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Saturday, November 13, 2004

Walmart and IT usage for Business Success -Part II

The New York Times has published a lengthy informative article about walmart's successful usage of IT for ensuring consistent business success. We covered in this blog earlier walmart's IT organisational philosophy and the speed and efficiency with which walmart CIO Linda Dillman drives thinsg within walmart. In Part 1, we saw how walmart collects data, uses data for forecast and improve sales and for supplier collabaration. In Part II, we shall get to see more related information. Excerpts:

Suppliers are actively encouraged, so to speak, not to miss collabarative goals. A manufacturer that fails to meet its sales target - or has data-documented problems with orders, delivery, restocking or returns - can expect even tougher negotiations in the future from Wal-Mart, which is renowned for its steeliness in such situations.
Still, achieving sleeker operations is not the whole story. In many ways, data are used to forecast and drive Wal-Mart's business. "We use it in real estate decisions, understanding what the draw is like and what the customers will be like," Ms. Dillman said, referring to the company's planning for new stores, including the number of shoppers it expects to attract to each. When it comes to Sam's Club, Wal-Mart's membership warehouse chain, "we know who every customer is," she added. So Wal-Mart does a kind of outreach, contacting nearby convenience store owners, for example, to let them know that "the items they buy, they could save money on by buying at Sam's.
" AT Wal-Mart, problems are referred to as "exceptions," and technology is essential for what Ms. Dillman calls "exception management." Within the company's empire, "we keep watching everything that just happened," she said. "We are pretty near real time. We can tell people that they need to go do something, and we are within hours, depending on the event."The "event" may be a truck's failure to drop off or pick up something, or the delivery of a load of shoes missing their mates. It could be the absence of an important product in a store's backroom, or in the distribution center that serves that store. Or it could be an act of nature like the hurricanes that descended, one after another, on Florida and other parts of the Southeast this year.

Eventually, some experts say, Wal-Mart will use its technology to institute what is called scan-based trading, in which manufacturers own each product until it is sold. "Wal-Mart will never take those products onto its books," said Bruce Hudson, a retail analyst at the Meta Group, an information technology consulting firm in Stamford, Conn. "If you think of the impact of shedding $50 billion of inventory, that is huge."The impact will probably be felt by suppliers, he added, but none are likely to complain."You can see the pattern of Wal-Mart's mandates, and as Wal-Mart grows in power, it is getting more dictatorial," he said. "The suppliers shake their heads and say, 'I don't want to go this way, but they are so big.' Wal-Mart lives in a world of supply and command, instead of a world of supply and demand."On Privcay issues, walmart says their focus has been on the products it sells, not to whom it sells them. One of the most difficult pieces of information to harvest is which customer bought what. Such information is expensive, too. Wal-Mart has discovered the potential of its own Web site in learning more about customers. Ms. Dillman said the site was beginning to allow users to buy a product online and have it delivered to a store near them, an option that Sears, Roebuck and other retailers have had for years. But Wal-Mart executives tend to care more about how products sell as part of a larger basket. "Me knowing what you specifically buy is not necessarily going to help me get the right merchandise into the store," Ms. Dillman said. "Knowing collectively what goes into one shopping cart together tells us a lot more."

Analyzing what ends up together in that cart drives Wal-Mart's pricing, other experts said. Shoppers might buy cold medicine along with chicken soup and orange juice during flu season, but not all of those products need to be priced at rock-bottom, said Ms. Overby, the Forrester analyst. "They might say, 'If we get really good at pricing the cold medicine and promoting it and letting people know that, hey, we have that product in stock and also at the best prices,' then they get people into the store," she said. "The other items in the basket might not be the lowest price in town, but the entire basket will be 10 to 20 percent less." Amazing - thats an understatement when trying to understand and analyze walmart's use of IT to ensure business competitiveness. No wonder Linda Dillman says "We'd be nuts to outsource" .

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