Ally Kleinman, Keely Schneider, Shane Strumwasser, Felipe Caro
Walmart is a globally recognized leader in big-box retail. Walmart is responsible for $500 billion in annual revenues, operates in 28 countries and employs 2.3 million people worldwide [1]. Everyone knows the giant superstore for its low-cost strategy and “everyday low prices.”
What people do not know is how efficient Walmart’s supply chain needs to operate to keep up with its cost strategy. For a network as large as Walmart, its distribution must be streamlined to deal with large quantities of product and SKUs going to and from suppliers to eventually end up in the retail stores. In the United States, Walmart operates with a hub-and-spoke distribution model for its grocery distribution, which accounts for an estimated 22% of the US grocery market [2]. It uses 44 distribution centers with over 35 million square feet of space [3]. On average, grocery products travel 134 miles to get from the given distribution center to a retail outlet. With such a large and complex network, managing it end-to-end is challenging and food waste becomes a major problem.
Each day, Walmart’s global network generates 3.5 million tons of food waste, which equates to $2.6 trillion in annual cost and results in a $7.4 billion loss for Walmart’s P&L [4]. To mitigate this problem, Walmart has begun actively setting targets to reduce waste using waste scorecards and other tracking mechanisms [5]. Additionally, for every new supplier there is a comprehensive set of actions that the supplier must take to make sure it adheres to Walmart’s standards [6]. Walmart has also explored using blockchain technology to better track its products and control food waste [7]. Furthermore, Walmart imposes penalties on suppliers for delivering products either too early or too late [8]. At minimum, these are some small steps that Walmart has initially taken to increase awareness of the food waste issue.
In 2018, Walmart introduced a new technology called Eden to meet the challenges of food waste. Eden is a suite of apps that employees can use at every stage of the supply chain to improve the quality and flow of produce from farm to shelf [9]. The technology includes a digital library of food standards with over a million photos from which they have created a freshness algorithm that identifies spoilage and prioritizes the flow of fresh produce. Upstream in the supply chain, Walmart’s size and buying power allows them to negotiate information sharing agreements to get valuable information about the time in the field prior to cooling, which has an impact on shelf life. From here Walmart’s chained distribution allows them to optimize the flow of produce. Finally, store employees can use this information to prioritize restocking based on freshness [10]. Eden was developed in house by Walmart employees during a company hackathon and they are continuing to work on improving the technology and adding functionalities.
To demonstrate the impact of a tool like Eden, we can use bananas to estimate the reduction in safety stock once Eden is deployed in the supply chain. Bananas are one the highest volume products sold by Walmart - with over 1.5 billion pounds sold each year [11]. As of now, about 30% of all bananas harvested are wasted [12]. It's likely that Walmart can reduce this waste by 50% by applying Eden technology. Also, by using Eden to better predict when each banana will ripen, it's possible to reduce the average lead time by 2 days -- because the technology would reduce the need to artificially ripen or “gas” bananas, which is typically part of the fulfillment process. With these improvements, a quick calculation using the standard order-up-to formula based on the newsvendor [13], we estimate that Walmart can reduce banana stock by over 23M pounds, which would save the company around $170M annually.
Looking to the future, Eden is poised to create solutions for many of the challenges of produce in retailing. Currently farmers have limited access to information. In the future, Eden can be integrated at the farm level to optimize picking time, creating value through infomediation. There is also an opportunity to upgrade Eden to track freshness at the unit level by applying more advanced analytics. Finally, Eden has the potential to eliminate the need for costly packaging by optimizing the store-to-shelf window. Overall, Eden is an exciting new technology that is sure to have a marked impact on the efficiency of fresh food supply chains.
[1] https://corporate.walmart.com/2016grr
[2] https://www.cips.org/supply-management/news/2017/march/wal-mart-to-squeeze-suppliers-to-win-discount-chain-price-war-/
[3] http://www.mwpvl.com/html/walmart.html
[4] https://corporate.walmart.com/2016grr/enhancing-sustainability/moving-toward-a-zero-waste-future
[5] https://corporate.walmart.com/2017grr
[6] https://corporate.walmart.com/media-library/document/supplier-checklist-4918/_proxyDocument?id=00000162-abb3-df49-abf2-efbb94470000
[7] https://rctom.hbs.org/submission/blockchain-technology-walmarts-holy-grail-of-food-supply-chain-management/
[8] https://www.wsj.com/articles/wal-mart-kroger-impose-more-fines-on-suppliers-for-missed-deliveries-1511784000
[9] http://prlogistics.com/walmarts-eden-and-verigos-pod-quality-technology-to-reduce-fresh-produce-waste-in-supply-chains/
[10] https://blog.walmart.com/innovation/20180301/eden-the-tech-thats-bringing-fresher-groceries-to-you
[11] https://www.businessinsider.com/walmart-sells-this-food-the-most-2016-2
[12] Personal communication with industry source
[13] Base-stock level = μ * (L+1) + zσ * sqrt(L+1)
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