Wal-Mart Reins Back Inventory in a Revamped Supply Chain
The retailer is holding goods longer at distribution centers, increasing flexibility and trying to meet e-commerce competition and the changing consumer expectations
Wal-Mart Wal-Mart says part of its inventory management effort has been aimed at keeping workers on the sales floor rather than in the stock room. PHOTO: BLOOMBERG NEWS
Wal-Mart Stores Inc. said inventory management was a bright spot in the second quarter that included disappointing profits, higher costs and other challenges in the last quarter.
Greg Foran, chief executive of Wal-Mart U.S., said on the company’s earnings call Tuesday that the company has been holding more of its inventory at distribution centers rather than in the backrooms of its stores, a strategic choice that gives the retailer more flexibility in meeting demand.
Wal-Mart reported that inventory grew 2.2% from a year earlier, slower than its sales, which grew 4.8%, or by $3.4 billion, in line with its goal of shedding excess inventory.
Supply chain experts say this is a necessary move as Wal-Mart increasingly embraces e-commerce and what the retail industry calls an “omnichannel” strategy, in which companies make the inventory across all their warehouses and stores available to all customers, both online and offline.
By keeping smaller amounts of a wider variety of goods at distribution centers, Wal-Mart can make products available to customers without having to stock the items in every store, said Kevin O’Marah, head of research for supply chain talent development firm SCM World. And if customers want an item in a distribution center, it can be shipped quickly and more efficiently than if a store employee were to ship it.
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“It’s smart, it’s naturally an outgrowth of e-commerce…They can have less inventory systemwide, and still offer more variety,” Mr. O’Marah said. But the company faces a challenge in meeting expectations of customers who may be used to very different experiences online and in stores. While retailers can deliver goods to online customers from anywhere, shoppers at brick-and-mortar stores may be disappointed if goods aren't stocked at a store—and keeping all inventory on hand at every store can be expensive and inefficient.
Mr. Foran said on the call that keeping the inventory further upstream also has the added benefit of extra space in store backrooms, enabling employees to operate more efficiently. By also upgrading technology used by its managers and simplifying the process of deliveries and stocking shelves, the company can now “keep associates on the sales floor rather than in the stock room,” the executive said.
By overhauling inventory management, Wal-Mart has “allowed us to reduce [store] inventory while improving both in-stock levels and sales,” Mr. Foran said. “Inventory management will continue to be an ongoing focus for us.”
