Supply chain savings at Wal-Mart

Continuing efforts to transform its supply chain have paid off handsomely for Wal-Mart Stores Inc., the retailer's executives told investors at its annual investor meeting in the fall. In 2009 the company achieved some $150 million in supply chain-related savings, said Senior Vice President of Private Brands Andrea Thomas —"and we think that's just the tip of the iceberg," she added.

Wal-Mart achieved those savings through increased visibility and the application of metrics to supply chain activities. The retailer has gained visibility and documented product specifications down to the component level for its private-label suppliers.

"This allows us to understand throughout all the different manufacturers we have and all the different parts that we have exactly what goes where, and how the supply chains have commonalities that allow us to gain efficiencies," Thomas said. At that point, Wal-Mart had conducted seven pilot projects to document full product lifecycles and gain visibility all the way back to the product source.

In addition, Thomas said that Wal-Mart has begun working on increasing and improving its manufacturing capacity through the use of performance scorecarding. Because the company has undertaken detailed scorecarding of all its manufacturers, it has witnessed a 20 percent improvement across its supply base.

This year Wal-Mart will begin a program for strategic sourcing of food, starting with produce. Pam Kohn, senior vice president for perishables and general merchandise, said the retailer plans to strengthen and develop partnerships with growers and suppliers of fruits and vegetables. By working with a few select growers, Wal-Mart believes it can improve quality, get the produce to market faster, and reduce costs through increased efficiency.

As part of that effort, Wal-Mart conducted a pilot program with apple growers in the state of Washington last year. As a result of that project, which also included Sam's Club and outlets in Canada and Mexico, the retailer was able to reduce its cost of goods for apples by more than 10 percent.

Although the company plans to focus initially on produce, it intends to include other grocery categories like seafood and frozen products in the near future and develop a global procurement program for its private brands.