer was working with suppliers collaboratively to incorporate EPC data into their warehouse management systems, the RFID Journal reported. In order to address the substantial privacy concerns (Walmart employees were not removing or deactivating the RFID tags when items were sold), Walmart stated that it expected that its customers would cut off and discard the tags prior to wearing the items, as they customarily would for other non-RFID labels and hangtags. Walmart added that it would not be reading the tags at checkout, so the EPCs will not be associated with any personally identifiable information, to protect consumer privacy.16
By 2009, Sam’s Club required some suppliers to tag single items with RFID tags. The edict applied to 5,000 club-sized bulk packs, rather than conventional store items. By the same deadline, Sam’s Club expected all suppliers to tag all deliveries at the pallet level for all 17 Sam’s Club distribution centres as well as for direct store deliveries with RFID. Suppliers failing to meet those requirements were being charged $2.50 per pallet.
The globalization of technology in Walmart
An additional benefit of Walmart’s self-sufficient approach to technology was the ability to use similar systems as it globalized. The world’s largest retailer is rightly proud of the harmonization of its IT architecture around the world: according to a Walmart VP in 1997, about 90 per cent of all IT systems were the same in all countries.
This strategy is one pioneered by Walmart, although retailers such as Tesco (which developed an international back-office package called Tesco in a Box) have been following suit by standardizing technology across their international markets. Walmart was quick to establish a common technology strategy for all of its global operations: since 1995, Walmart’s ISD has been using one common merchandise system for all of its cross-border retail operations. ‘The common system, centrally managed, is our competitive advantage at Walmart’, one of its vice presidents claimed.
Walmart continues to pursue this approach – exploiting best practice from the United States and elsewhere in all of its new and existing international markets. Walmart is expected to roll out its systems quickly in South Africa, for example, while it has already adopted this strategy in India. In 2008, Walmart decided to provide technology systems to its Indian joint venture partner Bharti, not only for the partners’ jointly operated cash & carry business but also for Bharti Retail, Bharti’s wholly owned subsidiary that operates easyday supermarkets and easyday Market compact hypermarkets. Both companies have entered into a franchise agreement whereby Walmart provides technical support to Bharti Retail.
Technology and private label development
Another key area where Walmart has been looking to third parties for technological enhancement has been in private label development – inherently a complex side of the business since many Walmart private brands are sourced from a disparate mix of low-wage economies and the end-products are sold through Walmart stores across the world.
Since 2008, Walmart has been working with Agentrics’ product lifecycle management (PLM) platform to support the collaborative development of its private brand products, with initial efforts focusing on the Great Value grocery range. Agentrics’ PLM features a web-based, collaborative, end-to-end work process, database and production environment to drive speed, innovation and consistency across the product lifecycle. Agentrics rebranded the Walmart system, which is now referred to as Walmart Aspect across the retailer’s network. Walmart and more than 500 suppliers began using Agentrics PLM to support the redesign and re-branding of the Great Value line.
Walmart also deploys the collaborative design software Odin from Sun Brand Technologies for the brand management of its private label products. The online tool is accessed by Walmart staff, suppliers and external agencies to develop artwork. Brand guidelines and briefs are available, as well as the status of projects in progress. Asda in the UK was the first Walmart division to use the tool. Asda initially deployed the system for its own-brand food ranges, where the design-to-print cycle was cut from 18 to 12 weeks, before rolling the solution out to its non-food private labels. In 2009, Walmart US installed the brand management software across its Marketside range of fresh produce and its Equate health and beauty portfolio.
A similar process was implemented for George, the Asda-developed global fashion brand available in Walmart stores across the world. George, based in the UK, deployed an online collaboration portal from British internet specialist Concrete to serve the Walmart apparel businesses around the world. George implemented the solution to cut the costs of producing products for sale internationally, as well as to provide consistency in how George products are sold across Walmart International. Walmart’s national retail divisions can browse all product designs and download artwork for those they wish to sell from George’s head office in the UK. Before the portal was introduced, this artwork was being redrawn in each country for local suppliers to work from.
Price optimization
As we’ve already seen, price optimization (an analysis of factors such as price elasticity to ensure that demand and margins are maximized) was one of the first functions for which Walmart looked beyond its own capabilities and secured input from an external supplier, installing the Profitlogic solution from Oracle in 2007 to optimize mark-downs for seasonal apparel.
Since then, Walmart has deployed other, more general, price optimization solutions across its business. By mid-2010, DemandTec’s price optimization solution was already live in seven of the retailer’s markets. In the United States, Walmart uses DemandTec’s price optimization for all of its retail operations, including Sam’s Club.
Bean counting and number-crunching
In October 2007, Walmart decided to replace its legacy accounting and controlling system with SAP Financials. Walmart has since been rolling out the package from the German software maker globally in phases. By early 2010, Walmart had completed the implementation of SAP Financials at Asda in the UK. The retailer stated that the implementation ‘went exceptionally well’. Walmart has since implemented the system in most of its international markets, meaning that virtually all of the retailer’s operations have deployed the standard accounting and controlling system. The retail giant stated in its annual report that: ‘this new financial system is a significant component of our internal control over financial reporting. We will continue to implement it in stages, and each implementation may become a significant component of our internal control over financial reporting.’
Walmart has commented that it does not anticipate any significant year-on-year cost increases for the implementation of the SAP financial system. SAP modules work hand-in-hand with in-house accounting and consolidation tools. According to Walmart, it purchased SAP Financials to ‘support the retailer’s global expansion and its need to efficiently respond to changes in the business and regulatory landscape. We believe SAP’s experience in helping global companies with their financial systems will bring more flexibility and scalability to our growing business.’
In-store technology
Having provided some colour around Walmart’s strategy and progress in establishing best practice in back-office technology, we can turn to the increasingly important issue of in-store technology. As shoppers, assisted by the proliferation of mobile devices, become more tech-savvy and as social media become more embedded in influencing shopper behaviour, Walmart has been on the front foot in terms of utilizing the latest technologies to optimize the shopping experience. This optimization stretches from the mundane (cash registers) to the more fanciful, but Walmart has proven time and time again that technology is a vital component of its effort to remain a core shopping destination for shoppers across the globe.
