Wal-Mart Doing Remix on Logistics
By George Anderson
A program going by the name “Remix” is focused on putting an end to empty shelves of fast moving grocery products in Wal-Mart.
The company, which already is widely believed to have the most efficient distribution system in the retail industry, will designate warehouses by distribution need. Slower moving items, such as general merchandise, will be handled through designated distribution centers, while other “high velocity” warehouses will stock and supply fast turners to stores on a continuing basis.
Crews at the “high velocity” facilities will pack items on pallets that can be rolled directly onto stores’ sales floors so that shelves can be replenished more quickly. Wal-Mart is looking to eliminate the need for stores to search for product and sort it out in the backroom before moving it into the store and onto shelves. The company believes that continually replenishing stock in this manner will eliminate out-of-stocks and reduce labor on store docks.
Wal-Mart has embarked on this program as it attempts to wring more profits out of every square foot in its stores.
Rollin Ford, executive vice president of logistics, Wal-Mart, told The Wall Street Journal, “We could have done nothing and been fine from a logistics standpoint. But as you continue to increase your sales per square foot, you’ve got to do things differently to make those stores more productive.”
Wal-Mart tested Remix in Florida last year and saw enough to begin a national rollout of the program. According to the Journal report, it will be fully operational by 2007.
Bill Dreher, an analyst with Deutsche Bank AG, believes Remix will help Wal-Mart increase its operating profit at a faster rate than sales. Operating profit growth was below sales for the past two quarters, the first time that has happened since 2001.
Moderator’s Comment: What will Remix mean for Wal-Mart? What impact will it have on the distribution system of other retailers?
Target has had a similar, albeit less extensive, program up and running for a couple of years. The retailer has a dedicated express lane in its warehouses
for fast moving items. The chain has reduced out-of-stocks as a result of this effort. –
George Anderson – Moderator
Out-of-stocks were determined by one chain I worked for as the single largest source of “lost sales.” Can’t say that I disagree. However, I disagree with WM’s supposed solution. They already have a reputation for junky shelf conditions in their stores, and they don’t need to add a pallet obstacle course for shoppers to the mix. (We all know of whence I speak.) Senior citizens especially complain about having to walk the long aisles at WM, and if they have to dodge pallets in the process, I foresee a backlash.
I’ve worked with some very large stores, and the best of them had managers who walked the aisles instead of trying to save money by manning a checkstand. These “managers-by-walking-around” spotted out-of-stocks and sent a stocker to remedy the situation. I can’t picture a better solution.
It’s not unusual for a retail chain’s warehouse to have “fast movers” picked in a separate area from “average movers” and “slow movers.” In a hard goods warehouse, the “slow movers” are often “break pack” or even picked individually, instead of by the carton (average movers) or by the skid (fast movers). It’s also common for the quicker movers to be shipped more frequently than the items in the slow lane. Many chains assemble shipments so that items get unloaded at the store in shelf or department sequence. WM’s “new” program sounds to me like some reasonable adjustments, not a quantum-leap breakthrough.
Wal-Mart is continuously innovating in the area of logistics. In my opinion, logistics is their biggest strength. Improved productivity on high velocity items resulting in less out of stocks will certainly increase sales and customer satisfaction. Backroom stock is usually not an issue for high velocity items and less OOS will be worth any minor glitches in the stocking process. I don’t know what the Wal-Mart OOS percentage is but a 1%-2% reduction on their enormous volume will be a large sales boost.
There are several takeaways from the Wal-Mart Remix project. First, I must say that ever since CNBC ran their two hour video on Wal-Mart, it has perplexed me why they still hand stacked their outbound trailers. The only conclusion I reached was that they must have determined that the savings at store level achieved by having truck loads customized to individual store layouts outweighed the additional warehouse labor. This holistic perspective of the supply chain revealed one of their strengths. Now they are looking at providing better service on fast moving goods and improving store inventory management further by having pre-loaded carts for the sales floor. This is addressing the same area as RFID and may even make RFID more important. If night crews get used to rolling the carts off the trailer instead of looking for backroom stock it could quickly backfire. But this is the last thing we learn from the new approach. First, they experimented in a small region of the company and now the rollout will take two years. This provides many opportunities to apply what is learned.
I am amazed that the fast moving products even have to go to the warehouse. I bet Wal-Mart has the clout to have manufacturers ship pallets of fast moving products directly to stores at no extra freight expense to Wal-Mart.
I recall sitting thru seminars on this very thing 15 years ago. Amazing that it’s taken this long. Wal-Mart leads the way, as usual. “All of the above” was the operative answer in the little quiz above. This really ain’t rocket science, and other retailers, if they chose, can copy the low-hanging fruit here quite easily.
Supply chain excellence remains a cornerstone of the Wal-Mart business model. Dedicating warehouses by “type” of merchandise, defined in terms of the type of handling, processes and support required at the warehouse (as opposed to defining “type” based on category of merchandise) is an eminently logical decision.
But take a step back. Look at the economics. This sort of dedication of facility is only possible when you are moving the volume of goods that Wal-Mart moves. Think about it. Regionalizing warehouses, in the era of $3.50 fuel, makes sense and will continue to make sense. To ask the average retailer to both regionalize and specialize…..the volume isn’t there to support the investment.
Again, might makes right. Good for the logistics gurus at Wal-Mart. As usual, when they realize the “can,” they “do.”
As WM continues to fine tune their distribution and “way to market,” the traditional supermarkets have to either do their distribution through their OWN warehouses or choose from the few wholesalers, whose chosen path to make money rests with their ability to take unearned money from vendors…not exactly the business model for long term partnership.
When you send a bill to WM, you get paid…when you send a bill to some of these other distributors, you would be better off sending it to Harrah’s and playing roulette…the payoff is about the same. You may get back half of what you billed. How long can vendors put up with this before they raise their prices to cover the everyday cash pilferage that comes with doing business this way?
Traditional supermarkets will never be able to compete until they clean up their distribution issues, and find a way to have their groceries delivered by companies who charge them for the delivery and make their money by delivering those groceries, and not by delivering at ridiculously low fees and then making it up on the backs of the vendors. We are all catching on to that and prices are soon going to cover those added costs. How will the traditional stores compete with WM then?
The industry complains about WM daily, yet it does nothing to help itself compete. It’s about paying for what you get. It’s about not creating profit centers OUTSIDE of the store. It’s about making money doing what you are good at…either distributing or selling groceries…not subsidizing what you should do well by taking money that isn’t yours…either in unauthorized deducts or via nuisance fees.
WM again, just distributes and sells groceries at the lowest price that they can and still make money. It really isn’t any more complicated than that. The rest of the traditional supermarket industry has to wake up and see that they don’t have to reinvent the wheel. Just do what you do best and expect that your distribution and vendor partners do the same…that’s it!