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Inventory snag puts Walmart's supply chain on spotlight

Posted: 22 Jan 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Walmart? supply chain? inventory? information technology? IBM?

Walmart has been known as a retail giant with an impeccable supply chain system. However, that reputation has come under fire as the company struggles to control excess inventory and shelves that go empty. For a very long time, nothing has changed with Walmart's system that seems to do no wrong. Looking at how things are going for the company, perhaps the time is ripe for a do-over.

And based on a visit to my local Walmart, where bare shelves greeted customers in the middle of the holiday shopping rush, proves there's still a lot of work to be done before the blue-clad Walmart army will again "march in sync" as the new Walmart U.S. CEO Greg Foran put it.

That a company which has pieced together an information technology infrastructure larger than that of any other private company in the world still faces inventory issues provides a stark reminder of the fickleness of success. Resting on past achievements is not an option even when you are the top global retailer.

Keep in mind Walmart's logistical and operational triumphs have to a large extent been built on the successful implementation of technology to manage its mammoth operation of $32 billion in inventory and 11,000 stores worldwide. It was the unprecedented collaboration between manufacturers and Walmart's suppliers that made the company, despite its size, work like a single firm.

The retail giant early realized the importance of sharing information across the supply chain, creating a central database, Retail Link, which displays information as detailed as real-time sales data from Walmart cash registers. A collaborative planning, forecasting and replenishment scheme enabled manufacturers and suppliers to synchronise their demand projections while staying connected through technology such as store-level point-of-sale systems.

Faced with the recent inventory debacle, Walmart once again seems determined to seek a large part of the answer in technology, rolling out a new system for replenishment and inventory control. The Global Replenishment System (GRS), a downward forecasting model, is the polar opposite of the forecasting engine that it is set to replace, Inforem, a bottom-up system developed by IBM. Designed to provide an improved real-time view of inventory, GRS also places added emphasis on promotional/event planning.

Foran said recently simplifying inventory management process actions will further address the fact that inventory has been growing at twice the rate of sales, causing SKU overload at local stores. There is no quick fix since the issue at hand is so complex.

An interesting observation in Forbes by retail analyst Paula Rosenblum identified as the root problem "the tyranny of turn" or the "velocity of sales as a per centage of average inventory." Rosenblum argued the solution could be found in new RFID readers for wide-area monitoring combined with a few handheld devices to circumvent metal interference. The addition of payroll, Foran himself admits the company has "cut muscle instead of fat," would also contribute to get the backrooms back in order.

Despite the negative news reports, Walmart is still one of the world's most efficient retailers.

- Frank Cavallaro

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