Last month, Walmart reached its highest stock price ever. This accomplishment solidifies Walmart’s position as the leading retailer in the U.S., especially impressive in an era of high inflation and rising interest rates when consumers are tightening their wallets. How does Walmart manage its supply chain to handle such surging demand? Let’s dive into how Walmart successfully manages over 10,000 stores.
Record-Breaking Performance: What’s Driving Walmart’s Success?
In the first quarter of this year, Walmart’s sales increased by 6% year-over-year to $161.5 billion, and its operating income rose by 9.6% to $6.8 billion. For the first time, Walmart’s market capitalization surpassed $500 billion, marking an unprecedented high. But why do so many shoppers flock to Walmart?
The main reason is inflation and high prices. As costs rise, consumers, both high and low-income, turn to Walmart for its broad range of affordable products. Walmart appeals to all customer segments with its wide product range and competitive prices.
How Does Walmart Manage Its Massive Supply Chain?
Walmart operates over 10,500 stores across 20 countries, employs 2.1 million associates, and serves around 240 million customers each week through its stores, online, and mobile platforms. Here’s how Walmart manages its enormous supply chain.
1) Leveraging Advanced Technology for Efficiency
Walmart uses advanced technologies like GPT-4, AI-based chatbots, automation, and machine learning to optimize its supply chain. For instance, Walmart integrates AI chatbots to improve communication and efficiency within its supply chain. They use GPT-4 to enhance contract negotiations and procurement processes. Walmart’s collaboration with Pactum’s AI chatbot led to a 68% success rate in vendor negotiations, achieving a 1.5% cost reduction.
Additionally, Walmart employs facial recognition technology to gauge customer satisfaction in real-time. This system helps Walmart identify and address pain points in the shopping experience, enhancing overall customer satisfaction.
Walmart also embraces AR and VR technologies. For example, their Optical Virtual Try-On feature allows customers to try on glasses virtually using 3D data and advanced algorithms, providing a more realistic experience. Similar technologies are used across other categories like fashion, beauty, and furniture, improving customer satisfaction and reducing returns, thus boosting supply chain efficiency.
2) Efficient Inventory Management
Walmart uses sophisticated AI and data analytics to ensure products are available where and when customers need them. By leveraging big data, Walmart can quickly identify and address issues. For example, during Halloween, Walmart detected that certain specialty cookies were popular in most stores but not selling at two locations. They quickly discovered and resolved the issue, which was due to a stocking oversight.
Walmart’s inventory management system connects with over 4,700 stores, fulfillment centers, and suppliers, using AI and machine learning to determine optimal stock levels and timing. This system can adjust product availability based on regional demands, such as stocking more swimwear in warmer areas and sweaters in colder regions.
Furthermore, Walmart uses digital shelf labels for over 120,000 products. This system allows for faster and more accurate price adjustments compared to traditional paper labels. Using mobile devices, employees can quickly check inventory and guide customers to the right products, improving process speed and order accuracy.
3) Implementing Supply Chain Automation
In 2021, Walmart invested $14 billion in supply chain automation and aims to have about 65% of its stores and 55% of its fulfillment centers automated by 2026. Walmart has introduced Symbotic’s automated systems in 25 of its 42 regional distribution centers (RDCs). These systems use autonomous robots and complex algorithms to store, retrieve, and pack goods on pallets, significantly enhancing the speed and accuracy of transportation processes.
Walmart has also partnered with Fox Robotics to upgrade its existing automated systems with autonomous forklifts, which use AI to safely and accurately move, sort, and store products. This shift from manual to automated processes allows Walmart employees to focus on overseeing these systems, making operations faster and more efficient.
4) Building Strong Supplier Relationships
From the beginning, Walmart focused on optimizing its supply chain by establishing strong relationships with suppliers. Walmart secures long-term, large-volume purchases at the best prices, creating robust partnerships. This strategy allows suppliers to run stable businesses while Walmart maintains competitive wholesale prices, staying ahead of competitors in pricing.
5) Enhancing Logistics and Delivery Systems
Walmart’s logistics and transportation network uses AI-based route optimization technology to find the fastest routes considering factors like traffic and weather, reducing idle time and delivery delays. This system saves on additional delivery costs and minimizes emissions. Route optimization has eliminated 33 million unnecessary driving miles, bypassed 108,000 inefficient routes, and reduced CO2 emissions by 94 million pounds.
Walmart also uses drones to enhance delivery efficiency. Since starting drone deliveries in 2021, Walmart has completed over 60,000 deliveries in the Dallas-Fort Worth area alone. They aim to support drone delivery to up to 75% of homes in the Dallas-Fort Worth area, promising fast deliveries within 10 to 30 minutes.
Walmart vs. Amazon: Who’s Leading the Race in Retail?
When thinking of the giants in U.S. retail, Walmart and Amazon come to mind. Despite Amazon’s rise as an e-commerce leader, Walmart has maintained its top position in the retail market. Let’s compare how these two titans stack up against each other:
Product Range and Market Dominance
Both Walmart and Amazon offer a wide range of products, including groceries, furniture, electronics, and more. Walmart operates over 50 private label brands, while Amazon has over 40.
Walmart dominates the offline retail market, while Amazon leads in e-commerce. Walmart focuses on local sourcing, whereas Amazon takes a global approach.
Supply Chain Strategies and Inventory Control
Walmart’s strong supplier partnerships and automated logistics infrastructure enable it to maintain a steady supply of products at competitive prices. Walmart’s Retail Link system provides detailed data on inventory levels and sales, helping manage stock efficiently across its extensive store network.
Amazon manages its supply chain through its Fulfillment by Amazon (FBA) program, where Amazon stores, packs, ships, and provides customer service for sellers’ products. Amazon also uses autonomous robots through Amazon Robotics to streamline warehousing and inventory tracking, significantly enhancing operational speed and efficiency.
Distribution and Delivery Innovations
Walmart operates over 10,000 large retail stores, 200 distribution centers, and fulfillment centers across the U.S. Walmart collaborates with third-party delivery services like Deliv and DoorDash for last-mile delivery and also offers its own delivery service for faster customer deliveries.
Amazon’s distribution network includes fulfillment centers, sorting centers, and delivery stations tailored for e-commerce. With substantial investments in its ‘Amazon Prime’ service, Amazon ensures fast delivery, often within the same day or two days, even across vast distances in the U.S.
In summary, both Walmart and Amazon effectively manage vast distribution networks using unique strategies. Walmart focuses more on local, offline operations, while Amazon emphasizes a global, online approach. Both companies have built exceptional supply chains that continue to drive their growth, making their future endeavors highly anticipated.
Continuing to Lead: Walmart’s Future Strategies in Retail
With its smart and efficient supply chain management, Walmart remains the leader in U.S. retail. But Walmart isn’t stopping there; it continues to innovate and expand its supply chain capabilities.
1) Committing to Sustainable Supply Chains
Since making its first environmental sustainability pledge in 2005, Walmart has set ambitious goals to achieve zero waste in its U.S. and Canadian operations by 2025 and to run its global operations on 100% renewable energy by 2035. As part of this commitment, Walmart has ensured key raw materials like palm oil and pulp are certified to meet standards that avoid deforestation, such as those from the Roundtable on Sustainable Palm Oil (RSPO). Additionally, Walmart’s Project Gigaton initiative, in collaboration with over 5,900 suppliers, aims to reduce greenhouse gas emissions by one billion tons through various projects focusing on energy efficiency, packaging redesign, food waste reduction, and optimizing truck loads. In 2019, Walmart was the largest procurer of solar and wind power in the U.S. and now sources 36% of its energy from renewable resources globally. These efforts demonstrate Walmart’s commitment to sustainable supply chain practices.
2) Expanding Appeal to High-Income Shoppers
Traditionally, Walmart has targeted low-income customers, but it is now expanding its focus to include higher-income shoppers. More people are choosing Walmart not just for affordability but for convenience as well. To attract these high-income customers, Walmart has introduced the Walmart+ membership program, which offers convenience and value. Walmart is also diversifying its product offerings, planning to roll out premium products and sophisticated displays in 800 stores. This includes luxury items like Rolex watches and premium beauty brands like Bobbi Brown and La Mer.
Additionally, Walmart has launched its own private label brand called “Bettergoods,” the largest private label launch in 20 years. The brand offers over 300 items priced between $2 and $15, known for their quality despite their affordability. With these strategies, Walmart is expanding its customer base to include more affluent shoppers by providing high-quality products and unparalleled convenience.
3) Diversifying Business Ventures for Growth
Earlier this year, Walmart acquired Vizio, a budget smart TV manufacturer, to boost its advertising business. Walmart aims to leverage Vizio’s SmartCast platform, which has over 18 million active users, to generate revenue through targeted ads. Walmart’s ad revenue grew by 28% last year, highlighting its expansion into the online advertising space.
Walmart also plans to expand its online sales. In the first quarter, Walmart’s U.S. online sales grew by 22% year-over-year. Walmart continues to invest in its app, integrating features like AR and VR for a more immersive shopping experience, and adding GenAI-based search tools to help customers find products more easily. Features like “Shop with Friends” allow real-time interaction, making online shopping more engaging.
With these strategies, Walmart is expanding beyond traditional retail, enhancing both offline and online experiences for customers.
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