ORLANDO, Fla. — The ongoing recession is not only affecting Wal-Mart's bottom line, but also its supply chain practices, observed Gary Maxwell, Wal-Mart Stores' senior vice president, international supply chain, at an industry conference here last week.
The recession “has caused us to tighten our belts and carry less inventory,” Maxwell said during a morning panel discussion at U Connect, the annual conference sponsored by GS1 US, the U.S. standards organization based in Lawrenceville, N.J.
With this greater focus on inventory control, Wal-Mart has been asking suppliers to provide it with information on their days-on-hand “so we know how much we're carrying,” Maxwell said.
Wal-Mart is also seeing consumers “running out of money” at the end of the month, causing the retailer to increase its inventory supply earlier in the month, Maxwell said. “We are pulling hard from our suppliers at the beginning of the month.”
Maxwell believes this recession has made consumers regard waste as “bad” and permanently sharpened their sensitivity to the price of commodities like fuel. There is also a far greater emphasis on saving money than in the past, which Maxwell acknowledged benefits a discounter like Wal-Mart.
Online shopping also has supply chain implications for Wal-Mart. “We want to expand consumers' choices by offering some low-volume items online,” Maxwell said. “But we are built around large volumes, so where do we store these low-volume items?” Consumers also may expect 24-hour deliveries of some items. “Do we charge by the type of item we're shipping? These are questions we are still trying to answer.” Consumers need to understand the differing costs associated with these options, he added.
He also said consumers' desire for more local products is challenging Wal-Mart's supply chain. Local products require smaller, more frequent shipments.
The greater emphasis on private label during the recession is having supply chain repercussions as well, Maxwell noted. “Our branded suppliers look for efficiencies and supply chain alliances,” he said. “As retailers move to private label, we have the challenge of not losing the efficiencies we gain from brands. Brands understand the supply chain and you lose some of that when you go to private label.”
Another challenge Wal-Mart is facing is adjusting its supply chain to meet the needs of its four Marketside stores, a 15,000-square-foot format introduced in the Phoenix market last October.
“Big stores are an efficient model for us,” said Maxwell. “But when you downsize to small stores, delivering a few hundred cases a day and multiple times per day for freshness, it puts a strain on your supply chain. So we have had to adapt and be creative to keep those costs low.”
As a global retailer, Wal-Mart is finding its highest supply chain costs in emerging markets that make little use of standards and collaboration. U.S. retailers “have a huge responsibility to bring standards to developing markets,” he said. “There are many countries we could serve at lower costs if they had better standards.”
Along with the recession, environmental concerns are also influencing consumers, Maxwell noted. For example, consumers are increasingly interested in how to properly dispose of products or packaging after they are used, recycling wherever possible. “We need to give consumers information about that,” he said.
RFID is still a supply chain technology that Wal-Mart supports, noted Maxwell. “We believe it has a proven ROI,” he said. “We're moving forward with active pilots.”
The panel, moderated by Kevin Coupe, editor of MorningNewsBeat.com, also included supply chain executives from CVS/pharmacy, Lowe's and Macy's.