WAL-MART TO EXPAND DISTRIBUTION SYSTEM

NANCY BRUMBACK

CHICAGO (FNS) -- Wal-Mart Stores is not about to stop growing -- and is embarking on a massive warehousing and distribution expansion and re-engineering program to handle an expected surge in product flow.

The chain will open three new distribution centers this year, and projects a need for at least 4 million square feet of additional warehouse space annually for the next four years.

The aggressive retailer is also developing a new information-driven "prototype" distribution center to boost efficiency and accuracy even further and is exploring the use of alternative transportation methods, including rail, to move some of its products.

The changes come at a time when Wal-Mart is projecting company sales to top $100 billion, for the first time, in 1995, an increase from $82.5 billion in 1994, said Lee Scott, executive vice president of logistics for the Bentonville, Ark.-based chain.

Scott outlined Wal-Mart's logistics plans during a keynote address at the ProMat95 exposition here this month. The conference was sponsored by the Material Handling Industry of America, Charlotte, N.C.

Wal-Mart will process more than 1 billion cases of merchandise this year. To support that kind of growth, "starting at the end of this year, we have to open 1 million square feet of warehouse space every two-and-a-half to three months for the next four years," Scott said.

Three new distribution facilities are planned this year. Wal-Mart's third grocery warehouse will open in London, Ky., this fall,

in addition to new facilities in Texas and Arkansas.

For the general merchandise stores, one regular distribution center devoted primarily to hard lines will open in Kansas in the fall. Two, in northern California and New York, were added last year, bringing the total to 20. The seventh specialty distribution center, primarily for apparel and shoes, will open in New York this fall.

"We started 1994 with 10 Sam's Club distribution centers and ended with 19. It was a very busy year," Scott said. The Sam's warehouses, he added, are "true cross-dock" facilities, averaging only 100,000 square feet compared with the 1 million-square-foot distribution centers for Wal-Mart.

The retailer also operates three import-export centers for merchandise coming in from overseas and to supply stores in Mexico, and five centers for returned merchandise. The McLanes wholesale division, supplying cigarettes, tobacco and candy to Wal-Marts and convenience store chains, has 20 warehouses.

Wal-Mart is making a major effort to re-engineer its supply chain and increase the accuracy and efficiency of its logistics operations, Scott said. "You can't afford not to. People who are doing it will have a competitive advantage over you."

Among the areas the company is working on with merchandise and equipment vendors are using universal product code cases for identification, putaway and tracking; cutting lead time, and using rail and truck transportation.

Wal-Mart is developing a prototype distribution center that will be "extremely forward-thinking. There are elements that are going to change the way this industry does business," Scott promised the materials handling audience, without elaborating further.

Putting a UPC on individual cases "can drive a great deal of what we want to accomplish" in improving distribution center efficiency, Scott said. "This does not require a vendor to do anything that causes Wal-Mart merchandise to be handled differently than competitors' goods," he added.

The logistics team, he said, worked to eliminate 11 days from the lead time for merchandise featured in the weekly circulars and having 99% of the goods in the stores for the sale period.

"Many people were very afraid we were taking too much time out. The buyers were very reluctant; some went around the system and wrote a different type of purchase order so we couldn't track it," Scott said. But the system has been refined. "Last month we had 99.3% of the goods in the stores on time and took 11 days out of the lead time."

The logistics team is also working with Wal-Mart's information systems division to develop better links with manufacturers. "Our systems are not linked in a way to maximize our strengths," he said.

Although Wal-Mart knows the in-stock position of every store on every item, it has not yet developed a link to direct merchandise to the stores that need it most when a vendor cannot ship 100% of an order.

The logistics team is also exploring transportation alternatives. "Railroads are resurfacing for us. We are doing some things with rail I never thought we would," Scott said, citing as an example shipping heavy but low-priced merchandise such as potting soil by rail rather than truck.

"The demand for accuracy in the distribution center has changed dramatically," Scott said. Improving logistics will not necessarily lower the cost of distribution center operations, he pointed out. "We may provide additional services at the distribution center so store labor is saved. If we can eliminate one position per store, that saves 2,000 people. We're looking at things that will save three or four people per store. That saves 8,000 people, vs. adding 400 to 500 at the distribution centers."