The downtown square in Bentonville bustled even more than usual on a recent Thursday. There was free ice cream and cupcakes, games, a band and a special presentation and panel discussion, as people from around the area gathered for one of the main events in the Walmart Museum’s Centennial Celebration honoring Sam Walton.
The museum is sponsoring an on-going series of events this year to commemorate the life and many achievements of Walmart’s founder. Mr. Sam, as he is known, was born March 29, 1918 in Kingfisher, Okla., so this particular Thursday marked the day he would have turned 100. And even though he passed away April 5, 1992, the impact of his entrepreneurship and innovation live on.
As I reflect on that legacy, I’d like to share a few of the ways just one of Mr. Sam’s “10 Rules for Building a Business” has changed the face of retailing.
Before I get into that, however, let’s review the overall magnitude of what has become the largest company in the world. Walmart has almost 300 million customers, spanning 28 countries, and to put its size and success into perspective, consider how it compares to other major retailers.
|Stores||Revenue (billions)||Employees (millions)||Net Income (billions)|
|Whole Foods||470 (4%)||$16 (0.3%)||0.091 (4%)||$0.145 (0.1%)|
|Target||1,800 (15%)||$75 (15%)||0.341 (15%)||$0.480 (0.4%)|
|Amazon||1* (< 0%)||$135** (27%)||0.570 (25%)||$1.9 (1.5%)|
*Prior to the acquisition of Whole Foods; the one brick-and-mortar store is an Amazon Go located in Seattle.
**About $17 billion from web services
Note: The percentages are a comparison to the Walmart number. For example, Whole Foods has 4 percent as many stores as Walmart.
When it acquired Whole Foods, Amazon received a brick-and-mortar footprint that is 4 percent the size of Walmart, in terms of number of stores. Whole Foods’ revenue is less than 1 percent of Walmart’s. Although Amazon’s revenue is 27 percent of Walmart’s, its net income is about 1.5 percent of Walmart’s profit. If you add the net income of Whole Foods, Target and Amazon, it is just 2 percent of Walmart’s net income. Similarly, if you add the number of employees of Whole Foods, Target and Amazon, it is about 44 percent of that of Walmart.
Walmart invested $2.7 billion in training last fiscal year and increased pay for U.S. associates, which was only one of the company’s many initiatives to advance associates. It also had several successful sustainability initiatives last year, including the reducing its impact on landfills by 82 percent by reducing materials that in the past would have been waste.
Much of this success is due to the leadership of Sam Walton and the direction he set for Walmart as he lived out his now famous 10 Rules for Building a Business:
- Commit to your business.
- Share your profits with all your associates, and treat them as partners.
- Motivate your partners.
- Communicate everything you possibly can to your partners.
- Appreciate everything your associates do for the business.
- Celebrate your success.
- Listen to everyone in your company.
- Exceed your customers’ expectations.
- Control your expenses better than your competition.
- Swim upstream.
When I moved to Northwest Arkansas in 1994, I began having conversations about these rules with retired senior executives from Walmart who had worked with Mr. Sam, as well as several retired executives of suppliers who had worked with him. We typically talked the most about Rule No. 4. Why? Because a key thrust of my research as a professor of supply chain management over the years has focused on how information sharing can improve inventory management and forecasting.
Here is how Mr. Sam explained Rule No. 4: “The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them.”
When I talked to people who worked with Mr. Sam about this rule, I usually didn’t focus on the supply chain management aspects of the topic (unless the person has expertise and experience in this area). I wanted to learn as much as possible about the various manifestations of this particular rule to understand how it was implemented.
I would like to highlight the ones I’m more familiar with that have emanated from Rule No. 4:
Point of Sale (POS)
Walmart started sharing POS data with suppliers in the late 1980s. It includes sales data by store by stock keeping unit (SKU) by day, and it includes lots of other information, including inventory data. Sharing such information can increase forecast accuracy for suppliers, thus reducing their inventory levels and improving transportation planning.
That’s not to say all suppliers use the information optimally, but it at least helps them make other types of decisions for planning and reporting. Just knowing how well you are doing can improve decision making. When suppliers use the data to improve forecasting, it reduces the out-of-stock occurrences at Walmart, which then allows them to hold less safety stock and also avoid lost sales. I’m not aware of any other retailer that shares as much data as Walmart. This was a brilliant innovation that follows from Mr. Sam’s Rule No. 4.
Collaborative Planning Forecasting and Replenishment (CPFR)
The original theory behind CPFR is that suppliers are at an advantage over a retailer in forecasting demand for their products because they have visibility to demand more broadly than just at one retailer and they have knowledge about actions they will take on things such as pricing, product design, and new product introductions. On the other hand, the retailer is at an advantage over suppliers in forecasting the demand for the same products because it knows more about what it will be doing in terms of store openings and closings, changes in departments, assortments, and other new product introductions in the same category. Some of this information cannot be shared directly, but a retailer’s forecasts can be shared and reconciled, thus resulting in a better overall forecast.
Category Advisory (CA)
Walmart and suppliers collaborate on the merchandising of some categories at Walmart. This includes collaboration on plan-o-grams, which show things like which products go where on the shelves, how many facing of each (number of rows on the shelf given to a SKU), and which products are adjacent to other products. It also involves collaboration on assortment depth and breadth in the category.
Vendor Managed Inventory (VMI)
This innovation, which often is referred to as Co-Managed Inventory (CMI), involves the suppliers placing replenishment orders for the retailer’s distribution centers. Yes, that’s right, under VMI, the supplier makes the DC replenishment orders for the retailer. You might think this could cause suppliers to behave opportunistically with a retailer. They wouldn’t be able to do it for long, however, because if a supplier pushes too much inventory, the inventory metrics tell that story and most retailers would then dissolve the VMI process with that supplier.
The original theory behind VMI is that the supplier can make decisions to reduce overall costs. For example, if a supplier is simply taking DC replenishment orders from large retailers, then the orders might come in lumpy because the retailers are ordering out of sync with one another. With VMI, the suppliers can create synchronization in how they order. This allows suppliers to smooth their production, thus reducing their need for excess capacity in manufacturing, distribution and transportation. The retailer, meanwhile, enjoys improved in-stock positions, reducing its need for safety stock.
POS sharing, CPFR, CA and VMI (and others I have not mentioned) all were novel ideas that emanated from Mr. Sam’s Rule No. 4. They have created a vocabulary and metrics that have driven lots of alignment between suppliers and Walmart. Ultimately, these practices have helped shoppers save money, and not just with Walmart. They also have driven competitors to adopt some of these innovations, often referring to them by different names, thus driving overall industry efficiency and effectiveness.
These concepts go in and out of favor to varying degrees over time in various categories; nevertheless, much has been learned through the process. And all of these practices lead to an important question: With e-commerce now mixing in many different ways with brick-and-mortar retailing, what new innovations will come from Walmart as a result of Rule No. 4? I can’t wait to see, and I wish Mr. Sam were here to see, as well.
Matthew A. Waller is the Dean of the Sam M. Walton College of Business, Sam M. Walton Leadership Chair, and Professor of Supply Chain Management. As Dean he leads the Walton College, which has over 6,000 undergraduates and about 500 graduate students. He has been an active entrepreneur most of his life. He was co-founder of a software company which had over 100 employees as well as a consulting firm. He is an inventor on the following patent: Waller, M.A. and Dulaney, E.F. System, Method and Article of Manufacture to Optimize Inventory and Merchandising Shelf Space Utilization, Patent No. US 6,341,269 B1. Date of Patent: January 22, 2002. His opinion pieces have appeared in Wall Street Journal and Financial Times. Dr. Waller is an SEC Academic Leadership Fellow. He is coauthor of The Definitive Guide to Inventory Management: Principles and Strategies for the Efficient Flow of Inventory across the Supply Chain, published by Pearson Education. He received a B.S.B.A. summa cum laude from the University of Missouri, and a M.S. and Ph.D. from The Pennsylvania State University. He is the former Co-Editor-In-Chief of Journal of Business Logistics. Matt is coauthoring a book with Kirk Thompson, Chairman of J.B. Hunt Transport Services, Inc. about strategy and how J.B. Hunt Transport Services, Inc. applied various business strategies.