8 Special reportGlobal supply chains The EconomistJuly 13th 2019
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reg smithis obsessed with the freshness of strawberries. Wal-
mart’s top supply-chain executive in America is overhauling
the retail giant’s distribution system, and in his mind speed is par-
amount. Strawberries have only 12.2 days of life after picking, he
reckons, and the firm did not always get them to stores fast
enough. The radical changes he is introducing can sometimes cut
three to four days out of their journey to the store.
In the past, Walmart had a one-size-fits-all approach to its sup-
ply chain, he says, but now it is fast-tracking certain perishable
and quick-selling goods. It used to keep inventories stored at ware-
houses, but now it is “flowing” priority goods directly to retailers.
When his lorries get to stores, fresh items are sent directly to
shelves for purchase rather than sitting in back rooms.
To gauge progress, visit a Walmart outlet down the road from
the company’s headquarters in Bentonville, Arkansas. A robot
made by Bossa Nova, a Californian startup, roams the isles scan-
ning every shelf for out-of-stock items. The back of the store
houses a semi-automated system for unloading lorries. The stock-
room is surprisingly bare. An inspection of the produce aisles con-
firms that the strawberries are, indeed, delectably fresh.
The story of the speedy strawberry illustrates a broader trans-
formation. “Retail before Walmart was slow, lumbering and ineffi-
cient,” recalls an industry veteran. The firm already revolutionised
supply chains once, before the arrival of the internet, by stripping
out inefficiencies in logistics and telling the world’s biggest
brands that it would manage their product flow through its supe-
rior supply chain. Now it wants to repeat the trick for a more dig-
itised age. Mr Smith says Walmart is replacing all its supply-chain
systems, both physical and digital, to shift from batch processing
to continuous replenishment.
Upstream, the firm is investing in technologies that he hopes
will allow it to track individual stock-keeping units (skus) through
the supply chain. Its warehouses are introducing automatic stor-
age and retrieval systems and autonomous vehicles (avs). In July
the firm will open an automated facility in California that will han-
dle three times the volume of ordinary ones.
The firm is moving faster downstream, too. It is working with
Alert Innovation, an automation startup, to develop a robot that
can fill online grocery orders more quickly for dispatch from its re-
tail outlets. It is crowdsourcing the last-mile delivery of orders
through a service called Spark Delivery.
All this is producing results. Productivity at Walmart’s distribu-
tion centres, measured in cases per hour, went up 13% in the past 18
months. Billions of dollars have been stripped out of inventory. In
the most recent quarter, same-store sales in America were up 3.4%
on the previous year and e-commerce sales up 37%.
On May 1st Walmart implemented a new policy under which
suppliers must meet tougher “On Time, In Full” (otif) targets for
deliveries of stock or else suffer hefty fines. On June 7th it unveiled
a new service that allows customers who order groceries online to
have them delivered directly into their fridge.
Why does the firm ranked number one by revenue on the most
recent Fortune500 list feel such need for speed? A Walmart execu-
tive explains: “A competitor who will remain nameless...is forcing
all of us to think differently, and we should.”Amazon’s introduction of the idea of “low cost, always in stock”
is turbocharging innovation. The new front-line is next-day deliv-
ery. Over half of Amazon’s customers in America—some 100m peo-
ple—are Prime members who pay an annual fee to get free two-day
shipping. They spend about $1,400 a year each with the firm, more
than double the amount spent by non-Prime shoppers.
The firm operates dozens of fulfilment centres in America and
has splashed out on automation. With the aid of machine-learning
algorithms, robots work in tandem with humans to pick and pack
items speedily. By one estimate, Amazon can usually ship a parcel
just hours after an online purchase despite operating with a third
less inventory than typical retailers.
By employing predictive models, the firm works out where or-
ders are likely to come from. It then uses its intimate knowledge of
consumers to manage capacity, place products closer to them and
determine delivery routes. Its integrated business model gives it a
massive data advantage over rivals that al-
lows it “to have visibility through the entire
supply chain...and make better decisions,”
says Udit Madan, its last-mile-delivery
guru.
Now the race is hotting up. In April Am-
azon announced plans to spend $800m up-
grading its supply-chain infrastructure in
the second quarter to speed up free deliv-
ery worldwide, from two days to one. In
May Walmart fired back. It unveiled free
one-day delivery on over 200,000 items in
its online store for orders over $35. It ex-
pects the service, which requires no membership, to be available in
most of the United States by the end of this year. It will spend over
$200m on infrastructure.
“We like larger cities,” says Mr Madan, “as density increases the
number of deliveries we can make in a given time and speed is usu-
ally faster.” Complexity and variability in the messy megalopolisesThespeedy strawberry
Amazon and Alibaba are pacesetters of the next supply-chain
revolutionDistributionAmazon’s
introduction of
the idea of “low
cost, always in
stock” is
turbocharging
innovation