Chain of Thought

Have Some Walmart Shares—Free of Charge

A lot of us media types were in Bentonville, Ark., to cover Walmart’s annual shareholders meeting this week. This is a huge opportunity to get personal access to some of Walmart’s key executives and subject matter experts. This year Walmart did a particularly smart thing. It offered up distribution center associates for lunch. For conversation, that is.

I shared a table with Brian Jones, an associate who works out of Walmart’s Sterling, Ill., DC. He specializes in the logistics of bananas—handling them, ripening them and distributing them to his region’s superstores. Why a specialist devoted to bananas? This category happens to be Walmart’s top mover in produce. It’s also typically a two- or three-man job to manage bananas in the DC. And as associates, Jones and his colleagues are encouraged to find ways to be more efficient. After all, they live by an unofficial Walmart mantra: “Count every penny every second.”

Before lunching with Jones, I took a tour of the Walmart DC in Bentonville, which serves about 126 stores in the region. It moves hundreds of thousands of products along 12 miles of conveyor (no groceries, though). I asked our tour guide if Walmart benchmarks performance for best practices, and he said they tend to benchmark themselves—Walmart operations around the world.

That brings us back to bananas. My lunch companion Brian Jones told me that his colleague came up with a way to turn banana management from a two- or three-man job to a one-man job. With two they could serve 18 stores an hour, and with this new method one associate could do 11 or 12 in an hour. With labor costs what they are, that’s a significant savings—one worth sharing within Walmart, but not with competitors, so if you are one of those I couldn’t get any details to share with you on that.

I can, however, share some ripe wisdom from some of Walmart’s executives as picked from a series of press conferences over the course of Thursday afternoon.

Transportation is Key to Logistics Performance

First, on the topic of automation and its role in the logistics of serving customers most efficiently, it’s apparent that Walmart relies on its huge transportation network infrastructure even more than on its secret DC sauce to achieve fast delivery.

According to Neil Ashe, president and CEO of Global eCommerce, Walmart views its DCs as nodes to get products to customers.

“We’re building next-generation fulfillment networks which are a combination of e-commerce-dedicated facilities which serve individual packages and items to DCs that serve stores,” he said. “Because we have these efficient transportation and DC networks, we can move product around the country different than anyone else can. We will be investing more in e-commerce facilities so we can serve individual items instead of the cases we send to stores today. Inside the box of one ecommerce-dedicated facility is a mere sliver of the entire process. The hardest part is getting an item to wherever the consumer wants to pick it up.  Transportation is always the largest component of delivery for us and any of our ecommerce competitors.”

The Logistics of Online Groceries

Whether Walmart’s logistics success means someday adding online grocery service to its menu in all U.S. markets is another story where ecommerce is concerned.

“That requires market density, basket density and route density—meaning enough items on a truck to make it economic,” Ashe added. “We have learned to do that in the U.K. more efficiently than anyone in the world. What we don’t know is whether that’s what customers want in every market around the world. We’ve done a test in the San Francisco Bay area where we pick from our stores via Walmart-to-Go. We’ve proven the efficiency of the model but we haven’t proven that enough customers want it. If someone else wants to pay to develop the market in the States we are ready to go.”

How Transportation Basics Support Walmart Logistics

Doug McMillon, president and CEOofWalmart International, reiterated the importance of good transportation management to fulfilling their promises of food freshness.

“Developed markets will have a different infrastructure than developing,” he said. “Agriculture is different between markets too, and our direct-to-farm program working with farmers through co-ops means getting products to the store shelf faster, fresher and with higher quality. That requires paying a little more on the back end, investing in pack houses to make that possible. They also need a little more infrastructure help. We want to source locally wherever possible for grocery because it reduces lead time and we can forecast closer to the point of sale.”

Sourcing Innovation from Associates

Bill Simon, president and CEO of Walmart U.S., brought the conversation back home when the question of worker productivity was raised.

“There’s friendly competition between the DCs as to who can provide the best efficiency and operating capability,” he said. “We have incentives around productivity and safety. We reward DC of the year.”

Productivity also comes out of associate-level innovation.  He offered an example that took us back to transportation efficiency. Think how high the top of a trailer is if you were to try cubing that space out. One Walmart associate got this CEO’s attention with a simple suggestion: “Why don’t we use a small step stool so we can make use of that higher cubic area and put more on the tucks?”

“That’s as simple as it comes but it saves us an enormous amount of money,” Simon enthused.  He also paid tribute to his DC talent. “If we could have the same inventory management discipline in the back rooms of the stores, and by the way, we have more inventory and warehouse square footage in our stores than in all of our DCs, there’s an incredible amount of value to unlock there.”

Still Worried about the Economy? Join the Club

Roz Brewer, president and CEO of Sam’s Club, cited a bit of customer innovation related to cost cutting. Sam’s sells brands in bulk to individuals and small businesses. It’s those small businesses that found a way to make better use of inventory space during economic hard times. They use Sam’s space.

“Many of our small business customers are LLCs and have some of the same concerns as households,” she explained. “They’re concerned about the impact of new tax issues. Many aren’t sure whether this is the right time to take out a loan. They learned a lot about their businesses during the latest downturn. They’re counting on us through our click and pull business, where they go online and within 24 hours we have the order ready for them. This means they’re not carrying inventories but picking it up the day of. So they’re using us to carry their inventory.”

She added that while most analysts have been saying the downturn is over, her small business customers aren’t feeling much relief yet. In fact, Brewer thinks the current business cycle is worse than 2008 for Sam’s business members.

“We began to see signs of this trickle down right before the holidays,” she said. “The Convenience store business is being impacted because tobacco is now being sold in Dollar stores. There’s also consolidation among C-stores so that an independent C-store contractor who would normally shop a Sam’s Club is now part of a bigger unit that has direct sales. Also the Quick Service restaurants we serve are now competing with the meal deals of the chains.”

Service is Golden

I’ll wrap up here by bringing you back to my Walmart lunch companion, Brian Jones. As you saw in all the comments from these executives, they’re doing as much as they can to take cost out of the supply chain. After lunch Jones pulled a folded piece of paper from his pocket to show me his contribution to that system-wide effort. Listed on this paper were all the key performance measures he and his associates are judged by. He wouldn’t let me copy all of them down, but the top few included cases per hour, volume, shipment voids/errors, use of trailer cube and—this one speaks volumes about the importance of corporate culture to an organization’s success—volunteering in the community.

That’s a good business expansion of the golden rule to share: Serve all people as customers—the way you’d want to be served.

 

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