Walmart, p.22
Walmart, page 22
The same year saw Walmart provide an update on its purchase order management system. The company stated that the system allowed its merchandising division to store information on vendors and merchandise and access order information through computer terminals. Walmart added that Telxon handheld terminals enabled in-store personnel to reorder merchandise. In-store associates were also able to use the handset to scan shelf labels in order to access information on quantities ordered and the cost and retail price of the item. Walmart concluded that the system saved time and improved the efficiency of the reordering process.
In an update on its regional merchandising programme, Walmart reported that the programme relied on CAD (computer-aided design) to tailor each store’s offer based on 128 traits such as climate, ethnic orientation, recreational preferences and the characteristics of local catchment areas (which were classed as rural/urban, military/college town etc.). The findings were used to determine store layout and departmental adjacencies. The retailer also revealed that it had installed a Human Resources System in 1984, enabling it to maintain a profile of each employee that included details such as salary information, training details and education etc.
Scanning at checkout was also gathering pace. While the retailer noted that it had historically limited data collection at checkout to the barest minimum in order to expedite the checkout process, Walmart described how the testing of electronic scanning of the UPC at checkout had enabled it to rapidly process price and merchandise information, assisting in replenishment efforts, as well as creating a much speedier checkout process for customers. As a consequence, Walmart pledged that all 115 new stores opened in 1985 would feature UPC scanning and that the system would eventually be rolled out across the chain.
In 1985, the company confirmed that UPC scanning had been expanded to 235 stores and that the satellite system had been installed and was functioning in a number of locations. The Walmart Satellite Network (WSN) was to be rolled out to 600 stores and seven DCs over the course of the year, with complete deployment scheduled for the middle of calendar 1987. The benefits were said to include improved voice and data communications as well as a reduction in credit-card approval times to around four or five seconds.
In a key strategic move – which began joining the dots between stores and Walmart’s logistics network – the Douglas, GA, DC began operations in January 1986 using a UPC barcode laser scanning system similar to that used in stores, enabling a faster and more accurate flow of merchandise. Walmart again reiterated that all stores and DCs would be converted to this system by mid-1987. The system enabled store staff to receive and price-mark products using a handheld scanner, therefore bypassing the previously onerous paperwork.
UPC scanning in-store, in addition to the previously cited benefits for both retailer and shopper, had allowed the retailer to install a new ‘Data Collect’ function. This function allowed store managers to gather and analyse sales on an item-specific level, better enabling them to maintain an in-stock position on bestsellers and minimize shrink by providing greater visibility into the capture and recording of mark-downs.
Walmart revealed in 1986 that the trial of the UPC barcode laser scanning system in the Douglas, GA, DC had been a success and that all other DCs would be retrofitted with the system. The benefits of the system for stores were said to include more efficient paperless billing and automated receiving, the latter of which was said to provide a time saving of around 60 per cent compared to previous systems. In-store Series One computers matched the receipts against shipments and processed the necessary claims; all data were then transmitted via satellite to head office.
It becomes clear in this narrative that so many things that retailers and shoppers now take for granted were fairly innovative as recently as 25 years ago. For instance, it was only in 1987 that Walmart stated that the removal of price tags from items – replaced by on-shelf labelling – was being trialled in five stores and could represent significant cost savings if rolled out.
The year 1987 was something of a keystone year for Walmart’s emergence as one of the most tech-savvy retailers on the face of the planet: the roll-out of in-store scanning was completed, as was the installation of the WSN, the largest private satellite network in the United States. WSN, scanning, automated receiving and the Telxon merchandising reordering were combined by Walmart as the foundation of future applications and systems development.
Walmart continued to pursue technological enhancements to its operations throughout the 1990s. In 1996, the retailer revealed how its in-store operations were being improved by the use of ‘magic wands’ (handheld computers) that enabled in-store employees to manage the 70,000 or 90,000 SKUs carried in a discount store or Supercenter, respectively. The handhelds were linked by a radio-frequency network to in-store terminals, enabling in-store associates to track inventory on hand, backup merchandise and deliveries. ‘What it’s really about is putting information in people’s hands’, said Randy Mott, Senior Vice President and Chief Information Officer at the time. ‘We’re careful not to get too enamoured with all the bells and whistles of technology. It’s there to support people.’
Around this time, Walmart revealed that it had an annual technology and communications budget of $500 million and an information systems staff of 1,200. For the sake of context, that budget was equivalent to around 0.5 per cent of turnover. The average retail IT budget is around 4 per cent of sales now, but often only around 2 per cent of sales for grocers. ‘With this technology, we’re getting better, quicker and more accurate information to manage and control every aspect of our business’, Mott said. ‘Walmart has always been intensely conscious of holding down expenses, because that’s another way we can have lower prices, better merchandise and service for our customers and better returns for our investors. We may be talking about state-of-the-art computer systems, but the way we manage them is pure Walmart.’
As we’ve seen in the previous chapter, the combination of forward-looking technology and Walmart’s burgeoning expertise in logistics was a killer strength for the business, enabling it to brush aside its competitors in its march to world supremacy. By the late 1990s, Walmart was able to tell investors that it ‘leads the retail industry with its version of a “just in time” supply system in which computers track every product and automatically alert warehouses when it’s time to restock the shelves’. The company provided an example of how its operational improvements directly contributed to returns for investors: despite a 12 per cent increase in sales in 1998, the company saw only a 4 per cent increase in inventories, saving about $1.4 billion. Rather than blindly slashing inventory, Walmart used the data gathered by technology to make more inventory available in the key items that customers wanted most, while reducing inventories overall. The retailer added that, by ‘data mining’ the massive supply of information on customer shopping habits that its information technology systems provided, it was able to refine its store layouts and design, so that new and remodelled stores served shoppers more effectively.
As we noted earlier in this chapter, Walmart’s (possibly undeserved) reputation for being a reluctant pioneer in technology, data and information placed the company in a great position to capitalize on its technology-enabled flow of data to become a better retailer. In 1998, Walmart stated that its emphasis on information stemmed from Sam Walton, quoted as stating that: ‘People think we got big by putting big stores in small towns. Really we got big by replacing inventory with information.’
While much of the benefit realized by Walmart from technology related to behind-the-scenes advancement in efficiency, logistics and inventory management, the company was also able to generate competitive advantage through a better understanding of its shoppers. With regard to the shopper insight that its IT systems generated in the late 1990s, Walmart noted that its systems were able to gather information on exactly what any given shopping cart contained: ‘The popular term is “data-mining,” and Walmart has been doing it since about 1990.’
The retailer added that the resultant output was an enormous database of purchasing information that enabled it to place the right item in the right store at the right price. Walmart’s computer system was said to receive 8.4 million updates every minute on the items that shoppers took home and, vitally, the relationship between the items in each basket: ‘The computerized transmission of transactions to our systems, which keep track of what merchandise is needed where, is a key tool as Walmart merchants work to serve our customers.’
With Domesday theorists predicting the Y2K meltdown of the global network at the turn of the Millennium, 2000 was a key year for the international IT fraternity as much as it was for Walmart: the company announced that its computer system was the most powerful in the corporate world, with only the US government operating a larger computer network. Walmart’s philosophy of building ‘people-supportive’ systems, it said, had ‘given us a competitive edge that has and will be instrumental in the company’s success’.
By 2004, Walmart was telling its investors that, thanks to over 75,000 associates in Logistics and in its Information Systems Division (ISD), it had ‘the firepower’ behind its retailing strategy that strived to achieve the Holy Grail for retailers: to have what the shopper wants, when the shopper wants it. Walmart noted that, with a data warehouse storage capacity of over 570 terabytes – larger than all of the fixed pages on the internet at the time – it had a remarkable level of real-time visibility into its merchandise planning. In a fantastic real-life example of how this influenced the retailer’s merchandising, Walmart recalled how ‘when Hurricane Ivan was heading toward the Florida panhandle, we knew that there would be a rise in demand for Kellogg’s Strawberry Pop-Tart toaster pastries. Thanks to our associates in the distribution centres and our drivers on the road, merchandise arrived quickly.’
To ensure greater supply chain visibility, satellite-based tracking technology was being installed in the company’s entire fleet of over-the-road trailers. The data generated by the system increased productivity, reduced costs and enhanced security. Construction of an Innovation Lab was also under way. This centre was intended to showcase leading-edge technology and demonstrate how it could lead to future products, as well as better ways to serve shoppers.
Opening the inner sanctum: Walmart’s use of third-party IT suppliers
Until 2007, Walmart was famous for its in-house IT strategy and development: it had traditionally developed, maintained and operated its own systems in Bentonville and elsewhere through its ISD. This approach was possibly reinforced by the fact that vendors were usually more than willing to adapt to the systems used by Walmart, in many cases their biggest customer, at the same time as using standard third-party solutions for dealing with their other major retail customers.
Furthermore, Walmart clearly benefited from creating and shaping its own systems around its retailing and logistics functions rather than adapting its business to use off-the-shelf solutions from external hardware or software providers. Another factor is at play here: Walmart likes being independent and self-reliant and has not traditionally welcomed in third-party advisers or suppliers to interfere in its key trading systems.
Until five or six years ago, Walmart was wary of opening up to third-party software companies, consultancies and service providers, perhaps fearful that they have been known to develop systems and best practice at one company and then turn around and implement similar systems at a competitor. ‘This is why we try to avoid working with software vendors and consultants in IT’, a vice president IT of Walmart said in 2003.
Another benefit of the self-reliant approach was the fact that this strategy enabled centralization. ‘Performance is crucial for us’, a senior Walmart executive explained. ‘The company loses $1,000 per hour per cash register that is down. And we get a better performance in China by managing our data in Bentonville.’
In keeping with the all-pervasive EDLP model that is the very DNA of Walmart’s strategy, in-house technology development had the added advantage of being relatively cheap (as opposed to lining the pockets of external technology providers). According to a Walmart board member in the 1990s, the IT spending of the retail behemoth was ‘significantly under’ 0.5 per cent of its turnover. It is likely that other retailers have historically spent well over 1 per cent of sales on sourcing IT solutions and services from external providers.
Merchandising systems – often at the very heart of a retailer’s operations – were a key area developed in-house by Walmart. Walmart’s efforts in this regard dated back to the 1970s and were mainly based on IBM tools, when Walmart developed one of the first merchandising systems in the world, programmed in Cobol (central) as well as IBM 370 Assembler (store network), using IBM’s CICS transaction processing system.
Nevertheless, in 2007, Walmart started to shift away from its strategy of self-reliance and isolation. The two most important vendors of enterprise applications, Oracle and SAP, were some of the first through the door. Firstly, Walmart introduced two software solutions from Oracle Retail. The first solution, Profitlogic, was implemented to help Walmart to optimize prices during mark-downs of seasonal apparel. The second solution was a merchandise planning solution for the buyers. In October 2007, Walmart decided to replace its legacy accounting and controlling systems with SAP Financials, a decision that provided conclusive evidence that Walmart’s technology strategy had been opened up to packaged applications. We should be clear that purchasing packaged business applications doesn’t mean that Walmart will necessarily have implemented what’s known as a ‘vanilla’ solution. All complex business applications require configuration – which can make one company’s implementation very different from another’s – and in addition, Walmart might well have completed bespoke development on top of this.
The SAP implementation was followed in 2008 by a very decisive and comprehensive move: Walmart’s selection of the Oracle Business Intelligence Suite Enterprise Edition Plus to provide comprehensive data intelligence and analysis from across all of Walmart’s operations. Walmart planned to use the system to administer its logistics, transportation, category management, finance, human resources, real estate, merchandising, store and club operations and other business resources, within Walmart and Sam’s Clubs. Oracle stated at the time of the deal: ‘Information Technology has long been regarded as a core strength that enabled Walmart to reduce costs and improve operational efficiency.’ From Walmart’s perspective, Rollin Ford, Executive Vice President and Chief Information Officer, stated that ‘Technology and analytics are essential to help us be more responsive and effective in serving Walmart customers and Sam’s Club members. The Oracle solution is very robust and it integrates well with our other applications, particularly as our business continues to grow in scale and complexity.’10
In June 2009, Walmart decided to implement another piece of standard software into its planning processes. Space optimization software provider Galleria Retail Technology Solutions was the recipient of Walmart’s next move in its ongoing shift to utilizing third-party solutions. The retail giant had successfully completed a user acceptance and extensive scalability testing of Galleria’s configured store and merchandise planning software system and stated that it would implement the solutions into its assortment, allocation and space planning process.
Of course, before this overt change of strategy, Walmart had already deployed hardware, components and services into its own systems from external technology vendors. Before the 2007/08 glasnost, names such as Teradata, IBM, SAS, Microsoft and Hewlett-Packard were already to be found within Walmart’s internal technology architecture. But Walmart’s data volumes, query requirements and stringent requirements for precision made it hard for an off-the-shelf product to be slotted in. So core solutions like merchandising systems, HR systems and logistics management had been developed in-house by the ISD.
Data warehousing: helping Walmart drink from a hosepipe of information
We have already described how Walmart has an embarrassment of riches in terms of data: ‘We keep everything! Data is the great enabler’, a Walmart board member stated in 2006. Data warehousing is the term for the organization and storage of this data in order that Walmart might benefit from identifying some of the trends and implications within it. Teradata is the provider of Walmart’s data warehousing function, ‘increasing its lead as the largest retail data warehouse in the world’. In addition to the application activities used in servicing Walmart’s shoppers, the Teradata warehouse at Walmart is the foundation for the company’s Retail Link decision-support system used by Walmart and its suppliers. As we’ve already noted, Retail Link allows suppliers to access large amounts of online, real-time, item-level data that can help those companies improve their operations.
In August 2007, HP announced that Walmart had selected the HP Neoview data warehousing platform to power complex analysis of data collected across its 4,000 US stores. The announcement took industry experts by surprise as Walmart had already built up one of the largest data collections in the world using NCR’s Teradata technology. In January 2011, HP announced the discontinuation of its Neoview product and Walmart once again turned to Teradata technology, expanding its data warehouse capacities.
In late 2010, Walmart decided to upgrade and enhance its Teradata data warehouse environment. The expansion included a data warehouse technology refresh programme which ensured that Walmart’s data warehouse was once again at the leading edge of technology. The agreement also included a research and development relationship. The Teradata technology had the additional benefit of a 50 per cent reduction in floor space required and a 40 per cent reduction in energy consumption required to run the data warehouse.
