"Distribution and transportation have been so successful at Wal-Mart because senior management viewsthis part of the company as a competitive advantage, not as some afterthought or necessary evil. Andthey support it with capital investment. A lot of companies don't want to spend any money on distributionunless they have to. Ours spends because we continually demonstrate that it lowers our costs. This is avery important strategic point in understanding Wal-Mart."JOE HARDIN,executive vice president, logistics and personnelSome of our guys around here find it amusing that I get so much credit for Wal-Mart's reputation as aworld leader in retailing and distribution technology. It's not because we're not on the cutting edge. Weare. They're amused because, as I told you, ever since I went to that IBM school in 1966, I've put up apretty good fight every time somebody wants to buy some new system for this, that, or the other. I wantthem to think hard about how they're going to justify the expense before they even come to me with it.
But there's no question about it: one of the main reasons we've been able to roll this company outnationally was all the pressure put on me by guys like David Glass and, earlier, Jack Shewmaker andRon Mayer, to invest so heavily in technology. Yes, I argued and resisted, but I eventually signed thechecks. And we have been able to move way out front of the industry in both communications anddistribution. During that period in the late seventies when Kmart's management had such a strongresistance to any kind of change, that resistance included investment in systems. At the same time, ourfellows were just absolutely convinced that computers were essential to managing growth and keepingdown our cost structure. Today, of course, they've been proven so right that they look like geniuses. Iwould go so far as to say, in fact, that the efficiencies and economies of scale we realize from ourdistribution system give us one of our greatest competitive advantages.
Many people have contributed over the years, but David Glass has to get the lion's share of the creditfor where we are today in distribution. David had a vision for automated distribution centerslinked bycomputer both to our stores and to our suppliersand he set about building such a system, beginning in1978 at Searcy, Arkansas.
DAVID GLASS:
"Searcy probably was built about two years later than we needed it, so there was a lot of pressure on usto get it up and running. The big knock on Wal-Mart was that we weren't going to be able to expandmuch beyond the 350-mile ring around our distribution center in Bentonville. Because of that logisticalproblem, our disbelievers said we would always be a medium-sized regional retailer confined to this area.
I pushed hard for Searcy as the solution. It was a real ambitious plan: our first remote, mechanizeddistribution center. Unfortunately, we needed it so badly that we had to rush it into service, and thecrunch turned it into a disastermy disaster. It was as bad as Sam's opening at Harrison, only moreserious.
"We were shipping freight out of there before we had a roof on the building, and nothingnot even thetoiletsworked like it was supposed to. We had guys like Glenn Habern, our data processing manager,and Paul Carter down there driving forkliftsuntil Habern tore down a rack and spilled Listerine all overthe place. Working conditions were terrible, and the next thing you know the union was down thereorganizing.
"It was such a nightmare that Sam began to question the whole idea of mechanized distribution. He reallywasn't sure it worked at all. Fortunately, he hired Don Soderquist from Ben Franklin around that time,and Don came in as a big supporter of what we were trying to do. He believed in mechanized distributionall the way, and he eventually took over distribution from me in 1980. He went on to do a great jobexpanding it, helping introduce a lot of innovation, including a badly needed new inventory managementsystem.
"Fortunately, we turned Searcy around and made it work because it saved our neck after we took on allthose Kuhn's stores. We had to figure out how to supply them, and our arrangement with a third-partydistributor turned into a nightmare. So we built an addition at Searcy to service them, and it solved theproblem. Searcywhich is one of our best-performing distribution centers todayreally was the key to ourwhole distribution system. After we proved it would work, we were able to duplicate the modelanywhere, and that's what we've done."I think it's fair to say that our distribution system today is the envy certainly of everyone in our industry,and in a lot of others as well. We now have twenty of these centers placed strategically in our trade areasaround the countrystill mostly within a day's drive, or about 350 miles, of the stores they serve.
Combined, they account for more than 18 million square feet of distribution space. We stock over80,000 items in our stores, and our warehouses directly replenish almost 85 percent of their inventory,compared to only about 50 to 65 percent for our competition. As a result, the gap from the time ourin-store merchants place their computer orders until they receive replenishment averages only about twodays. That probably compares to five or more days for a lot of our competitors, which don't ship asmuch merchandise through their own network.
The time savings and flexibility are great, but the cost savings alone would make the investmentworthwhile. Our costs run less than 3 percent to ship goods to our stores, while it probably costs ourcompetitors between 4 to 5 percent to get those same goods to their stores. The math is pretty simple:
if we both sell the same goods for the same price at retail, we'll earn 2 percent more profit than they willright there.
Joe hardin:
"When you own and manage your distribution and logistics channel, you have a great competitiveadvantage over companies that rely on third-party suppliers. It automatically shortens your lead times, butalso you can constantly look for ways to improve your operation and try to make it more efficient. Younever have to rely on what's going on in somebody else's shop. In our case, we generally know wherethings are in relationship to when we want them to arrive, so we can schedule and plan to move goodsinto the stores at the right time. That maximizes our in-stock positions, which is vital. You can't generatesales unless you have the product there when the customer wants it."Not only do we stock more of our merchandise in our own distribution centers, we also rely on our ownprivate truck fleet to a much greater degree than our competitors do. Our private fleet is one of thenation's largest, maybethe largest. Last year, David asked Lee Scott, our vice president who overseestransportation, to try and locate every truck and trailer in the fleet on a single day just to show that wecould do it. Of course he did, and at last count, Lee says we have more than two thousandover-the-road tractors and more than eleven thousand trailers. Unlike both Kmart and Target, whichcontract out with third parties to deliver a lot of freight from their distribution centers, we've always feltthat we needed our own fleet.
To have the kind of flexibility we wantthat ability to respond above and beyond what we could asksome outsider to do for uswe need drivers who are part of our team, drivers who are as dedicated toserving our customers as the associates in the stores. And, man, do we ever have them. When you're outon the highway and you pass by a Wal-Mart truck, you can bet your bottom dollar that the guy behindthe wheel is a true professional. He's not just driving a truck. He's dedicated to servicing those stores,and he knows he's an ambassador of Wal-Mart and everything we stand for out on the road. I'll just sayit: we have the best damned truck drivers in America, and their loyalty and their can-do attitude havemade a huge difference to this company.
LEE SCOTT:
"Our drivers really are extremely loyal to their mission, which is to serve the stores. They report back toWal-Mart continually on things like merchandise thrown out behind the store that looked like it wasgood, attitude and morale problems in the stores. For a long, long time, Sam would show up regularly inthe drivers' break room at 4a.m. with a bunch of doughnuts and just sit there for a couple of hours talkingto them.
"He grilled them. 'What are you seeing at the stores' 'Have you been to that store lately' 'How do thepeople act there' 'Is it getting better' It makes sense. The drivers see more stores every week thananybody else in this company. And I think what Sam likes about them is that they're not like a lot ofmanagers. They don't care who you are. They'll tell you what they really think."Of course, the only thing that ............