Walmart’s Supply Chain: A Detailed Look at How They Manage It

Sam Walton said, “People think we got big by putting big stores in small towns. Really we got big by replacing inventory with information.” It is information, and especially information sharing, that lets Walmart constantly increase efficiency at every step, from replenishment planning and production to shipping, distribution, delivery, and stocking.

Studying the nuts and bolts of how Walmart uses information—data—to make that happen can help shippers and other retailers optimize their supply chains with digital data sharing.

Walmart is big, racking up $555 billion in sales in fiscal 2021, so it can seem like a behemoth with no lessons for the rest of us. But we can learn valuable lessons from Walmart’s focus on efficiency and automation, its nuanced approach to supply chain sustainability and social responsibility, and how digital data sharing underlies it all.

Size Matters

Walmart has 5,300-plus stores in the United States employing nearly 1.6 million people, and 5,100-odd stores in 23 other countries employing another 550,000.

These, together with Walmart’s family of e-commerce websites, are served by 210 distribution centers. Every one of them unloads and ships at least 200 trailers a day. They encompass at least 1 million square feet each—and 42 of them are U.S. regional distribution centers that dwarf the others.

Their shipping fleet musters 9,000 tractors and 80,000 trailers and drives more than 1 billion miles per year. Walmart even dealt with the Covid supply chain crunch of 2021 by chartering its own ships to unload at less-busy ports. Who can say the same?

Data Matters More

But Walmart succeeds and grows because of a relentless focus on efficiency and transparency in its supply chain, even in packing pallets and stocking shelves, as we shall see.

They continuously find ways to optimize their supply chain to control or reduce costs, and they never let up. Walmart believes that it’s that focus that underlies all their success and guarantees that, even as inflation and wages and other costs of doing business rise, Walmart continues to be the low-price leader.

Walmart’s policy is to offer Everyday Low Prices—lower than everyone else’s—year-round, instead of competing on price only during seasonal sales. Walmart can do that and still hit its margin targets because it is so successful in building visibility and transparency into every scrap of data in their supply chain.

Walmart Supply Chain: Visibility, Transparency and Collaboration

At Walmart, demand forecasting and inventory-level prediction are obsessions. Walmart was the first company in the world to use barcodes on 100% of its products, way back in 1983.

In 2015 alone it spent $10.5 billion on IT, a lot even for a company that booked $486 billion of revenue that year. And nothing has changed. In 2021, Walmart CFO Brett M. Biggs said, “From a position of great strength, we’re now going to accelerate investments in supply chain, technology, automation, and our associates.…we remain laser-focused on operating efficiency.”

Though not yet a 100% mandate, radio frequency identification (RFID) tags are encouraged for suppliers. These tags can be scanned from a distance with radio waves, so that pallets and boxes don’t have to be approached with a handheld laser scanner for their data to be captured and shared. In fact, pallets and boxes don’t even need to stop moving to be scanned; RFID tags can be read as they’re moving through a gate on a loading dock.

Making data sharing that easy provides a great benefit: Walmart products with RFID are replenished three times as fast as those that only carry barcodes, and out-of-stocks are down 16% since the company started using them.

But make no mistake: It isn’t gadgets, but rather Walmart’s transparency and visibility at every step of its supply chain that is the real secret of its success. The first step is perhaps the most radical: All of Walmart’s suppliers are responsible for their own replenishment planning, and the company gives each of them the tools and data to successfully manage the inventory levels of their own products in Walmart’s stores and warehouses.

True Collaboration With Vendors and Suppliers

Walmart began dealing directly with the firms that produce its assortment in the 1980s, and found it profitable to cut out distributors in the middle. Over time, advances in IT made it possible to share so much timely data with vendors that the company could relieve itself of the cost of managing its own inventory.

The result is a digital vendor-managed inventory system called Retail Link® that gives suppliers access to real-time store-by-store point of sale data, whether they are making furniture in China or frozen food in California.

Analysts working for suppliers don’t just react to falling inventory levels, they forecast demand patterns—which are ultra-stable due to Walmart’s Everyday Low Prices policy of avoiding seasonal sales—and collaborate with other suppliers and with Walmart to decide when to ship products to Walmart distribution centers.

And benefits beyond avoiding out-of-stocks are made possible by the system’s openness and collaboration with suppliers. Walmart doesn’t drip-feed information to its suppliers, it opens its books to them.

A tool within Retail Link called Market Basket allows suppliers visibility into what products are routinely combined with their own in the same purchase. This gives vendors the opportunity to produce their own versions of those frequent companion products, or to ask Walmart to place their products where they’ll be seen by buyers of those companions.

No Wasted Time—or Space

Once a product is shipped, the vendor’s responsibility ends and Walmart takes charge. But the same data sharing and visibility, aided by satellite tracking, allows Walmart to precisely schedule just-in-time handling of goods as they are received.

Walmart coordinates each unloading of a supplier’s truck with the loading of an outbound Walmart truck at the same distribution center within about a day. This practice, known as cross-docking, minimizes both inventory carrying costs and the duration of the Walmart assortment’s journey from factory to customer.

Goods are only warehoused at the big box stores, which further minimizes the duration of a product’s journey to the customer. The stores are sized for the purpose both in area and in height; the towering upper shelves hold as much as or more inventory than the shelves that customers shop from.

In-store warehousing also allows for fewer and larger deliveries from distribution centers to stores, an efficiency that saves more than money. Filling trucks and minimizing miles traveled also reduces Walmart’s carbon footprint. This contributes to the company’s impressive gains in sustainability, as we’ll see below.

Data Enables Precision

Walmart’s mastery of real-time information allows it to mingle the very different assortments of products that are sold through its various channels. If you walk inside a Walmart store, you can lay your hands on fewer than 200,000 items immediately. But Walmart’s online storefronts offer millions of items, and Walmart wants to get those to you as quickly as possible.

They’re able to do so because 90% of Americans live within 10 miles of their stores, which are also their warehouses.

Omnichannel, Brought to You by Omniscience

Walmart combines e-commerce with its bricks and mortar stores in omnichannel retail. Keeping all the products straight, and keeping them moving on time, requires even greater precision and flexibility.

Accurate forecasting of what items in its online assortment will be wanted—and when they will be wanted—is needed for the right online-only products to be warehoused closest to customers.

Online sales were less than 10% of Walmart’s total sales in 2020 but they are rising, and so is the need for dedicated warehouse space for those online-only assortments.

To meet this growing need, Walmart is rolling out dozens of in-store or store-adjacent warehouses known as market fulfillment centers (MFCs), after building their first in New Hampshire in 2019.

Each MFC can dispatch deliveries either directly to customers or to nearby Walmart stores to fulfill store-pickup orders from the online assortment. And if your store-pickup order combines online-only items with products stocked on the store’s shelves, it will all be waiting for you in one neat pile when you get there.

That takes a lot of timely information sharing to accomplish, and Walmart is committed: it spent $11 billion in 2019–2021 on technology, e-commerce and its supply chain.

Data Increasingly Enables Automation

What’s more, Walmart spent $14 billion in 2021 on supply chain automation. This begins with automated warehouse management and control systems, which are software, and automated picking, sorting and putting systems, which are hardware.

The software handles inventory control of the bewilderingly large assortment of Walmart’s various online and in-store channels. It even forecasts labor needs to ensure that staffing levels exactly match the need for each shift, bringing in more hands when large deliveries and shipments are expected and keeping a smaller crew for quieter hours.

Because all the relevant data in Walmart warehouses is transparent and interoperable, that labor can be provided by machines as well as people. High-speed robots are already loading and moving pallets, and automated sortation equipment is sorting products along conveyers and chutes. These technologies, together with data sharing, underpin automated consolidation centers, the first of which opened in 2019 in Colton, California, with more to come.

At only 340,000 square feet, it receives, sorts and ships freight for all 42 of Walmart’s U.S. regional distribution centers (RDCs). It uses automated technology that triples throughput.

The status quo is for suppliers to manage 42 separate orders—one for each RDC—usually shipping them as soon as they are ready in trucks that are not full. Walmart consolidation centers always took less-than-truckload shipments and consolidated them in full truckloads, but everything was done by hand and, crucially, shipments were not received and counted until they arrived at the RDCs.

Demand Forecasting and Predictive Distribution

With the new system, suppliers fill only one order, instead of 42. This allows them to save money on order management and to dispatch fewer less-than-truckload shipments. More important to Walmart’s bottom line, all the container loads are scanned and counted as soon as they arrive at consolidation centers, upstream from the RDCs. The scanning and counting are done automatically on arrival.

This allows the entire system to adjust to the unexpected that much sooner. With complete visibility, the system can even respond to sudden shifts in regional demand, for example, due to a heat wave driving air-conditioner sales in certain states, and rebalance shipments to the various RDCs. As Geno Bell, Walmart’s senior director of its consolidation centers, put it, “With this new technology, we can be surgical and responsive in getting merchandise into stores.”

After the products have been received, counted and assigned to destinations, the automated warehouse management system is used to sort and separate the arrivals and load the products into new truckloads according to how they are stocked downstream, speeding and simplifying unloading at the destination.

Things get even more high-tech at the new automated RDCs, where high-speed palletizing robots unload and sort product. These tireless workers can use every inch of available warehouse space because they never lose track of where a product is stored, no matter how deep it is buried or how high it is stacked.

When it’s time to load it out, the robots retrieve the product and make up individual pallets designed for easy unloading at the other end. The new pallets are packed by how products are stocked in the destination stores, down to specific aisles, in a tour de force of precision and integration. Work on the first of these automated marvels began in 2017 in Brooksville, Florida. Now Walmart is rolling out the automated system to 25 of its 42 RDCs.

How Walmart Supply Chain is Sustainable

Walmart first focused on the sustainability and environmental, social and governance (ESG) aspects of its direct operations, making its first environmental sustainability pledge in 2005. Among its early targets were increasing the efficiency of its trucking fleet. In the years since, Walmart has committed to achieving zero waste in its U.S. and Canada operations by 2025, and to powering its global operations by 100% renewable energy by 2035.

Walmart was the single largest procurer of solar and wind power in the United States in 2019, and currently gets 36% of the electricity that it uses around the world from renewable sources.

Once its own sustainability journey was underway, Walmart expanded its efforts to the sustainability of its assortment and of its supply chains. It paid for expert advisors to work with its suppliers to help them reduce their greenhouse gas emissions, drawing on Walmart’s now-considerable experience in the field. And through Walmart’s Project Gigaton, it is offering a power-purchasing facility to its suppliers whereby they can pool their electricity purchases to bring massive new renewable energy projects onto the electric grid in very sunny and windy areas that will offset the power they use locally (all electrons being interchangeable).

Walmart’s efforts to increase its supply chain’s sustainability are extensive, but they focus on a few critical ESG issues including climate, waste and working conditions. Walmart clearly lays out its expectations of suppliers in regards to worker well-being in a Standards for Suppliers publication, and lets them know that they are expected to hold their own suppliers to the same standards. Walmart then actively monitors the areas that pose the highest risks, especially to worker dignity.

Accountability Begins With Reporting

When it comes to environmental sustainability, Walmart uses a mix of mandatory and voluntary mechanisms. Suppliers of some commodities, including coffee, cotton, palm oil, pulp and paper, and tuna, are required by Walmart to meet specific certification standards and to validate that they have done so.

These products can then carry a certification logo on their packaging, which Walmart sometimes draws attention to. For example, a sign on a shelf might alert customers to sustainable seafood that carries the Marine Stewardship Council logo.

Other ESG efforts among Walmart’s vendors are voluntary. For example, Project Gigaton, which aims to avoid 1 billion tons of greenhouse gases from Walmart’s supply chain by 2030, is a program that Walmart encourages its suppliers to participate in, but participation is not mandatory.

Upwards of 3,100 suppliers (out of more than 100,000 total) are taking part in this effort. As always, Walmart is obsessed with information sharing in the ESG arena, and suppliers who report to Walmart’s sustainability surveys account for 70% of Walmart’s net sales in the United States.

It All Begins With Digitization

We all aspire to succeed like Walmart, but no fleets of automated warehouse robots are coming to sort and pack aisle-ready pallets for the rest of us—and that’s okay. Every supply chain can realize serious efficiency gains through better data sharing. The road to Walmart-quality data, and real-time data sharing between supply chain partners, starts with making the entire shipping process digital.

A good end-to-end digital solution can capture all the information generated in a shipment’s lifecycle and make it immediately available to everyone concerned. Vector Software’s contactless solution is a good example.

A supplier’s bills of lading, pick sheets and anything else are sent by email or uploaded to Vector’s system and automatically ingested. When a carrier driver arrives for pick-up, a smartphone scan of a QR code checks the driver in, enters the driver’s info, and assigns a dock door.

From there, the system routes the shipment’s documents to the driver, shipping clerk, and security guard, who might use a smartphone to verify the container’s seal or temperature and add that information to the system. En route, the shipper and the carrier get real-time updates, including details of any overage, shortage, or damage.

Digitization speeds and eases every trip. But the real efficiencies come in because digitization is the crucial first step in leveling up a company’s data quality. Every shipment’s data is made completely visible. Any patterns that arise in the inevitable glitches and hitches are laid out where you can see them as they emerge and solve them promptly. And that gets you closer to using information like Sam Walton for a world-class supply chain.

Back to the Future

The future of Walmart’s Supply chain is sure to include more dazzling innovations, but the fundamentals of efficiency, visibility, and sustainability will remain. For instance, the company’s autonomous robots whizzing around inside its distribution centers may soon be picking and packing containers hauled by autonomous trucks.

Walmart is testing such vehicles to haul freight around their own yards and on public road networks. They are also experimenting with management systems to control and coordinate these autonomous vehicles.

Who knows what the future of Walmart’s supply chain will look like? But even if they someday deliver goods in flying cars, one thing is certain: The secret of Walmart’s success will always be information.