A New Supply Chain Forged

Wal-Mart put intelligence in its inventory and recognized the value of sharing data.

By AMY HELEN JOHNSON
SEPTEMBER 30, 2002

Computerworld

Dateline: A timeline of technology advances at Wal-Mart

1962: Wal-Mart opens its first store.

1979: The retailer switches to a computerized inventory system
that tracks individual items.

1983: With bar codes printed on most goods, Wal-Mart
introduces checkout scanners in all its stores. They update
inventory numbers for individual items at the point of sale and
enable headquarters to more easily aggregate sales and
inventory data at its centralized IT department.

1987: Wal-Mart completes a two-year satellite communications
network installation that sends data from all stores to
headquarters, providing real-time inventory data.

1990: The retailer implements a collaborative planning,
forecasting and replenishment process that brings suppliers and
distributors together to build a combined planning calendar.
Forecast accuracy increases.

July 1996: Wal-Mart launches its e-commerce Web site.

Being a supplier to Wal-Mart is a two-edged sword," says Joseph
R. Eckroth Jr., CIO at Mattel Inc. "They're a phenomenal channel
but a tough customer. They demand excellence." It's a lesson
that the El Segundo, Calif.-based toy manufacturer and
thousands of other suppliers learned as the world's largest
retailer, Wal-Mart Stores Inc., built an inventory and supply chain
management system that changed the face of business. By
investing early and heavily in cutting-edge technology to identify
and track sales on the individual item level, the Bentonville,
Ark.-based retail giant made its IT infrastructure a key
competitive advantage that has been studied and copied by
companies around the world.

"We view Wal-Mart as the best supply chain operator of all time,"
says Pete Abell, retail research director at high-tech consultancy
AMR Research Inc. in Boston.

Abell says he expects the company to remain in the vanguard.
"Wal-Mart is evolving; they're not standing still," he says. The
company is still pushing the limits of supply chain management,
he says, searching for and supporting better technology that promises to make its IT infrastructure more efficient. Radio
frequency identification (RFID) microchips, for example, may replace bar codes and security tags with a combination
technology that costs less money.

Sam's Vision

Wal-Mart founder Sam Walton first explored the idea of using computers to handle inventory in each store in the mid-1960s.
But databases made only the analysis part easier; counting stock, a manual chore, was still a headache.

That headache didn't ease until the early 1980s, when retailers put into general use a way to electronically identify items. That
was the genesis of the stock keeping unit, or SKU, and the standardized bar code.

The original idea for a machine-readable encoded identification symbol appeared in 1949, in a patent application submitted by
Bernard Silver and Norman Woodland. In 1967, a rough system went into use at a supermarket in Cincinnati, using a circular
symbol. In 1974, the first modern scanning system appeared - again, at a grocery store - reading the standardized, rectangular
universal product code that's ubiquitous today.

It took a while for the majority of packaged goods to be labeled with bar codes. At that point, in 1983, Wal-Mart invested in
point-of-sale terminals, which simultaneously rang up sales and tracked inventory deductions. Four years later, a massive
satellite system linked all of the stores to company headquarters, giving Wal-Mart's centralized IT department real-time
inventory data.

Early on, Wal-Mart saw the value of sharing that data with suppliers, and it eventually moved that information online on its
Retail Link Web site. Opening its sales and inventory databases to suppliers is what made Wal-Mart the powerhouse it is
today, says Rena Granofsky, a senior partner at J.C. Williams Group Ltd., a Toronto-based retail consulting firm.

While its competition guarded sales information, Wal-Mart approached its suppliers as if they were partners, not adversaries,
says Granofsky. By implementing a collaborative planning, forecasting and replenishment (CPFR) program, Wal-Mart began a
just-in-time inventory program that reduced carrying costs for both the retailer and its suppliers.

"There's a lot less excess inventory in the supply chain because of it," says Granofsky.

Power Partners

That efficiency is a key factor in maintaining Wal-Mart's low-price leadership among retailers, says Abell. "Their margins can be
far lower than other retailers' because they have such an efficient supply chain," he says. The company's cost of goods is 5%
to 10% less than that of most of its competitors, Abell estimates.

Wal-Mart's success with supply chain management has inspired other retail companies, which are now playing catch-up, says
Abell.

"Others are now just starting. They've all had inventory systems, but sharing the data with their partners hasn't been easy," he
says.

Wal-Mart's influence has extended beyond the retail sector. Mattel's Eckroth says that he studied Wal-Mart's supply chain
best practices when he worked at a manufacturing division of General Electric Co. "They're a benchmark company," he says.

One reason Wal-Mart is studied so closely is that it gets buy-in from its suppliers to an incredible degree. That's because its
programs and practices benefit not just the retailer, but its partners as well, says Eckroth. CPFR, he says, has "blurred the
lines between supplier and customer. You're both working to the same end: To sell as much product as possible without either
of us having too much inventory."

Mattel learned a lot from working with Wal-Mart and is bringing those lessons to bear in its relationship with other channels,
says Eckroth. "Getting the supply chain optimized inside of Mattel is only 50% of the equation," he says. "The other 50% is
getting tightly linked with every one of our customers so that we're reacting as quickly as they're giving us data."

Tight links, Eckroth says, will enable Mattel to tackle the next big business problem: increasing manufacturing efficiency.

"My ability to get information about the sales pace of a toy and either ramping up or shutting down manufacturing depends on
my having data," he says. Having sales data on a daily or hourly basis is necessary to figure out on a micro level what is
selling best where and tailoring manufacturing accordingly. The greatest efficiencies will appear when the kind of trusting,
mutually beneficial relationship Mattel has with Wal-Mart is duplicated with the rest of the manufacturer's retail outlets.

"Having that data on a global basis from every one of my customers allows me to optimize the sales of my products and the fill
rates of my customers," Eckroth says. "The theme for the future is that at the end of the day, there can be a symbiotic
relationship between companies."

The 21st Century Inventory System

At Wal-Mart, CIO Kevin Turner and his staff are evaluating ways to apply wireless technology in stores. The company is also
testing emerging RFID smart-tag systems, which might replace bar codes with a more efficient product-tracking mechanism.

Retailers like Wal-Mart have gotten very good at keeping stores optimally stocked. The next step, says Abell, is improved
inventory analysis software that tailors the mix of goods on store shelves based on their individual sales patterns and the total
cost of goods, including often-hidden factors like transportation fees, package size and inventory carrying costs.

Such demand chain management systems are in use in Europe and Japan and are making their first inroads in the U.S., Abell
says. Some of the vendors that provide this technology are SAF AG in Tagerwilen, Germany, DCM Solutions Inc. in Irving,
Texas, and Industri-Matematik International Corp. in Stockholm.

But don't count out the current leaders that offer analytics software, says Granofsky, such as Retail Technologies International
Inc. in Sacramento, Calif., and Retek Inc. in Minneapolis.

"These are the major players, and they'll continue to be so," she says.

Cathy Hotka, vice president of IT at the National Retail Federation in Washington, sees in-store kiosks returning to the
consumer scene. Once little more than advertising vehicles, kiosks are evolving into something shoppers will likely find useful,
says Hotka. With them, customers can check the inventory of an item to find out if it's available and at which locations, get an
exact resupply date for out-of-stock merchandise, check product specifications before buying, or order products and have them
shipped to their homes.

Based on Wal-Mart's profitable approach of creating supplier partnerships, cooperation between retailers and suppliers is likely
to become the de facto business strategy in the future. That's because it works, says Eckroth.

"We've learned that if we listen to [Wal-Mart], take their initiatives seriously and align our strategies with making them
successful, we both can succeed," he says.

The 21st century bar code

By AMY HELEN JOHNSON
SEPTEMBER 30, 2002

Content Type: Story
Source: Computerworld

The ubiquitous bar code is showing its age. Although it's still the
darling of retail sales, allowing companies to get real-time
snapshots of store and warehouse inventory, the business
vanguard wants to know what the bar code can deliver beyond
that. Specifically, these companies are eager to find out not just
what's on their shelves, but exactly where the item sits, down to
the inch.

Enter the 21st century bar code: radio frequency identification
(RFID). RFID technology puts on retail goods a microchip, called
a smart tag, with an antenna that broadcasts its unique 96-bit
identifier and location to corresponding receivers. The receiver
relays the data to a computer, which decodes the information
and processes it according to whichever application is running.

RFID hasn't gotten any further than the testing stage at this time,
but retailers see many potential applications if and when it goes
into widespread use. Security is one possibility, because items
transmit their location. New checkout systems that bypass the
cash register are another -- just walk out the door and a reader
tallies up what's in your bag and takes the payment out of your bank account. Another proposed use is to install in-store
readers that constantly count what's on the shelves and restock automatically. For consumers, retailers envision instant
access to product information on the manufacturer's Web site, via scanner-equipped, Internet-enabled cell phones.

Pete Abell, research director for retail at AMR Research Inc. in Boston, says RFID could shave 10% off retailers' supply chain
costs just by having an item's location accurately pinpointed.

Smart tags are useful for more than boxed goods, as well. They can be embedded in items that are hard to bar-code, like
bananas. They can be embedded in raw materials, extending their benefits to manufacturers.

RFID can also produce more accurate inventory statistics than bar codes. According to Cathy Hotka, vice president for IT at
the National Retail Federation in Washington, an industry trade group, smart tags have the potential to solve what she calls
"the mackerel effect." That's when one item that has many variants, like cat food, gets rung up under a single flavor. Inventory
gets skewed when someone buys one can of Mackerel Delight and nine cans of Liver Treats and the clerk scans the mackerel
then hits "times 10."

That won't happen with RFID, she says. The difference between bar-code and RFID scanners is that the latter records data
from each item at a distance of 4 to 5 ft. away. It doesn't require that a human manually pass the item over a scanner,
eliminating the situation where a clerk sacrifices accuracy for the sake of an easier, faster transaction.

"RFID allows stores to keep track of what is actually selling," Hotka says.

For more information about RFID, visit the EPC Global, a retail and technology industry group that's developing and
promoting RFID technology.