When Walmart opened in 1962, its first warehouse was founder Sam Walton’s garage in the northwest tip of Arkansas. The supply chain for the low-cost retailer was Walton's pickup truck, which he used to transport merchandise.
Nearly 60 years later, Walmart has more than 150 distribution centers across America — each of which ships more than 200 trailers per day with the help of the company’s private fleet of 8,000 drivers.
“Sam made the determination that you have to own the supply chain,” said Chris Sultemeier, former executive vice president of logistics. “The only way this works is if you own the supply chain.”
In Sultemeier’s time at the world’s largest retailer, the retired U.S. Army captain said he’s seen changes that are dramatically impacting the retail supply chain. He highlighted three of the most significant changes during a talk at the MIT Center for Transportation and Logistics.
Technology will transform transportation
Despite retailers spending enormous amounts of money on transportation, Sultemeier said, there’s a gap in investment and technology. But that’s changing as technology evolves.
Citing a 2019 Princeton Consultants survey, Sultemeier said the technology areas having the most impact on transportation are artificial intelligence and automation, the internet of things, Uber for freight transportation (like the ride-sharing service, Uber Freight is an app that connects shippers and carriers), blockchain, drones, and driverless trucks.
Sultemeier said technology also can help make driver routing more efficient. Truck drivers are legally allowed to drive 11 hours per day, but often that doesn't happen. At Walmart, company drivers are driving a little over 9 hours, compared to the average truck driver who drives a little over 6 hours a day, Sultemeier said.
“Do you think we have an efficiency problem?” Sultemeier asked. “Theoretically a [non-Walmart] truck driver is making about 60% of what they should be making. The problem is we don't have a system, a network technology around allowing these truck drivers to get out and drive a lot more hours a day.”
Fulfillment centers will become a new kind of store
A retail supply chain used to be one-directional, Sultemeier said, but now they're more like spaghetti going all directions. That’s due in large part to companies like Walmart changing the way it handles order fulfillment.
In January 2018 Walmart announced the closure of 63 Sam’s Clubs to reduce store redundancy. It converted 10 of the stores into end-market fulfillment centers for SamsClub.com. The thinking, Sultemeier said, was that Sam’s Clubs were already warehouses that could handle large deliveries.
“I think over time you’re going to see more people playing with concepts like this,” he said.
Walmart also introduced its Pickup Today option — where customers could order something online and pick up their order in-store; something other large retailers and grocers have adopted.
Sultemeier said when Pickup Today started in 2016, Walmart stores were making about $1 million per week through the function. Two years later, stores make $100 million per week through Pickup Today.
“From our standpoint as a retailer, the consumer had voted,” he said. “No matter how terrible the process — and [at the beginning] it was terrible — the consumer had voted that they liked it.” Sultemeier said it’s likely retailers will be experimenting with behind-the-scenes automation for stocking and bagging efficiency to further smooth the process.
Customers will help with the ‘last mile’ delivery
The final frontier for groceries is the last mile of delivery, Sultemeier said. And for a company to get this last mile right, it requires three things: density, delivery, and flexibility.
You’ve got to have enough people to serve, and you can’t have a fulfillment location on the very edge of town, Sultemeier said, especially when delivering food. Know that you can incentivize your customer to help you be successful in that delivery flexibility.
Sultemeier shared a story in which his local dry cleaner offered not only a week’s worth of free service if he and his wife were willing to shift their pickup and delivery days, but also a discount if they referred their neighbors. A few years later, the whole neighborhood was using the same dry cleaning service on the shifted days.
“If you can get the customer to ... accommodate density and distance, you’ve got a better opportunity to be successful,” Sultemeier said. “One of the things you find is the loyalty that you garner from the customer when you do things like that, they actually feel better about you even though you just switched them to something that was more convenient for you.”