Walmart's Profile of Computing and Network Infrastructure - Essay Example

Wal-mart Introduction Walmart.com is a lot like your neighborhood Wal-Mart store. We feature a great selection of high-quality merchandise, friendly service and, of course, Every Day Low Prices. We also have another goal: to bring you the best shopping experience on the Internet. Founded in January 2000, Walmart.com is a subsidiary of Wal-Mart Stores, Inc. Our headquarters is on the San Francisco Peninsula near Silicon Valley, where we have access to the world's deepest pool of Internet executive and technical talent. But we think of ourselves, first and foremost, as a retailer. So our ties to Bentonville, Ark. - where Sam Walton opened the first store that bore the Walton name and where Wal-Mart Stores, Inc., is still based - give us our foundation. Another Walmart.com goal - providing easy access to more Wal-Mart - is evident in the more than 1,000,000 products available online and in the innovative businesses that Walmart.com continues to develop, such as Music Downloads and 1-Hour Photos, which gives customers the convenience of ordering products online and picking them up at a local Wal-Mart. In short, Walmart.com is passionate about combining the best of two great worlds - technology and world-class retailing - to give customers a wide assortment of their favorite products, Every Day Low Prices, guaranteed satisfaction, friendly service, convenient hours (24 hours, 7 days a week) and a great online shopping experience. http://www.walmart.com/catalog/catalog.gspcat=131473&path=0:5436:127843:131473#null Wal-Mart Computing and Network Infrastructure The goal of Wal-Mart Stores, Inc., was not to be dependent on one computer supplier when selecting processors for its almost 1,600 stores. According to Mark Schmidt, senior director for information services at Wal-Mart, the installation of NCR System 3000 processors -- which began last month in the Springfield, Mo., stores -- is the second phase of a systems upgrade at the chain that began in August 1990 with the installation of Hewlett-Packard's HP 9000 Model 375 system. The retailer chose to purchase both systems so that "we have two vendor partners to bank on," said Schmidt. Approximately 800 of Wal-Mart's stores will use the HP system and the other 800 will use the NCR system. Both models are open-system computers and both use the UNIX operating system, allowing intercommunications and compatibility. "We can take data tapes from one to the other if we had to," Schmidt added. Tony Fano, vice president of NCR Retail Systems Division, said, "The NCR 3445 support of UNIX V.4 matches Wal-Mart's UNIX open systems strategy. Because it is based on industry standards, the NCR 3445 can provide enterprise-wide computing solutions based on open systems components and cooperative processing." NCR's System 3000 is a seven-level family of scalable, compatible, general purpose computer systems that support the industry-standard operating systems -- UNIX V.4, SCO UNIX, OS/2 and MS-DOS. Wal-Mart had been using the IBM Series 1, which was installed in 1979. "It is a proprietary system. We wanted something more open, so we could be independent of a vendor if we needed to be, said Schmidt. "We needed a system with more capacity. We wanted one that was open and scalable -- to go in relatively small and then grow," said Schmidt. The installation of the HP 9000 Model 375 was completed last month, according to Schmidt. He said the chain is aiming at Aug. 1 completion of the NCR installation. The NCR 3445 will provide connections between NCR and non-NCR point-of-sale controllers and pharmacy systems with Wal-Mart's central computer in its headquarters in Bentonville, Ark. The NCR and HP systems are configured to support up to 16 terminals in a Wal-Mart store. According to Schmidt, the systems currently are doing traditional applications, such as payroll, general accounting and merchandise reorder. Potential applications include financial management, sales analysis and labor management (Tahmincioglu, 1991). Wal-Mart has signed a multimillion dollar contract with AT&T Global Information Solutions for a massive parallel processing system that provides added computing capacity for Wal-Mart's decision-support system, said to be the largest commercial database system in the world. The now completed installation includes the AT&T 3600, site maintenance, and technical and application consulting. AT&T's largest 3600 installation, the system consists of 476 processors and over a thousand disk drives housing an AT&T Teradata database of 2.7 terabytes. In conjunction with its current AT&T DBC1012 system, Wal-Mart's decision support system now has more than 5 terabytes of Teradata on-line storage. After Wal-Mart gets point-of-sale information from its 2,729 retail outlets and moves it through the network to company head-quarters, Wal-Mart uses the AT&T system for decision-support activities such as merchandise management and inventory replenishment. Wal-Mart merchandisers can query information and make decisions on replenishment, look at customer buying trends, analyze seasonal buying trends, make markdown decisions and react to merchandise volume and movement at any time. In that way, Wal-Mart manages all its stores as individual locations, getting the right products to each store at the right time. The system is also used to provide its major suppliers with access to detailed daily sales information from any of its stores, allowing suppliers to decide when and where products are needed. Over 2,500 suppliers have on-line access to all information about their products in Wal-Mart's database. Wal-Mart stores, founded in 1962 in Rogers, Ark., are designed as one-stop family shopping centers featuring a variety of merchandise. Wal-Mart is the world's largest and fastest-growing retailer and (as of 11/30/94) had 1,983 Wal-Mart stores, 119 Supercenters, 439 Sam's Clubs, 123 Canadian Wal-Mart stores, 3 Hong Kong Value Clubs, 62 Mexican units and 27 distribution centers (HFN The Weekly Newspaper for the Home Furnishing Network, 1995). IT Hardware and Software Configuration The ''Retail Link'' Program Wal-Mart recently started the ''Retail Link'' program, which goes beyond the mere sharing of electronic data with suppliers. Under this program, vendors continually receive a variety of information on sales trends and inventory levels. They also receive purchase orders so that they can re-supply merchandise on time. For example, a men's slacks manufacturer receives purchase orders directly via satellite links, enabling the firm to offer slacks in 64 sizes and various color combinations and to have them delivered promptly, even in peak seasons. At store level, two types of purchase orders are used: warehouse orders and assembly orders. Warehouse orders constitute 80 percent of total orders placed by each store. These orders contain information such as merchandise item number, description, vendor name, stock number, unit costs, unit retail price, size, color, and markup. Merchandise is usually ordered by a hand-held electronic unit called Telzon, which can unload information to the mainframe computer at the distribution center (Business Week Online, 2003). About 20 percent of merchandise is ordered via assembly orders that go directly to vendors. In preparing these orders, a floor associate incorporates lead time, which is the number of weeks it takes for ordered merchandise to arrive at the store. Two factors are used in this calculation: a two-week safety stock and two four-week ordering intervals. The objective is to reduce unnecessary inventory buildups. Two problems can occur with either of the above orders: stock-out or over-stock. Stock-out happens when sales increase while order size remains the same. Because customers cannot get the merchandise they need, they usually patronize a competitor's store. Overstock occurs when excess inventory is accumulated; increasing a firm's carrying costs. Both situations must be avoided if the firm expects to remain competitive. The Automated Inventory Replenishment System Largely, Wal-Mart's success depends on its complex but efficient Automated Inventory Replenishment System (AIRS). The purpose of this system is to reduce managerial decisions to a minimum and ensure that the flow of merchandise throughout the distribution network occurs as smoothly as possible. This is accomplished through efficient computer linkages between the firm and its distribution centers and suppliers. Suppliers are continuously kept informed regarding merchandise needs. The Distribution Center The distribution center is the kingpin of AIRS and JIT retailing. By acting as a nerve center, it facilitates and ensures smooth flow of inventory from suppliers to distribution centers and from there to various Wal-Mart stores. According to CEO Sam Walton, the firm's rapid growth and profitability are due to its own version of ''hub-and-spoke distribution'' (PBS - Store Wars: Resources - Frontline - documentary, 2003). This is a system that enables management to take advantage of substantial quantity discounts in buying merchandise. Also, Wal-Mart first gives priority to location of the distribution center rather than location of the stores. This shows the importance that the firm gives to logistics and efficient distribution. Each enormous distribution center is strategically established. For example, 205,000 cases of merchandise are unloaded daily at the rate of 132,400 cases per hour brought in by 190 trailers. On average, each center services about 150 stores within a 400-mile radius. Some eighteen distribution centers service more than 1700 retail outlets nationwide, and total storage space has grown from 11.8 million to 14.6 million square feet in a five-year period. Each distribution center carries about 8,000 items in stock worth $65.8 billion. Annual inventory turnover rate is more than 15.8 times, resulting in $1.74 billion in annual sales. The 98.9 percent in-stock rate covers 99 percent of demand. Finally, if the system breaks down, idle-time cost is estimated to be about $127 per minute. The costs include fixed costs, overhead costs, and opportunity costs of probable loss of customers to competition. Therefore, it is important to keep the distribution centers working at peak performance levels without interruptions. Besides its successful use of JIT systems, Wal-Mart has other major competitive advantages. These advantages include superior management skills, accurate sales forecasting, and use of appropriate technologies to operate its distribution network. Most important, Wal-Mart displays superior management skills in coordinating employees and vendors, who work in harmony to achieve common goals. Intrusions and Cases of Intrusion: The cycle of Wal-mart intrusion can be described as follow: When Wal-Mart was opened, the company had a large corporate pocketbook to fund a new store with products priced below profitability for the first year. This is done to drive local small businesses to failure because they cannot compete. The quaint small shops along Main Street have to close. After they have destroyed the competition, Wal-mart prices go up. Shoppers are restricted to buying mass-produced items from the Wal-Mart of a limited diversity, despite the huge quantities of merchandise found there. For example, some music CD's cannot be found there. Products on sale must stay within the limits of not offending any group and be suitable for children, or they would be banned from the store. Local Vermonters needing work, have to go work for the Wal-Mart, as there are no other means of getting work without moving. Wal-Marts are notorious for hiring part timers at minimum wages, without benefits, causing workers to live in poverty. Minimum wage does not cut it for families with children, especially in Vermont where the property taxes are high (and social services are great). The economy of the area then sags (unless other large corporations move in to better employ the middle classes). The quaint areas become not so quaint. Farmers suffer too. The dairy business that used to sell to small businesses can no longer because they don't exist. Wal-Mart ships their merchandise in from the nearest distribution center and doesn't buy anything locally. http://diggsc.typepad.com/4_mile_creek/2004/05/national_trust_.html References Tahmincioglu, Eve, 1991. Wal-Mart gaining flexibility from two-supplier system.. WWD. http://www.walmart.com/catalog/catalog.gspcat=131473&path=0:5436:127843:131473#null PBS - STORE WARS: RESOURCES - FRONTLINE - documentary - "Is Wal-Mart Good for America" 2003. Wal-Mart: At&T information system set. HFN The Weekly Newspaper for the Home Furnishing Network, 1995 http://diggsc.typepad.com/4_mile_creek/2004/05/national_trust_.html Business Week Online, Oct. 6, 2003 - "Is Wal-Mart Too Powerful. Read More