Kevin X. Jones, the Vice President of Inbound Transportation at Walmart, and Sheila Taylor, the Vice President of Logistics at Sam’s Club, discussed Walmart’s approach to omni-channel logistics at the eft (eyefortransport) conference last week.
Walmart’s ultimate goal is to understand their customers’ expectations, and yet be able to meet these expectations in a profitable manner. “We are expected to make a profit,” Kevin said.
The task is not trivial. In the first quarter of 2015 the company had $115 billion in sales, with 17 percent growth in ecommerce sales. The world’s biggest retailer has 260 million customers across their channels, which they serve with a combination of their own fleet and third party carriers.
In the US, their fleet is primarily focused on outbound moves. Walmart ships 6.3 billion cases annually out of 23 distribution centers (some run by 3PL partners) using roughly 6,000 tractors and 58,000 trailers on which they drive over one billion miles. Walmart employs over 12,000 associates in the transportation department.
Sheila talked about putting the customer in charge. Customers don’t want to do as much driving. Walmart’s customers have decreased their trip distance by 11 percent, partially based on Walmart opening more stores, particularly smaller format stores in more urban settings, and partially based on ecommerce sales.
There has been growth in mobile, up to 70 percent of customers use smartphones to shop. Walmart customers do come into the store and touch and feel products and then buy online, hopefully from Walmart.
Customers want goods fast and free. 22 percent of customers want to buy online and pick those goods up somewhere – at a store, or in a locker closer to their residence. And the pickup destinations aren’t easy to forecast. Customers are starting to buy goods for vacations, for example, and having them sent forward to the vacation destination. 65 percent of customers want to have items consolidated in fewer packages, and 63 percent of customers want to schedule a day and time for delivery.
While the demands on logistics are increasing, the pressure to move goods efficiently remains. Trailer utilization remains important despite the growth in each picking and shipping. Walmart executives know they don’t do a good enough job in inventory management at the store. The store level inventory accuracy must increase to facilitate new omni-channel flow paths.
The company knows they can’t build separate networks to support the different flow paths to the customers. They will need to move to a dynamic distribution model where goods don’t always flow from DCs to stores; or ecommerce warehouses to homes. The company will need to support new flow paths where goods may ship from a retail DC to a home; or an ecommerce warehouse to a store; or goods may flow to new, more customer centric, omni-channel formats not even in existence yet.
Walmart knows they don’t know how to do dynamic distribution yet; they will need help from 3PL partners and suppliers to move to this new model. They will need to continue to do pilots and experiments to learn what works. They have experimented with home delivery of groceries and grocery store pickup in Phoenix, Denver, and San Jose.
And in Phoenix, the retailer has began testing off-site pickup with a delivery truck parking in local business centers for two hours each week. The temperature controlled truck is segmented to keep frozen foods, refrigerated foods and items at room temperature. Walmart coordinates with area businesses to determine the appropriate times to park the truck at the mobile pickup site. At the site, customers pull up and are treated to a bottled water and snack while their online grocery order is retrieved from the truck and loaded into the customer’s car.
But Kevin said that when an experiment works, when they learn the costs and prove they can make money, Walmart is capable of scaling very quickly. Mr. Jones pointed to the example of neighborhood markets. For years they struggled to make money with these formats, when they figured out how to make a profit with this format they build 300 of these stores in the second half of the year. None of this was in the strategic plan at the beginning of the year.
While there is much work to do to improve their omni-channel capabilities, there have also been wins. Sheila pointed out that the integration between the ecommerce teams and store merchandizing is improving. The ecommerce team is doing a better job of giving their brick and mortar colleagues a head’s up when a particular SKU is selling extremely well. And the ecommerce and store procurement teams are talking more and doing a better job of leveraging their joint spend.