Wal-Mart : Thar's technology in 'dem stores!

Don't let the happy faces and scarcity of natural fibers fool you. Wal-Mart spends over $2.5 billion dollars a year on technology, and their willingness to invest heavily in new systems has played a major role in their success.

OK, they are the world's largest corporation. They account for 8% of all retail sales in the US. If it were an independent nation, Wal-Mart would be China’s eighth-largest trading partner. Wal-Mart’s sales are equal to “one IBM, one Hewlett Packard, one Dell computer, one Microsoft and one Cisco System—and oh, by the way, with $2 billion left over.” Each week over 100 million people shop at their 3400 stores.

"Stack ‘em high and let’em Fly".The company has prospered by elevating one goal above all others: cutting prices relentlessly. This has partly been done partly done by beating up their suppliers and corporate penny-pinching. Billionaire founder Sam Walton, who still is referred to as "Mr. Sam" throughout the corporation, worked in a ground-floor office barely big enough for a conference table. The current CEO still empties his own trash and shares budget hotel rooms when traveling. Everyone flies coach.

Employing technology to drive efficiencies and lower costs. But there is also one other factor pivotal to their ability to offer low prices: the efficiencies they have derived from technology.

The achievement of sustainable competitive advantage. When I was business school there was a lot of talk about sustainable competitive advantageWhen GM recently cut prices, everyone followed suit. Their competitive advantage was short lived. But with Wal-Mart, their system-driven efficiencies have given them a sustainable competitive advantage: a lower cost structure. On this foundation they are able to maintain relatively lower prices over the long run. You just can't win in a battle with Wal-Mart on the basis of price.

Using technology to manage operations. They have invested in the largest commercial satellite system in the world, which is used to collect information and beam it down to Head Office as well as their vendors. With 60 billion items moving their stores each year, they depend heavily on having the one of the world's best logistics systems, which is integrated right back to the supplier. Suppliers are assigned exact times in which to deliver their goods, which are then unloaded directly into the trucks going out the stores. The company’s meticulous management of the flow of goods, from the factory floor to the store shelf, has shaved shipping and inventory costs to a degree that retailing experts say is unprecedented. Because they are so efficient, and so big, a McKinsey & Co. study concluded that about 12% of the economy’s productivity gains in the second half of the 1990s could be traced to Wal-Mart alone. And yes, they do watch their employers closely as well. At any time they can see how Rosie on Cash 32 is doing compared to Jane on Cash 12, even if they are working on different continents.

RFID: high-tech bar codes that can "phone home". Wal-Mart is pushing technology even further with a $3 billion investment RFID technology. With RFID, tiny radio transmitters are attached to products. These tags, as they’re called, emit radio waves carrying data that’s read using special scanners. RFID tags are like high-tech bar codes, only they can hold more data and their signals can be received over a far greater distance. Wal-Mart's top 100 suppliers will be required to ship product with these tags. Much of the data collected during RFID reads will be passed on to Retail Link, Wal-Mart’s Web-based software that lets the retailer’s buyers and some 30,000 suppliers check inventory, sales, and more.

Using technology to know what the customer really wants. Or at least, what really sells. They have used technology to learn a great deal about what their customer wants. Product movement information (scanned from bar codes) is posted via satellite hourly to the main (430,000 GB) system in Arkansas. Wal-mart usually knows more than manufacturers do about what shoppers want this week and will want next year. They watch product sales at the store level on an hourly basis. They watch key items and inform the store of pricing changes in real time.

Linda Dillman - From Store Clerk to CIO. At the head of Wal-Mart Information Systems Division is Linda Dillman, who worked her way from a store clerk and gave up a career as a Beautician to run Wal-Mart's technology operations. She presides over a system so centralized that even the temperatures of each store are set from Head Office. Ironically for a company that imports $15 billion dollars a year from China, the systems at Wal-mart are homegrown. Linda Dillman believes that “The best systems are built by people who understand how they’re used”, so if you are to work on a systems project you are first assigned to the field to do actual work in the relevant area. She says “the strength of this division is, we are doers and do things faster than lightning”.

Wal-Mart's Approach to Building a System

  1. Develop a clear picture of success.
  2. Eliminate before you automate. Eliminate steps, processes, reports, keystrokes; eliminate any activity that you possibly can for two reasons: One, you'll end up building a whole lot better system that's easier to support, and two, invariably you will have a better solution that's more [user] friendly.
  3. Do a business process overview, where you physically lay out what the system looks like from a business process standpoint. Once you get the system built, then pilot it with the best and toughest customers, stores, distribution centers and clubs. If you pick the lowest volume store or easiest customers to test with, you don't find all of the things that you need to find.
  4. In any development effort, [IS] people are expected to get out and do the function before they do the system specification, design or change analysis. The key there is to do the function, not just observe it. So actually insert them into the business roles. As a result, they come back with a lot more empathy and a whole lot better understanding and vision of where you need to go and how we need to proceed.    


Notable Numbers

$256 billion in annual sales and 20 million shoppers visiting its stores each day.

Some economists say it has single-handedly cut inflation by 1 percent in recent years, saving consumers billions of dollars annually.

Its business is so vital to developing countries that some send emissaries to the corporate headquarters in Bentonville, Ark., almost as if Wal-Mart were a sovereign nation.

The nucleus of the Walmart IT infrastructure is a single, centralized, 423-terabyte (423,000 GB) Teradata system that churns data from 1,387 discount stores, 1,615 Supercenters, 542 Sam's Clubs, and 75 Neighborhood Markets in the United States, plus 1,520 more stores worldwide.