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Wal-Mart’s Online Fulfillment Plans Are Under the Looking Glass

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The Marketplace Section of today’s Wall Street Journal leads with an article, Wal-Mart’s Big E-Stumble- After Years Giving Short Shrift to Web, Retailer Plays Catch-up with Amazon. (Paid subscription required or free metered view)  Many in B2C supply chain and online fulfillment circles are fully aware of the competitive threat that Amazon poses to many retailers and consumer goods producers. Teams should especially take notice when Wal-Mart, one of the largest global retailers, also stumbles in overall online fulfillment strategy. 

This author has highlighted on Supply Chain Matters along with other guest blog contributions that online fulfillment must exhibit its own strategy, even if the business model requires a combining online with traditional in-store brick and mortar fulfillment. Just prior to the 2012 holiday buying season, this author reminded readers of the critical importance of not placing organizational walls or conflicting performance metrics among online and traditional retail fulfillment teams that frustrate teams in achieving seamless buying channel fulfillment. That point is reinforced in this latest Wal-Mart online fulfillment report.

The WSJ article observes that Wal-Mart management concluded that it must tailor its online fulfillment model because of the continuing need to supply its vast network of stores. That sowed the seeds for internal conflict regarding adherence to Wal-Mart’s long passion of extreme efficiency with the responsive distribution and logistics required in online fulfillment. The current online strategy includes the utilization of more than 4000 existing Wal-Mart retail stores as shipment fulfillment entities. The article cites former company executive’s indications of culture clash between the online fulfillment team located on the U.S. West Coast and Wal-Mart’s Bentonville culture where logisticians have passion for the ultimate in efficiencies and profitability. 

Two-thirds of the U.S. population lives within 5 miles of a Wal-Mart store, which are replenished daily.  As noted in October, Wal-Mart believes that its core customers are reluctant to utilize credit or debit cards in online transactions, given the fact that half of 2012 online sales involved either pick-up or payment at the local store. There lies the core of Wal-Mart’s current online fulfillment strategies, leverage the retail store and pooled national distribution and logistics together in a comprehensive network of online response. That one can argue is a differentiated strategy from that of Amazon, one that can bear fruit.  The challenge remains in timely plan execution.

The WSJ reports that Wal-Mart’s online fulfillment can cost $5 to $7 per parcel vs. the Amazon benchmark of $3 to $4. The online business has been forced to turn to 3PL’s and other online trading partners such as Ingram Micro to support online fulfillment needs while one reported warehouse near Atlanta is Wal-Mart’s only company owned DC dedicated to online orders.

In October of last year, as Wal-Mart responded to Amazon’s announced same day delivery option, our Supply Chain Matters commentary at the time pointed out that the most expensive, unreliable and inefficient fulfillment point can be traditional retail store.  Bare bones retail store budgets leave little room for investment in item level tracking, accuracy and stock handling, let alone individual pick and pack fulfillment or online order customer pick-up. Inventory stocking is predicated on national distribution network store replenishment strategies vs. multi-echelon, pooled distributed inventory available to fulfill both retail and online customer needs. There are also rather important considerations for distributed or supplier drop-ship order management needs.

By our lens, the current challenge for Wal-Mart online fulfillment should be weighted in additional investments in business processes and information technology that umbrellas both pooled inventory/distribution and inclusion of 4000 retail stores as fulfillment stocking and customer pick-up points, some with same day fulfillment capabilities. That is no small challenge, even for an organization with the resources of Wal-Mart. 

The WSJ points out that $430 million have been budgeted this year on e-commerce investments. We certainly trust that these investments are weighted not just to a more attractive web site or traditional distribution center automation, but rather end-to-end supply chain network with seamless inventory visibility, store level inventory tracking and distributed pick and pack capabilities. 

The other critical aspect of investment centers on breaking-down existing organizational barriers, management thinking and performance metrics. Wal-Mart has struggled for some time with same store sales growth among its U.S. stores with constant explanations that its core customers are economically stressed and refraining from buying.  One wonders if the Wal-Mart customer has discovered the benefits of online comparisons and shopping, which has reduced trips to the store.

The response by management has led to failed attempts to change retail level merchandising and stocking strategies and a renewed emphasis on controlling retail level operational and labor costs. If an online strategy is to succeed it requires holistic thinking that spans all buying options. Retail staffing had better include something beyond the traditional back room inventory stock clerk, augmented to include systems savvy fulfillment associates. 

The above described organizational scenarios and conflicts should sound familiar to many of our retail industry readers. Teams and online business leaders have the benefit of observing and learning what others such as Wal-Mart are experiencing in real-time.  External consultants sometimes make the most impact by helping organization’s breakdown existing silos and think holistically.

No online organization wants to read in business media that its strategies are catch-up, especially if you are one of the industry leaders.  In that same vein, no B2C fulfillment team wants to later regret that existing management was just not listening to the implications of the Amazon effect.

Bob Ferrari

 

 

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