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9/24/2004
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Wal-Mart's Way

Heavyweight retailer looks inward to stay innovative in business technology.

Wal-Mart's Way Table Of Contents:

  • Page1: Insourcing IT And Software Development
  • Page 2: The Potential Of RFID
  • Page 3: Massive, Centralized Infrastructure
  • Sidebars:
  • Wal-Mart CIO Linda Dillman On RFID
  • People First: Talent Development Is A Wal-Mart Hallmark
  • Wal-Mart's RFID Mandates: Separating Fact From Fiction
  • A Leader-To-Be With A Diverse Background
  • Once RFID Milestone Passes, Focus Shifts To More Suppliers
  • IT's Role In Realizing the Possible
  • Case Study in Fast-Track Career Growth
  • Battle-Hardened Director Of Information Security
  • Quick Poll: Outsource vs. Insource

  • The Potential Of RFID
    Dillman arrives late to a meeting partly, she explains, because she was involved "in a very lengthy discussion with someone who says RFID has no business case for manufacturers, even at a zero-cost tag." She chuckles over that one as much as over another analysis that posited RFID would deliver $7 billion in benefits next year--almost more than Wal-Mart's total profits. Still, "this technology has a bigger potential to make a difference in retailing than anything we've ever done," says Dillman, who joined Wal-Mart 10 years ago and until two years ago was its VP of international systems development. She replaced former CIO Kevin Turner, who became president and CEO of Sam's Club.

    RFID tags on cases and pallets will be read not only when inventory enters a stockroom but also when those cases or pallets go to the floor and, ultimately, when empty cases go to the compactor, she explains. 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. The company is developing software for Retail Link that will leverage that data and trigger a business process--for example, initiating a purchase order. The use of RFID "can dramatically improve suppliers' in-stock positions," says Simon Langford, manager of global RFID strategy, who came to Bentonville from England, after Wal-Mart's acquisition of grocery chain ASDA.

    One of Wal-Mart's suppliers, Pacific Cycle LLC, was so eager to test its RFID systems for applicability across the globe that it requested Wal-Mart start accepting in September four models of Schwinn Sting-Ray bikes, tagged with both EPCglobal Class 0+ and Class 1 tags, at the retailer's Dallas distribution center. Wal-Mart willingly agreed to the request. "I get feedback regularly on the RFID project, and they respond to our questions the same day they're asked," says Edward Matthews, the bike maker's director of information systems.

    Radio-frequency identification has a bigger potential to change retailing than anything Wal-Mart's ever done, CIO Linda Dillman says.

    Radio-frequency identification has a bigger potential to change retailing than anything Wal-Mart's ever done, CIO Linda Dillman says.

    Photo by Bob Stefko
    Dillman expects Wal-Mart to use all the data gleaned to draw conclusions about when to bring additional stock to the floor, of course, but also to figure out if too much of a product has been ordered by a store (monitoring how long a case sits in the stockroom before its contents are emptied) or is sitting in a distribution center (if the case doesn't get shipped out for days).

    Critical to the RFID effort is global data synchronization to enable communications with the industry-standard EPCglobal registry so that accurately described and consistent product information is exchanged between trading partners. Wal-Mart has selected UCCnet and, so far, 650 suppliers send item information to the data pool on a machine-to-machine basis.

    The potential benefits across the supply chain from deploying RFID are such that Wal-Mart has taken the unprecedented step of collaborating with its competitors to make the technology easier for suppliers to adopt. "We must be inventing and implementing faster the competition is stealing," reads one of the quotes posted in the lobby of the Technology Center. Yet the unlikely duo of Wal-Mart and Target Corp. agreed to begin with their Dallas-area distribution centers, using the same standards and requirements. The best way to make RFID happen is if retail stores are all in this together, Dillman says. (For more about Dillman's perspective on the RFID initiative, go to Linda Dillman On RFID.)

    Of course, that level of collaboration "won't happen very often," Dillman adds. Wal-Mart isn't about to share with competitors other supply-chain efforts that are consuming much of Dillman's time these days. "As good as we've ever gotten, there's still so much room for improvement," she says.

    Among the next set of innovations in the area is an effort dubbed Remix. The project, being tested in Florida with a dozen stores, will turn upside down distribution processes that have been in place since 1992. The aim is to revamp the distribution network to eliminate mixing different types of freight so that associates won't have to pick through trucks to find items, and to provide Wal-Mart buyers with additional visibility into inventory in the system. Wal-Mart is turning grocery-distribution centers into "high-velocity" buildings out of which will be distributed fast-selling products, such as paper, that are pallet-loaded onto trucks and can go straight to shelves, while regional distribution centers handle merchandise that gets loaded onto trucks without pallets.

    Five months into the test, "we've seen dramatic decreases in inventory levels while improving in-stock and same-store sales compared with last year," says Randy Salley, VP of applications development, who's working with the global-supply-chain team on the project. Before the 2007 rollout, Wal-Mart wants to understand what's happening in the logistics network and what it may mean to suppliers' own forecasting and delivery operations.

    Straight From The Source

    Wal-Mart's RFID information page for suppliers

    Wal-Mart press release on the rollout of electronic product codes

    The Wal-Mart Culture, including 3 basic beliefs

    Sam Walton and the Sundown Rule

    The History of Wal-Mart

    Biography of CIO Linda Dillman


    That's just one example of where Wal-Mart IT pros get the opportunity to drive projects that drive the business--in contrast with businesses in which outsourcing is common, or IT is treated as a service provider. "If we can generate ideas and take them to the business, and they get excited about them," that's when everyone wins, Dillman says.

    Wal-Mart is structured so those projects can happen fast, too. The centralized IS group doesn't have some of the budget and governance issues many companies do. It charges nothing out to the divisions--budget and project resources are allocated to what's most important in the company, not to the person with the biggest budget. No steering committees exist to slow the process, making it possible to give new projects a try on a small-scale basis, as well as to simplify projects for the critical piece that adds the most value. The Wal-Mart way, VP Walton notes, is to look for the 80% to 90% solution and deliver it with 100% accuracy.

    The technology department's "secret weapon is that everyone is completely focused on how they can make it easier, faster, and/or more efficient for our operators, merchants, and support teams to do their jobs," writes Schoewe in an E-mail. As for Dillman, "I'm glad she's on our team because I'd hate to be going up against her as a competitor."

    Photo of Wal-Mart courtesy of Knight Ridder

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