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Wal-Mart goes back to school

The massive retailer is on a mission to repair its reputation -- in part by giving everyone a glimpse into its supply chain.

When Wal-Mart's Gary Maxwell took center stage in Boston last week to deliver a primer on supply chain management, there was no mention of radio frequency identification. No bragging about the retailer's gee-whiz software that updates sales data every 15 minutes. Instead, Maxwell showcased the "Replenishment Pyramid," an old-fashioned model for supply chain fundamentals.

The senior vice president of merchandise replenishment for Wal-Mart Stores Inc., Maxwell told a group of IT managers that the biggest opportunity for improving the supply chain is in mastering the fundamentals. "A perfect forecast is a waste of time, if you can't get the goods through the supply chain," Maxwell said.

To help employees focus on the fundamentals, Wal-Mart teamed up with consulting firm Accenture and the Retail Industry Leaders Association (RILA), a trade organization, to help pilot an online 50-hour-plus certification program for inventory management. The curriculum, which can be taken over a 12-month period, covers statistics and probabilities; forecasting and planning; and inventory management and metrics. Moreover, any company that has access to the Internet can give its employees the same edge, Maxwell said, by going to the RILA Web site , and paying $1,500.

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The presentation, given at a conference on executive leadership by consulting firm AMR Research Inc., was the latest in a series of recent efforts by Wal-Mart to repair its battered image by becoming more open about how it does business.

Earlier this month, in what was widely acknowledged as an unusual move, Wal-Mart invited the press to a symposium of economists gathered to debate the company's impact on the economy.

"Wal-Mart has kept the internal workings of its processes very confidential. This is part of a trend to explain what they do," said Alexi Sarnevitz, an analyst with AMR Research. Maxwell's presentation in Boston on supply chain management served another purpose, Sarnevitz said: to remind Wall Street that Wal-Mart was keeping its eye on the ball this holiday season.

This time last year, Wal-Mart tripped, posting same-store sales that fell well short of the 2% to 4% gains projected for the month of November, the all-important start of the holiday spending spree. The company, whose ability to review and react to sales data is second to none, had failed to predict two important trends: the aggressive pricing offered by competitors and the impact of higher energy costs on the disposable income of its target consumer. The cost of that poor demand intelligence was high, Sarnevitz said. After the November sales announcement, the financial markets punished Wal-Mart with a market capitalization drop of $12.6 billion.

"If you listened to what Gary said in Boston, this was not about rocket science -- not about magic software or RFID or any silver bullet, but a relentless focus on the process basics," Sarnevitz said.

The problem comes down to one of communication, Maxwell said. "Manufacturers and retailers have each optimized their networks, but in many cases, not done it together. Where they meet, it is not always optimized," he said.

For example, retailers don't understand manufacturers' lead times, and in the past didn't care very much. "It was all about, 'here is my order and you meet the deadline,'" Maxwell said. The real opportunities for improvement are at the bottom of the pyramid, he said.

Manufacturers and merchants spend most of their time talking about inventory policies, because it is the easiest place in the pyramid to work, he said, with one person talking to one person. Working at the base of the pyramid involves talking to a lot of people -- from the supplier and transportation carrier to the buyer involved -- and requires a lot of hard work.

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