What recommendations do you have for a scalable and efficient replenishment system for the Express format? Explore a range of options—both expected and out of the blue?

Walmart Express: Right-Sizing Logistics to Support Growth

Sam Bernards, Senior Director of Innovation on the Strategy and Business Development team, sat in the ’war room’ reviewing some of the most recent news clips on Wal-Mart’s newest retail format—Walmart Express. One headline caught Sam’s attention, ’Wal-Mart sees early success in Walmart Express.’ The May 2012 article noted, Simon summarized, ’So far, so good. The next phase is, how big this could be.’ 43 Simon had told investors that Wal-Mart might roll out hundreds of Express stores a year.

Sam smiled. Rumors had been swirling for several weeks now. Leaders within Wal-Mart as well as industry pundits had begun hinting that the Express format might drive Wal-Mart’s growth the same way supercenters had over the previous decade.

Sam smiled again. This time wryly. Of course growth was the goal! Wall Street analysts always wanted to see what the next big thing at Wal-Mart would be. Growth in the stock price demanded big growth in sales and profits—a daunting challenge in a saturated and intensely competitive market. Thus, from the time Sam had joined the Strategy and Business Development team back in 2008, he and his colleagues had examined Wal-Mart and the marketplace from every angle possible, looking for growth opportunities. Endless hours of analysis and unending travel had led the team to the Express format. The ’numbers’ had undercut every other option the team had identified. So, Sam was thrilled with Express’ early success.

Even so, Sam knew that opening a few successful pilot stores was a very different task from rolling out hundreds of profitable Express stores a year. Everything about Wal-Mart was big—from its $400 billion dollars in annual sales to its massive cross-dock distribution centers to its 185,000 square foot supercenters. By contrast, the Express format was small. Each store was only 10,000 to 15,000 square feet and sold a meager 12,000 items (also known as stock keeping units or SKUs). Wal-Mart’s vaunted distribution network was simply not built to support a small-store format.

To support Express pilot stores, Sam’s team set up a fulfillment zone within a Walmart cross-dock DC. The 1,000,000 ft2 host DC (about 18 football fields under one roof) dwarfed the 10 ft x 10 ft Express replenishment operation. In this setting, where the desire to do things on a grand scale was ever present, Sam and his team had to constantly remind themselves that the amount of dog food or the number of apples that would sell in a day at a supercenter would stock an Express store for two months.

Within the DC, product flowing to a supercenter moved from full inbound trailers to waiting outbound trailers on 10 miles of conveyor belts at about six miles an hour. Star scanners read each carton’s bar code, routing it automatically to the right store. Twenty years of optimization had created a synchronized—and very efficient—operation. This efficiency was critical to Walmart’s frequent deliveries and every-day-low-price (EDLP) strategy. By contrast, product being sent to an Express store was hand picked and moved by pallet jack to the staging area where delivery pallets were hand stacked. These store-bound pallets were so undersized that it was sometimes difficult to securely shrink wrap them.

Of course, Walmart’s remarkable replenishment efficiencies did not stop at the dock door. Each 53-foot trailer’s 22 pallet positions were loaded to optimize for cube and weight. Up to seven trailers might deliver to a supercenter each day, allowing 5,000 cases of merchandise to be shelved overnight. Such scale was completely missing at the Express outlets. Two pallets looked a little silly sitting in an empty 53-foot trailer. But, Walmart’s fleet of 6,500 tractors, 55,000 trailers, and more than 7,000 drivers was supersized for massive deliveries—not for keeping the shelves of a mom-and pop-sized store full. Indeed, a 53-foot trailer couldn’t even navigate the streets in the urban centers the Express format was designed to serve.

The bottom line: Replenishment costs per unit were much higher for Express than for any of Walmart’s other physical formats. This reality could be tolerated during the market-proving stage of the Express concept, but it wasn’t scalable. Deploying Express as Wal-Mart’s new growth vehicle by opening hundreds of new stores per year would require a new approach to store fulfillment. Everything—order quantities, delivery frequency, truck size, routing, picking and packing, and supply relationships—would need to be different. Despite his confidence in Express’ potential, Sam wondered how Wal-Mart would adapt the systems that had driven Wal-Mart’s success for over 20 years. Sam wondered what an efficient and scalable replenishment model would look like?

Questions:

1. What recommendations do you have for a scalable and efficient replenishment system for the Express format? Explore a range of options—both expected and out of the blue?

2. For each of the options you identified above, what are the primary sources of resistance to their implementation? Who would support each? Who would oppose each? Why?

3. How would you go about proving your proposed replenishment model? Be specific.