Hi jpeezy,
When Wal-Mart notifies its battery supplier of a sale, this is an
example of electronic data interchange being used to facilitate
"just-in-time" inventory control, which Wal-Mart implemented earlier
and more aggressively than any other US retailer.
The essence of "just-in-time" manufacturing and stock control is to
increase efficiency by smoothing out flows in the manufacturing and
supply chain.
In traditional retailing, the retailer buys large quantities of each
item at once, so as to qualify for the largest quantity discount. The
stock is held in a warehouse until it is needed in the retail outlet.
Several problems are associated with this method of operation.
CASH FLOW: The retailer needs to pay for large orders at once (perhaps
for several month's stock). The manufacturer receives large but
infrequent and irregular payments. This makes cash flow management
difficult for both parties.
MANUFACTURING CAPACITY: The manufacturer has intense bursts of high
demand when large orders for several retailers need to be produced in
a short period of time, interspersed with relatively quiet times. It
is difficult to predict in advance when these bursts will occur,
making it difficult to allocate labor and machine capacity
efficiently.
STORAGE COSTS: The manufacturer needs considerable warehouse space to
assemble large orders. The retailer needs considerable warehouse space
to hold large orders until they are needed at the retail outlet.
SPOILAGE: While stock is warehoused it is at risk of deterioration and
spoilage. Deterioration occurs over time: colors fade, whites become
yellowed and boxes become dusty. Water damage and heat damage can
occur. Physical damage can occur as stock is "shuffled around" the
warehouse to make space for other items.
THEFT AND OTHER LOSS: While stock is warehoused, it is at risk of
theft. Other losses can arise simply due to stock being "forgotten" in
some obscure corner of the warehouse and unable to be located when
needed.
OBSOLESCENCE: Even if stock is not physically damaged, it frequently
becomes "out of date". A warehouse full of clothing that went out of
fashion last month is worthless, as is a warehouse full of a toy or
other product that is no longer in demand or no longer meets new
packaging or safety standards.
WASTE: If a fault develops on the manufacturer's production line, and
is not noticed at the factory, it may not be detected by the retailer
until stock towards the "bottom of the pile" is used. In the meantime,
the manufacturer might have been making many months' supply in order
to prepare for the next bulk order - all with the same fault.
The aim of "just in time" inventory control is to negotiate quantity
discounts based on total quantities purchased rather than on
individual order size, and to work closely with the manufacturer to
obtain a smooth flow of the product. The manufacturer's work becomes
much easier, because the manufacturer can dedicate a production line
to produce a steady flow of the product. The retailer's work becomes
much easier, because the retailer receives just enough of the product,
just before it is needed.
The manufacturer receives prompt notification of items sold, in order
that sales trends can be spotted early and production adjusted to
allow for them.
As you might imagine, "Just-in-time" inventory control (JIT) has some
problems of its own. It is susceptible to disruptions caused by
machine breakdowns, transport interruptions and industrial disputes.
These and other similar factors must be carefully considered, and
action taken to reduce the likelihood and consequences of their
occurrence, before a successful JIT program can be instigated.
According to Time Magazine, as early as 1966, Wal-Mart founder Sam
Walton "realized that he could not grow at the pace he desired without
computerizing merchandise controls. He was right, of course, and
Wal-Mart went on to become the icon of just-in-time inventory control
and sophisticated logistics--the ultimate user of information as a
competitive advantage. Today Wal-Mart's computer database is second
only to the Pentagon's in capacity, and though he is rarely remembered
that way, Walton may have been the first true information-age CEO.":
Time 100: Builders & Titans - Sam Walton
http://www.time.com/time/time100/builder/profile/walton.html
Clearly, it is not possible to reduce warehousing all the way to zero.
Some stock is needed to cover short-term fluctuations in demand and
supply. A writer going by the name of "Big Dog" describes this by
analogy with the flow of water through a rocky pool:
"JIT can be thought of as a pool of water. At the bottom of the pool
are various sizes of rocks. The water represents inventory while the
rocks represents inefficiencies in the organization. Before JIT is
implemented, there is plenty of water (inventory) within the supply
chain to cover all the rocks (inefficiencies and trouble spots). As
the water level (inventory) is slowly lowered, then the rocks
(inefficiencies and trouble spots) began to break the surface level of
the water. At the point, the water is stabilized. Processes and
improvements are then implemented to reduce the size of the rock. Once
the exposed rocks have been eliminated, then the water level is slowly
lowered again until more rocks are exposed. Attention is then focused
on these exposed rocks. This process continues until the water level
can be reduced as low as possible without any rocks showing above the
surface of the water."
Big Dog's Just-In-Time (JIT) Page
http://www.nwlink.com/~donclark/ic/ic_jit.html
By electronically linking to their suppliers, Wal-Mart and their
suppliers gain advantages due to JIT. They also gain advantages due to
the elimination of paperwork from the stock re-ordering process, and
the consequent elimination of processes associated with sorting,
mailing and storing of paper-based transactions.
It's difficult to put a dollar value on the benefit Wal-Mart gains
from their information exchange with suppliers. Wal-Mart has
relentlessly pursued a wide range of cost-reduction measures over the
years, and it's not realistic to isolate the effects of those
interacting measures. However, the link-up between Wal-Mart and
Proctor & Gamble has been credited with enabling Wal-Mart to surpass
Sears Roebuck, and become the largest retailer in the United States in
1990:
Inventory - Old Paradigm - New Paradigm (scroll down to near bottom of
page)
http://www.hcaassessmentexperts.com/books/mp07.htm
Some specific details are provided in a PowerPoint presentation which
at the current time is inaccessible. However, the Google cache has an
HTML version which is accessible. The presentation claims that
"Walmart's stores average only 10% dedicated to inventory space,
versus 25% industry average":
Relationships among Resources, Capabilities and Competitive Advantage
http://216.239.39.100/search?q=cache:SQD1Qjj03ZQC:www-management.wharton.upenn.edu/mgmt654/Wulf/New_Folder/all%2520WallMart%2520ppts.ppt+%22relationships+among+resources%22+capabilities&hl=en&ie=UTF-8&client=googlet
This is just the tip of the iceberg. I recommend you browse some of
the many sites accessible from the Google links listed below.
Google search strategy:
walmart "just in time"
://www.google.com/search?q=walmart%20%22just%20in%20time%22
"wal-mart" "just in time"
://www.google.com/search?q=%22wal-mart%22+%22just+in+time%22
"just in time" "inventory control"
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walmart "just in time" "cost savings"
://www.google.com/search?q=walmart+%22just+in+time%22+%22cost+savings%22
"wal-mart" "just in time" "cost savings"
://www.google.com/search?q=%22wal-mart%22+%22just+in+time%22+%22cost+savings%22
walmart "cost savings of" inventory
://www.google.com/search?q=walmart+%22cost+savings+of%22+inventory
"wal-mart" "cost savings of" inventory
://www.google.com/search?q=%22wal-mart%22+%22cost+savings+of%22+inventory
Regards,
eiffel-ga |
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