Walmart information systems

Walmart, the billion dollar retail giant, has grown significantly over the past five decades, incorporating numerous different types of information systems into their daily operations. The company is well recognized for their innovation when it comes to utilizing the latest technologies and information systems to maximize their profitability. Information systems structures and processes play a critical role in Walmart’s success and today they are bringing that innovative spirit to the market as they move toward full implementation of Radio Frequency Identification (RFID).

This technology allows for Walmart’s operations to function efficiently and effectively as they are capable of sending and receiving real time data to the networks. By doing so they are able to communicate the information to the retailer and the product manufactures making it possible for Walmart to remain competitive in the retail industry by properly controlling its inventories.

This report will explain how Walmart has utilized several information systems throughout the course of its history such as: point of sale, satellite communication systems, data warehouses, retail link systems, electronic data interchange (EDI), and most recently web bases platforms, but none are as innovative as RFID (Wailgum, 2007).

This technology was previously tested by the U.S. Air Force to try and reduce labor costs and allow management to make better decisions based on more accurate information regarding tracking packages/inventories (Roberti, 2004). This technology in the hands of the retail giant will allow for more up to date accurate information to flow through the networks to management so that they can reduce costs and increase profitability by keeping current inventory levels under control. In the summary of functions section the paper expounds how Walmart does an excellent job of incorporating transactional processing systems, management information systems,

Walmart Information Systems decisions support systems, and business intelligence systems into their everyday business processes. One major system that links the entire supply chain to the Walmart enterprise, with the use of the RFID system, is the supply-chain management system that Walmart utilizes.

These systems help suppliers, purchasing firms, distributors, and logistic companies share information systems about orders, production, inventory levels, and delivery of product and services so that they can source, produce, and deliver goods and services efficiently (Laudon & Laudon, 2010). The IS department section and the description of structures and processes for managing IS’s for Walmart is explained in this paper through interviews with IS faculty at Walmart’s corporate headquarters, as well as local employees.

The information gathered from these interviews illustrate Walmarts extremely structured IS department. Functioning from a top down approach Walmart is capable of micromanaging all of its resources both capital and human in nature. A deeper explanation of Walmart’s current Information System direction, RFID, is presented detailing the capabilities, users involved, implementation, and benefits to the entire supply chain system.

As mentioned before, the innovative RFID system is the new era of inventory management, which Walmart is going to try and implement worldwide to increase their profitability by properly managing their inventories. Concluding the report will be the appendices, which illustrate the organizations financial success over the past few years. Walmart’s success could only have been accomplished through the innovative and carefully managed use of the information systems and the systems that link the enterprise to its manufacturers, suppliers, distributors, and logistics departments that are explained in greater detail in this research paper.

Walmart Information Systems General Background: Walmart is a discount retail store that first opened its doors in Rogers, Arkansas on July 2, 1962, by Sam Walton. It began as a small discount store because Mr. Walton wanted to offer

lower prices so people could save money and live better (“History Timeline”, 2009). He believed it was the organization’s responsibility to provide the customer with what they wanted, which was (and still is) friendly service, low prices, and quality merchandise. On October 31, 1969 it incorporated into Walmart Stores, Inc. and was first publicly traded on the New York Stock Exchange in 1972. Today Walmart is known as a retailing giant with over 9,600 retail units in over 28 countries, 2.1 million employees worldwide, including almost 1.4 million in the United States alone, and yearly revenues of about $431.87 billion as of 2010 (“Wal-Mart Stores Inc.

(WMT)”, 2010). Information about Wal-Mart Stores, Inc. from Hoover’s company profile states that: Walmart Stores is an irresistible (or at least unavoidable) retail force that has yet to meet any immovable objects. Bigger than Europe's Carrefour, Metro AG, and Tesco combined, it's the world's #1 retailer with more than 2.1 million employees. In the US Walmart operates about 700 discount stores, 2,900 Supercenters that sell groceries and general merchandise, 610 Sam's Club warehouses, and a growing number of smaller format stores.

The company's faster growing international division (26% of sales) numbers more than 4,500 locations; Walmart is the #1 retailer in Canada and Mexico and has operations in Asia (where it owns a 95% stake in Japanese retailer SEIYU), Africa, Europe, and South America (“Wal-Mart Stores, Inc.”, 2011). Walmart Corporate and Financial Facts explains that “Walmart ranked first on the 2011 Fortune 500 list of the world’s largest companies revenues”, and the main competitors to Walmart are:

Walmart Information Systems Europe’s Carrefour that brings in yearly revenues of around $121.27 billion, Costco Wholesale Corporations that brings in yearly revenues of around $88.92 billion, Target Corporations that brings in yearly revenues of around $68.44 billion, and discount and variety stores that bring in yearly revenues of around $6.24 billion (“Wal-Mart Stores, Inc.(WMT)” , 2010). Direct Competitor Comparison WMT Market Cap:

Employees: Qtrly Rev Growth (yoy): Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margin (ttm): Net Income (ttm): EPS (ttm): P/E (ttm): PEG (5 yr expected): P/S (ttm): 195.99B 2,000,000 8.10% 440.14B 25.04% 34.23B 5.94% 15.59B 4.72 12.04 1.33 0.44 PVT1 N/A 471,7551 N/A 121.27B1 N/A N/A N/A 752.70M1 N/A N/A N/A N/A COST 35.02B 92,000 16.80% 88.92B 12.57% 3.30B 2.74% 1.46B 3.30 24.48 1.59 0.39 TGT 34.38B 355,000 5.10% 69.24B 29.94% 7.51B 7.80% 2.98B 4.30 11.92 1.11 0.50 Industry 6.55B 30.52K 6.90% 6.41B 30.15% 820.53M 5.97% N/A 1.16 20.10 1.13 0.50

Pvt1 = Carrefour SA COST = Costco Wholesale Corporation TGT = Target Corp. Industry = Discount, Variety Stores 1 = As of 2010

Walmart Information Systems An organizational structure is “the framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates rights and duties…. [it]determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of

management” (“Organizational Structure,” 2011). An organization’s, “structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions” which is evident in the organizational structure of Walmart Stores, Inc. (“Organizational Structure,” 2011). Since, Walmart has all decision making paths leading down from the CEO through the executive committee and to the appropriate branches, it is easy to see that Walmart utilizes a centralized structure.

At the top of the organizational structure is the President and CEO Mike Duke. Mr. Duke is over the Executive Committee which includes the CFO Charles Holley, CIO Rollin Ford, and other Executive Vice Presidents. The executive committee, including the CEO, is put in place by the Board of Directors. Rob Walton is the Chairman of the Board of Directors which includes other individuals elected by stock holders. Currently the board consists of: Jim Walton, Aida Alvarez, James Cash, Gregory Penner, Roger Corbett, Douglas Daft, James Breyer, Arne Sorenson, Christopher Williams, Steven Reinemund, Lee Scott, Linda Wolf, and Michele Burns. Organizational chart illustrated in appendices Graph

1. According to Thomas Wailgum, (2007), Walmart has been able to make their everyday low price strategy a reality because of their information technology systems which has evolved throughout the past 50 years. In 1975, Walmart introduced a point of sales system which they currently use in conjunction with a radio frequency identification device (RFID). Bar codes for

Walmart Information Systems scanning POS data was introduced in 1983. In 1987, Walmart completes what is at the time the largest private satellite communication system in the U.S. In 1990, data warehouse prototype is created to store historical sales data. In 1992, Walmart deploys the Retail Link System to strengthen supplier relationships. Walmart makes Retail Link and EDI available through the Internet platform.

In 2002, Walmart turns to the Internet for data exchange with thousands of its global suppliers. In 2005, Walmart announces its deployment of radio frequency identification technology (Wailgum, 2007). RFID allows them to track their inventory through the entire process from the warehouse to the showroom floor (Laudon & Laudon, 2010). RFID began as a

way to track train cars with the use of bar codes and stationary readers, and has evolved over the years. The RFID tags continued to evolve and by the 1990’s they became widely used for automated toll collection systems. These systems allow people to pay for the use of toll roads without having to stop and physically pay a toll. Today toll road payments can still be made in the same fashion with the help of RFID tags.

Cardullo (n.d.) explains how proud he is to see how his ideas for the applications from the 70’s for this system are now being widely adopted. Today, the RFID tag in its various configurations is becoming ubiquitous (Cardullo, n.d). Walmart Information Systems:

Walmart’s information strategy involves an approach which seeks to centralize many of the worldwide operations in order to create a common scheme of practices which can be duplicated and effectively utilized at stores around the globe. Technology is intertwined with virtually every aspect of Walmart’s business practices from the initial inventory accumulation from suppliers to the customer relationship efforts which the world’s largest retailer has come to be known for.

Walmart Information Systems According to Walmart.com, “Technology touches every part of our business every day, from data centers to self-check-out lanes, satellite communications, handheld devices and electronic product codes” (“Information Systems (ISD),” 2011). It is the successful implementation of this technology into daily practices that has aided Walmart in their quest to maintain the position of low cost leader. One of the most notable advancements made by Walmart in regards to supply chain management was in the evolution of data mined from the universal bar code system. While Walmart was not the original creator of the point of sale

system which shifts power to the retailer, they have been noted to be one of the most effective at organizing collected data into useful information. Utilizing data collected from bar codes, the organization is able to keep track of sales trends at any given point by identifying each item as an individual entity with unique characteristics. Once an item has been purchased, Walmart has immediate access to information regarding the sale including product type, price etc.

Combining this with advanced telecommunications, allows for high speed information transfer between branch computers and the central system in order to maintain a real-time database with complete data on inventory levels and assortment. This allows them more leverage over manufacturers as they know exactly what they need, when they need it and what lengths they are willing to go to obtain it.

The threat of running out of inventory is reduced as this technology can offset spikes in demand to avoid disappointing customers. In addition, analyzed data can reveal items which are not profitable for the company and may need to be discontinued. Using this acquired knowledge, as well as advanced communication methods, the company is able to properly prepare for the future. Furthering this concept, Walmart has incorporated information systems into a distribution system that is almost unmatched. 150+ distribution centers strategically located around the globe

Walmart Information Systems

are able to move large quantities of goods as they are needed at the surrounding stores. Logistical operations at these distribution centers can take in massive amounts of merchandise and have it recorded, sorted and packed to be sent to stores by the next day. In a 2004 interview with PBS’ Paul Soloman, Rollin Ford the Executive Vice President of Logistics (current CIO) described this “here today, gone tomorrow” philosophy explaining that “efficiency and processing is the key, [merchandise] is put on the conveyor upon receipt; never gets slotted, never sits on a rack, goes immediately to our stores”(Ford, 2004).

This methodology dramatically increases productivity while reducing storage and inventory costs as workers only have to handle the items once and merchandise is delivered “just in time.” Furthering this concept of gains in efficiency, the Walmart team is tending to become more mechanical in nature; as jobs which were previously performed by human worked, which must be paid a salary, are now able to be performed by machines. The company has also been able remain competitive in growth trends due to constant innovation and the ability to maintain a knack for proactive reactions to customer wants and needs. For example, the introduction of “self-check-out” lanes serves to provide customers a fast, easy alternative to standing in line when they need to get in and out of the store quickly.

These lanes are equipped with a scanner for customers to scan the barcodes of the items they would like to purchase and a touch screen interface to walk them through the steps of the transaction. While Walmart is not the only retailer to offer this technology, it does put them miles ahead of those competitors who did not realize the tremendous impact this advancement would have on the way consumers shop. In addition to the insatiable desire to open more and more stores in order to extend operations to reach a greater number of potential customers, Walmart has ventured into the e-

Walmart Information Systems

commerce era by introducing a means through which to purchase items online at Walmart.com. Although, the initial venture into the online world was a bit sluggish due to such a strong presence of the brand in traditional brick and mortar stores, Walmart has refocused its efforts on utilizing the online community to subsidize its business opportunities with consumers. By providing a product offering very similar to that which can be found in traditional stores and offering the majority of them in conjunction with free shipping opportunities, Walmart will now be able to reach a broader population of customers including those who may not be within a feasible geographic reach to shop Walmart on a consistent basis or those who prefer to shop from the comfort of their own homes.

One particular area in which Walmart is hoping this online component will have an impact is the electronics department, as customers are more apt to shop around online for the best deal on such items as compared to less consequential items which may be purchased on impulse.

The IS Department: The Information Systems Department has approximately 3000 associates that work in the David Glass Technology Center located in Bentonville, Arkansas. WalMart’s IS Department is very hierarchal. It includes a Business Analyst, Senior Business Analyst, Manager, Senior Manager and levels below them. According to Darin Brazile, the department is very structured and formal (D. Brazile, Personal Communication, November 2, 2011). It is so structured that they track the time spent on projects down to fifteen minute increments.

Doing this keeps them on track for budget and productivity metrics. Rollin Ford is the Executive Vice President and Chief Information Officer of WalMart Stores Inc. since 2006. His responsibility is all General Merchandise, Fashion, Grocery, SAM’S, Import, and Specialty Distribution Centers. Ford reports directly to Mike Duke the Chief Executive Officer.

Walmart Information Systems Description of the Structures and Processes for Managing ISs: The Information Systems Department is broken down into infrastructure and software. These two divisions offer three pillars to the company; Customer Planning and Analysis,

Development, and Operations. For example, the budgeting cycle is endless which starts off with the business customer. They submit a list of projects and the CP&A teams gather information. They first begin to get estimates on projected budget expenses, the number of full time employees needed, and the time needed to complete a project. According to Brazile, based on their estimates and the budget owned by the business, the projects are prioritized and scoped out for the upcoming fiscal year (D. Brazile, Personal Communication, November 2, 2011).

Because of the economy being down not a lot of projects make the cut and those that do generally are not up to the full requirements as initially planned. Customer Planning and Analysis are primarily responsible for planning. Business Analysts work in this area with project managers like Darin Brazile and the business to gather requirements and set the scope. The findings are taken back to the technology teams which give estimates on cost. Once the project is approved the CP&A teams are the main contacts for completing the documentations like the Business Requirements Document, Project Schedule, and the Milestone list.

The organization tries to base the resources needed on how big the project is. The workload of a team is a big determination. Traditionally, it is said that if a team has a large project and multiple small projects then one person will stay on the small projects and a few people on the large project. The department relies on an all hands on deck approach when the deadline is approaching and a project is not finished. They rely on in house and outsourcing. They prefer that each project has a WalMart employee to provide direction for the outsourced resources. IS management starts off with CIO, Rollin Ford, who reports directly to CEO, Mike Duke, and works down into committees thereafter. By having the

Walmart Information Systems CIO report directly to the CEO Walmart illustrates a strong relationship between their information technology and its integration throughout the entire organization.

RFID Detailed: One of the most important information systems that Walmart has recently implemented is radio frequency identification or RFID. Kenneth and Jane Laudon (2010), define radio frequency identification as “technology using tiny tags with embedded microchips containing data about an item and its location to transmit short-distance radio signals to special RFID readers that then pass the data on to a computer for processing” (Laudon & Laudon, 2010, p. 279).

RFID tags do not require line of sight contact to be read, unlike traditional bar codes, allowing companies like Walmart to access information that can uniquely identify products, the exact specifications of a certain package, along with other information like where and when the product was made, its current location, or status during production. Each tag comes in a variety of shapes and sizes and is made up of a microchip for storing data and an antenna to transmit data to a reader.

The reader device can be either a stationary or handheld device that is made up of an antenna and radio transmitter that decodes incoming transmissions. Generally, the reader emits a radio wave ranging anywhere from 1 inch to 100 feet, depending upon the output power, the radio frequency employed, and surrounding environmental conditions. When the reader comes within range of the tags, tags become active and start sending data.

Readers receive and decode this data and send it back to a host computer through a wired or wireless network (Laudon & Laudon, 2010). RFID is mostly used by retail stores like Walmart so that they can be as efficient as possible in terms of inventory control and supply chain management. RFID has made it possible for Walmart to “see” their products as they move through the supply chain. Walmart has

Walmart Information Systems recently set up RFID readers at their loading docks, according to Laudon & Laudon (2010), to record what products are being sent and received that are equip with RFID tags. As the tagged

product is unloaded from shipping trucks, and products are moved past the loading dock readers, these tags become active and begin sending data about each and every individual product. This data is received by the reader, which it sends to a computer that records and stores this information about the products arrival and that it has moved into a back room storage area. At this point, if something has been shipped to Walmart that they did not actually order, the product can quickly be identified, located, and returned all in a timely manner.

These readers also work for things being shipped out and insure that products that should not be leaving their docks aren’t. While products are in the backroom storage areas, managers are able to use portable scanners to scan pallets full of products and determine exactly which products are inside.

This, along with data provided from other RFID reader points throughout the store (discussed later), helps management determine which pallets contain the products that are needed to restock the sales floor. Once these products are located and carried onto the sales floor, the product and its RFID tag passes through another set of readers located on the door separating the back storage room and the sales floor. Again, the data is transmitted from the tags, to the readers, to computers and reports are developed to acknowledge that products are about to be restocked for sale on the floor.

As the product is purchased, Walmart’s computer system or point of sale system records the scanned product’s RFID tag and data containing the price of the product is displayed on monitors for customers to read. After products are purchased, the POS identifies that the product has been purchased. Another RFID reader is in place at the front entrance and exit of the store. This reader gathers data from products that are leaving the store, purchased or not. With the data generated from RFID tags and readers, combined with Walmart’s point-of-

Walmart Information Systems sale systems, reports can be generated based on what has been purchased (or stolen) by customers, and depleted products can be restocked. The reason this system has been so successful is due to the fact that Walmart shares this information with every division of the

supply chain instantly, in real time. If certain products are being purchased, manufactures know it and are prepared to increase production and vice versa if inventory grows. RFID helps Walmart keep the right products on the shelves while maintaining an accurate inventory and a smoothly operating supply chain. Mario Cardullo was the first person to receive a patent for a passive, read-write RFID tag.

He came up and sketched his ideas in 1969. In Washington D.C. on May 21, 1970, Cardullo’s attorneys filed on their behalf the patent application for the RFID tag. The U.S. Patent Office issued the patent on January 23, 1973 (Cardullo, n.d.). “The patent also presented various uses for the invention including: 1. Detailed description of an automated automotive vehicle highway toll system similar to now used in most of the toll systems today.

2. Provide a transponder which would be "physically small in size such that the device is highly portable, can be easily hidden, if desired, and can be carried and placed in or upon many different objects" (Cardullo, n.d.). As stated in the history, RFID tags continued to evolve and by the 1990’s as they became widely used for automated toll collection systems. These systems allow people to pay for the use of toll roads without having to stop and physically pay a toll. Today toll road payments can still be made in the same fashion with the help of RFID tags. Cardullo explains how proud he is to see how his ideas for the applications from the 70’s for this system are now being widely

Walmart Information Systems adopted. Today, his product is used by the biggest company in the world, Walmart and could arguably be responsible for a great amount of their success.

Conclusion: The overall future outlook for Walmart’s information systems looks to be promising as we can see in Graph 3 that Walmart is experiencing record levels of net sales and is increasing their capital expenditures projections from 2009, as indicated in Graph 4 in the appendices. The various information systems that Walmart has implemented in the past several decades have helped the retail giant to be the success story that it is today.

It still holds the title as the industry leader of low cost goods and has several initiatives in place to gain more market share both domestically and internationally. The research has covered the rich history that Walmart has had changing and adapting their information systems along the way to maximize their return for their shareholders. They have implemented several information systems that were explained throughout the paper with key emphasis on the RFID system, which seems to be the direction which they are moving toward.

The research also showed how Walmart conducts its Information System Department and the structure that it uses to maintain and keep the well-oiled machine running smoothly into the future. The information systems management team will have to continue to stay vigilant and not become complacent with their success to remain the industry leader. Through the proper use of the various information systems discussed throughout this research paper one can generalize that Walmart will continue to innovate and maximize their revenues by properly managing their inventory levels throughout the entire supply chain system. The information being shared by the supply chain will help Walmart remain competitive and profitable.

Walmart Information Systems

Appendices: Board of Directors Organizational Chart: Graph 1

Board of Directors

CEO Mike Duke

Chairman of the Board Rob Walton

Jim Aida Walton Alvarez

James Cash

Gregor Roger y Corbet Penner t

Dougla James s Daft Breyer

Arne Sorens on

Christo pher Willia ms

Steven Reine mund

Lee Scott

Linda Wolf

Michel e Burns

CIO Rollin Ford

Assistant CIO

Walmart Information Systems Board of Directors: Graph 1.2

Walmart Information Systems Financial Highlights: Graph 2

Walmart Information Systems Financial Data: Graph 3

Information Systems Capital Expenditures: Graph 3

Walmart Information Systems References:

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Wal-mart stores inc. (wmt). (2010). Retrieved from http://finance.yahoo.com/q/co?s=WMT Competitors.

Wailgum, T. (2007). 45 years of wal-mart history: a technology time line. CIO