فصل 14

14

Expanding the Circles

“Distribution and transportation have been so successful at Wal-Mart because senior management views this part of the company as a competitive advantage, not as some afterthought or necessary evil. And they support it with capital investment. A lot of companies don’t want to spend any money on distribution unless they have to. Ours spends because we continually demonstrate that it lowers our costs. This is a very important strategic point in understanding Wal-Mart.”

—JOE HARDIN, executive vice president, logistics and personnel

Some of our guys around here find it amusing that I get so much credit for Wal-Mart’s reputation as a world leader in retailing and distribution technology. It’s not because we’re not on the cutting edge. We are. They’re amused because, as I told you, ever since I went to that IBM school in 1966, I’ve put up a pretty good fight every time somebody wants to buy some new system for this, that, or the other. I want them to think hard about how they’re going to justify the expense before they even come to me with it.

But there’s no question about it: one of the main reasons we’ve been able to roll this company out nationally was all the pressure put on me by guys like David Glass and, earlier, Jack Shewmaker and Ron Mayer, to invest so heavily in technology. Yes, I argued and resisted, but I eventually signed the checks. And we have been able to move way out front of the industry in both communications and distribution. During that period in the late seventies when Kmart’s management had such a strong resistance to any kind of change, that resistance included investment in systems. At the same time, our fellows were just absolutely convinced that computers were essential to managing growth and keeping down our cost structure. Today, of course, they’ve been proven so right that they look like geniuses. I would go so far as to say, in fact, that the efficiencies and economies of scale we realize from our distribution system give us one of our greatest competitive advantages.

Many people have contributed over the years, but David Glass has to get the lion’s share of the credit for where we are today in distribution. David had a vision for automated distribution centers—linked by computer both to our stores and to our suppliers—and he set about building such a system, beginning in 1978 at Searcy, Arkansas.

DAVID GLASS:

“Searcy probably was built about two years later than we needed it, so there was a lot of pressure on us to get it up and running. The big knock on Wal-Mart was that we weren’t going to be able to expand much beyond the 350-mile ring around our distribution center in Bentonville. Because of that logistical problem, our disbelievers said we would always be a medium-sized regional retailer confined to this area. I pushed hard for Searcy as the solution. It was a real ambitious plan: our first remote, mechanized distribution center. Unfortunately, we needed it so badly that we had to rush it into service, and the crunch turned it into a disaster—my disaster. It was as bad as Sam’s opening at Harrison, only more serious.

“We were shipping freight out of there before we had a roof on the building, and nothing—not even the toilets—worked like it was supposed to. We had guys like Glenn Habern, our data processing manager, and Paul Carter down there driving forklifts—until Habern tore down a rack and spilled Listerine all over the place. Working conditions were terrible, and the next thing you know the union was down there organizing.

“It was such a nightmare that Sam began to question the whole idea of mechanized distribution. He really wasn’t sure it worked at all. Fortunately, he hired Don Soderquist from Ben Franklin around that time, and Don came in as a big supporter of what we were trying to do. He believed in mechanized distribution all the way, and he eventually took over distribution from me in 1980. He went on to do a great job expanding it, helping introduce a lot of innovation, including a badly needed new inventory management system.

“Fortunately, we turned Searcy around and made it work because it saved our neck after we took on all those Kuhn’s stores. We had to figure out how to supply them, and our arrangement with a third-party distributor turned into a nightmare. So we built an addition at Searcy to service them, and it solved the problem. Searcy—which is one of our best-performing distribution centers today—really was the key to our whole distribution system. After we proved it would work, we were able to duplicate the model anywhere, and that’s what we’ve done.”

I think it’s fair to say that our distribution system today is the envy certainly of everyone in our industry, and in a lot of others as well. We now have twenty of these centers placed strategically in our trade areas around the country—still mostly within a day’s drive, or about 350 miles, of the stores they serve. Combined, they account for more than 18 million square feet of distribution space. We stock over 80,000 items in our stores, and our warehouses directly replenish almost 85 percent of their inventory, compared to only about 50 to 65 percent for our competition. As a result, the gap from the time our in-store merchants place their computer orders until they receive replenishment averages only about two days. That probably compares to five or more days for a lot of our competitors, which don’t ship as much merchandise through their own network.

The time savings and flexibility are great, but the cost savings alone would make the investment worthwhile. Our costs run less than 3 percent to ship goods to our stores, while it probably costs our competitors between 4 ½ to 5 percent to get those same goods to their stores. The math is pretty simple: if we both sell the same goods for the same price at retail, we’ll earn 2 ½ percent more profit than they will right there.

Joe hardin:

“When you own and manage your distribution and logistics channel, you have a great competitive advantage over companies that rely on third-party suppliers. It automatically shortens your lead times, but also you can constantly look for ways to improve your operation and try to make it more efficient. You never have to rely on what’s going on in somebody else’s shop. In our case, we generally know where things are in relationship to when we want them to arrive, so we can schedule and plan to move goods into the stores at the right time. That maximizes our in-stock positions, which is vital. You can’t generate sales unless you have the product there when the customer wants it.”

Not only do we stock more of our merchandise in our own distribution centers, we also rely on our own private truck fleet to a much greater degree than our competitors do. Our private fleet is one of the nation’s largest, maybe the largest. Last year, David asked Lee Scott, our vice president who oversees transportation, to try and locate every truck and trailer in the fleet on a single day just to show that we could do it. Of course he did, and at last count, Lee says we have more than two thousand over-the-road tractors and more than eleven thousand trailers. Unlike both Kmart and Target, which contract out with third parties to deliver a lot of freight from their distribution centers, we’ve always felt that we needed our own fleet.

To have the kind of flexibility we want—that ability to respond above and beyond what we could ask some outsider to do for us—we need drivers who are part of our team, drivers who are as dedicated to serving our customers as the associates in the stores. And, man, do we ever have them. When you’re out on the highway and you pass by a Wal-Mart truck, you can bet your bottom dollar that the guy behind the wheel is a true professional. He’s not just driving a truck. He’s dedicated to servicing those stores, and he knows he’s an ambassador of Wal-Mart and everything we stand for out on the road. I’ll just say it: we have the best damned truck drivers in America, and their loyalty and their can-do attitude have made a huge difference to this company.

LEE SCOTT:

“Our drivers really are extremely loyal to their mission, which is to serve the stores. They report back to Wal-Mart continually on things like merchandise thrown out behind the store that looked like it was good, attitude and morale problems in the stores. For a long, long time, Sam would show up regularly in the drivers’ break room at 4 a.m. with a bunch of doughnuts and just sit there for a couple of hours talking to them.

“He grilled them. ‘What are you seeing at the stores?’ ‘Have you been to that store lately?’ ‘How do the people act there?’ ‘Is it getting better?’ It makes sense. The drivers see more stores every week than anybody else in this company. And I think what Sam likes about them is that they’re not like a lot of managers. They don’t care who you are. They’ll tell you what they really think.”

Of course, the only thing that makes the whole distribution system work so well is the dedication of the people all across it. The technology and hardware are just tools. The people in the system believe, just as firmly as the associates in the stores, that their primary job is to take care of the customer. Except in their case, the customer is the Wal-Mart store or Sam’s Club they’re supplying.

With that idea at the root of everything, we’ve developed a unique ability to customize what we do to meet the needs of our stores. Until recently, for example, we bragged that we were making deliveries every day to 97 percent of our stores. Then we discovered that wasn’t necessarily the best thing for all of our stores, particularly the smaller ones. So now we’ve gone into a customized delivery program in which stores can pick one of four different delivery plans. Every six months, each store decides which plan it prefers. And we also have a plan called accelerated delivery, designed for stores located within a certain distance of a distribution center. A store in that plan can order merchandise on Monday night and get it on Tuesday night. Nobody else in the business can deliver like that on any kind of widespread basis.

When all this comes together at one of our distribution centers, it’s really a sight to behold. You really have to see one of these places in action to appreciate them, and sometimes I can hardly believe them myself. But I’ll try to describe the activity at one. Start with a building of around 1.1 million square feet, which is about as much floor space as twenty-three football fields, sitting out somewhere on some 150 acres. Fill it high to the roof with every kind of merchandise you can imagine, from toothpaste to TV’s, toilet paper to toys, bicycles to barbecue grills. Everything in it is bar-coded, and a computer tracks the location and movement of every case of merchandise, while it’s stored and when it’s shipped out. Some six hundred to eight hundred associates staff the place, which runs around the clock, twenty-four hours a day. On one side of the building is a shipping dock with loading doors for around thirty trucks at a time—usually full. On the other side is the receiving dock, which may have as many as 135 doors for unloading merchandise.

These goods move in and out of the warehouse on some 8 ½ miles of laser-guided conveyor belts, which means that the lasers read the bar codes on the cases and then direct them to whatever truck is filling the order placed by one of the stores it’s servicing that night. On a heavy day, those belts might handle up to 200,000 cases of goods. When the thing is running full speed, it’s just a blur of boxes and crates flying down those belts, red lasers flashing everywhere, directing this box to that truck, or that box to this truck. Out in the parking lot, whole packs of Wal-Mart trucks rumble in and out all day. I get tremendously excited going out to these centers, talking with our associates and drinking coffee with them and the truck drivers. It’s amazing to me how many ideas they always have for fine-tuning the system. If you get the idea that I’m awfully proud of what we’ve managed to do in distribution, you’re right.

To get the whole picture, though, it’s important to realize that the same thing is happening simultaneously at nineteen other almost identical distribution centers every day. Not only that, for us to continue expanding the way we do, we have to constantly plan the construction and staffing of more and more of these giant mechanized warehouses, and that’s no small task for Joe Hardin and his folks. We’ll probably have thirty in operation in just the next few years. They’re already on the drawing boards.

From the time David Glass came on board in 1976, he’s been pushing me to invest and invest and invest in that system, and thank goodness he managed to be so persuasive. At the same time, he and Jack Shewmaker were also pushing hard for heavy investment in more and more, better and better computer systems, so that we could track sales and merchandise and inventories across the company—especially in-store transactions. When Jack became our president and chief operating officer in 1978, he worked really hard at getting me to invest in bar coding and SKU item control, which is a computerized stockkeeping unit inventory system. Jack also was heavily involved in the creation of our satellite system, which turned out to be another one of our tremendous competitive advantages.

JACK SHEWMAKER:

“Glenn Habern was our data processing manager, and he and I had this dream of an interactive communications system on which you could communicate back and forth between all the stores and the distribution centers and the general office. Glenn came up with the idea of using the satellite, and I said, ‘Let’s pursue it without asking anybody.’ So we got it to the point where we were ready to make a proposal, and we told Sam. He just listened. He didn’t necessarily discourage me. But he didn’t encourage me either. Sam never gets excited about systems.

“The technology didn’t really exist to do this for a retailer in the early eighties. But we got together with the Macom & Hughes Corporation, and worked out a contract, and eventually we committed $24 million to build it. We launched it in 1983, and I mean, Sam liked to killed me the first two years. It was not an immediate success. But we got it working, and now, of course, everybody has one.”

The satellite turned out to be absolutely necessary because, once we had those scanners in the stores, we had all this data pouring into Bentonville over phone lines. Those lines have a limited capacity, so as we added more and more stores, we had a real logjam of stuff coming in from the field. As you know, I like my numbers as quickly as I can get them. The quicker we get that information, the quicker we can act on it. The system has been a great tool for us, and our technical people have done a terrific job of figuring out how to use it to our best advantage.

Jack is absolutely right about me and systems, though. I rarely get excited about them. A few years ago, we built this huge building right next to our main offices—around 135,000 square feet—just to house the computers, and everyone at the time told me how much room we’d have to grow. I mean it was really empty in there just two or three years ago. Well, already it’s completely full of computer equipment. And when I look back, it’s no wonder. We’ve spent almost $700 million building up the current computer and satellite systems we have. I’m told it’s the largest civilian data base of its kind in the world—even bigger than AT&T’s.

None of that matters to me. What I like about it is the kind of information we can pull out of it on a moment’s notice—all those numbers. For one thing, we keep a sixty-five-week rolling history of every single item we stock in Wal-Mart or Sam’s. That means I can pick anything, say a little combination TV/VCR like I use here in my office, and tell you exactly how many of them we’ve bought over the last year and a quarter, and exactly how many of them we’ve sold. Not only overall, but in any or every region, every district, every store. It makes it tough for a vendor to know more about how his product is doing in our stores than we do. I guess we’ve always known that information gives you a certain power, but the degree to which we can retrieve it in our computer really does give us the power of competitive advantage.

I can walk in that satellite room, where our technicians sit in front of their computer screens talking on the phone to any stores that might be having a problem with the system, and just looking over their shoulder for a minute or two will tell me a lot about how a particular day is going. Up on the screen I can see the total of the day’s bank credit card sales adding up as they occur. I can see how many stolen bank cards we’ve retrieved that day. I can tell if our seven-second credit card approval system is working as it should be and monitor the number of transactions we’ve conducted that day. If we have something really important or urgent to communicate to the stores and distribution centers—something important enough to warrant a personal visit—I, or any other Wal-Mart executive, can walk back to our TV studio and get on that satellite transmission and get it right out there. And, as I told you earlier, I can go in every Saturday morning around three, look over those printouts, and know precisely what kind of week we’ve had.

So you see, technology and distribution are every bit as important to Wal-Mart’s ability to grow and maintain control as you may have heard or read over the years. But when you see all those satellite dishes outside our building, or hear about all the computers inside it, or look at some videotape of our laser-guided distribution centers, don’t let anybody kid you. Without the right managers, and the dedicated associates and truck drivers all across the system, all that stuff is totally worthless.