JUNE 25, 2013

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.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.