Sandro Olivieri

Traditional

Manufacture -> Wholesaler -> Retailer -> Customer

Wal-Mart

Manufacturer ->Wal-Mart -> Customer

Strategic distribution center locations• At the end of 1985, Wal-Mart was able to operate 859 stores with

only 5 distribution centers – the locations of these centers were chosen to: Maximize potential for bulk purchases from manufacturers Ensure full truck-loads coming into the centers

Strategic store locations• Store locations were exploited to ensure full truckloads on returns

to distribution centers by having return trucks stop at multiple stores and pick up return merchandise

This allowed Wal-Mart to cut our the Wholesalers, reduce costs, and provide

“always lower prices, always.” to its customers.

The “hub” of Wal-Mart’s hub-and-spoke distribution system was fueled by cross-docking

Goods came by full truckloads into the centers from various vendors

Goods were transferred from vendor trucks and put in Wal-Mart trucks according to store need (as indicated by integrated inventory system)

Wal-Mart• Advanced distribution system eliminated the

need to make purchases from an entity that “had it all”

• Wal-Mart creates the same value of wholesalers, but at a much lower cost. This translates to lower prices for the customer

Suppliers• Selling directly to Wal-Mart was equivalent to

selling to a wholesaler with a warehouse, but at much higher volumes

• Suppliers don’t get more of the pie, the pie gets bigger.

Customer Wal-Mart Supplier

$2.54

$.27

$6.59

$.60

Assumption was made on suppliers’ margin

$0.27 - Profit

$1.12 – Payroll Expense

$0.23 – Advertising Expense

$0.22 – Rental Expense

$0.76 – Miscellaneous Expense

$.32 – Operating Expenses

Excludes profits from License fees and other income