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Supply chain management best practices from Wal-Mart take center stage at CSCMP

As supply chain management expands globally, technology, automation and inventory management are best practices, a Wal-Mart vice president said in his CSCMP keynote.

CHICAGO -- Despite this city's reputation for singing the blues -- and tough economic times for manufacturers and...

suppliers -- attendees at the annual Council of Supply Chain Management Professionals (CSCMP) global conference are optimistic.

"Most business leaders believe that when the economy does begin to improve, which is something that has already begun, the growth will be significant," Rick Blasgen, the president and CEO at CSCMP, told conference attendees yesterday. "So we have to prepare now for the inevitable upswing in demand. Volumes will come back. We have to be ready."

Many of the 2,500 attendees at the show said their organizations are preparing by focusing on improving supply chain efficiency, expanding into international markets and adopting more flexible approaches. For them, yesterday's keynote address from Gary Maxwell, the senior vice president of international supply chain at Wal-Mart Stores Inc., struck a major chord.

Maxwell laid out some of Wal-Mart's international supply chain management (SCM) best practices. The key is not to design a single "world class" SCM model but to develop "best in market" international supply chain models, Maxwell said. Wal-Mart tailors its distribution approach to each new market it takes on.

Markets vary greatly, Maxwell said, punctuating his point with pictures. A bustling Indian marketplace with wandering cows and a dimly lit South American grocery with produce piled high in rustic baskets offered a sharp contrast to a bright, orderly Japanese store with individually wrapped fruit. The retailer's approach in these regions differs. Wal-Mart's international presence includes retail "formats" from 200,000-square-foot big-box stores to small, 1,000-square-foot neighborhood stores, he said.

"Different formats put a lot of pressure on our network to be able to provide the high levels of service our customers expect," he said.

Wal-Mart's SCM best practices start with assessment

When Wal-Mart enters a new region, often by acquisition, a standard SCM best practice is for due diligence teams to evaluate the market's maturity to determine the right approach. They assess a few key factors. First, according to Maxwell, are current consumer expectations. Next, they examine existing leadership development, as some regions simply don't have the caliber of leadership required to run a sophisticated operation. Infrastructure is another obvious but important factor, since available power, water and road quality make a big difference when deciding on the location for, and type of, new distribution centers. Land and labor costs also inform the teams' strategy, as well as asset allocation and economic risk, which are important to analysts and investors.

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Last, but equally significant, is staying compliant with local laws and regulations. This can present challenges but also opportunities -- especially for technology.

"In a market that has strict regulations, it gives you incredible opportunities to automate, think outside the box and apply technologies," Maxwell said. "Understanding where the regulations are at will help begin to frame what kind of supply chain you want to build."

A Wal-Mart distribution center in Japan, where real-estate and labor are a premium, is a multistory building that's highly automated and technologically advanced. But a small rural grocery chain, such as the stores Wal-Mart has in Central America, doesn't have room to stock lots of inventory and requires more deliveries each week -- a process that can be managed with technology. This also highlighted a key point.

"In designing supply chains, one element is often left out. Inventory management is really overlooked," he said. "Inventory holding in the network too often is fixed."

Inventory needs to be a variable, not fixed, Maxwell said. Supply chain design teams often think about required inventory as a fixed number that's out of their control. Ideally, organizations should design supply chains that are efficient and flexible, so less inventory needs to be kept on hand and less space is required in regional warehouses. This can be a unique challenge; many organizations' inventory management is separate from logistics, Maxwell said. Partnerships across the business are essential to working through this issue, he said.

"If you really want an efficient supply chain, you've got to start with inventory," he said. "You've got to look at how can you carry less inventory and turn it faster."

Maxwell also stressed Wal-Mart's commitment to environmental sustainability and specifically tied it to production and SCM cost savings. For example, last year, Wal-Mart product designers reduced the cardboard packaging for a few hundred SKUs of toys by a few inches. Last Christmas, the smaller packaging helped them ship a slightly higher volume of toys in fewer containers, saving millions of dollars in shipping and supply chain costs, he said. They used 700 fewer shipping containers to move the toys from China to the U.S., he said, estimating that they saved 5,000 trees and 1,300 barrels of oil.

Maxwell added that Wal-Mart is developing a "sustainability index" that will show consumers the impact of products on the environment.

Sustainability, supply chain trends pique interest

Maxwell's address seemed well-received. Many attendees were interested in the sustainability message, including Kate Hughes, an independent SCM analyst from Australia. She was one of many international conference attendees from more than 40 countries.

Hughes has a strong interest in SCM sustainability trends partly because of her country's close proximity to the growing hole in the ozone layer. She hopes to learn more about trends and new innovations in sustainability, she said, as well as issues related to managing ethical supply chains. One of her goals is to compare U.S. supply chain trends with Australian ones to evaluate environmental impact and sustainability.

Another attendee was interested, though not surprised, at Wal-Mart's sustainability message. Dave Jordan is division distribution manager at Spokane, Wash.-based Clearwater Paper Corp., a manufacturer of paperboard, consumer tissue and wood products.

"It's always interesting to see what Wal-Mart is talking about, because usually they set the standard for what their competition and what everyone down the supply chain follows," Jordan said. "If they're pushing green initiatives, the other retailers in the market will be doing that as well. We're already seeing that."

Jordan said that Clearwater Paper has also heard more about sustainability from customers. They are asking for green initiatives and the improved sustainability of their supply chain, he said. That means taking steps such as removing trucks from the road to reduce emissions. The sustainability message is one he's heard consistently at CSCMP events, which is why he finds the event useful.

"I come here to reconnect with the initiatives that are not just a flash in the pan but [that] you see every year, like sustainability," Jordan said. "I use this [event] to try to get a temperature on what's important."

Brenda Cole, assistant editor of also contributed to this story. Please email her with feedback or thoughts about this article or related issues: [email protected]

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