TechWeb

Wal-Mart's Way

Sep 27, 2004 (08:09 AM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=47903044


Growing up in blue-collar Fort Wayne, Ind., Linda Dillman once contemplated a career as a beautician. But she chose a different path. Now she's perhaps the most powerful CIO in the world, leading the business-technology efforts of the most successful and widely recognized retailer on the planet.

Dillman, 48, became executive VP and CIO of Wal-Mart Stores Inc. last year, though she'd been at the helm of the Information Systems Division as senior VP since August 2002. This year, Dillman will oversee 2,500 business-technology projects that come with high expectations. Topping the buzz list is Wal-Mart's much-talked-about radio-frequency identification initiative, but Dillman will tell you that isn't even the most expensive IT project going on at the company, not "by a long shot." Other high-priority projects include revamping supply-chain processes, synchronizing product data with suppliers using the UCCnet standard, improving E-commerce platforms, and developing talent and fostering regulatory compliance in stores across the globe (see story, "People First: Talent Development Is A Priority").

Members of Wal-Mart's Information Systems Division, at one of the retailer's Neighborhood Market stores. From left: Tony Puckett, Dan Phillips, Randy Salley, Rob Hey, Linda Dillman, Carol Mosely, Matt Carey, and Carolyn Walton.

Members of Wal-Mart's Information Systems Division, at one of the retailer's Neighborhood Market stores. From left: Tony Puckett, Dan Phillips, Randy Salley, Rob Hey, Linda Dillman, Carol Mosely, Matt Carey, and Carolyn Walton.

Photo by Bob Stefko
As with 95% of Wal-Mart's IT projects, the Information Systems Division will manage the work from programming to process reengineering, relying very little on commercial software and not at all on outsourcing. Indeed, programmers are right now putting the finishing touches on intelligent RFID middleware to handle the influx of data to be generated as the first wave of 100-plus suppliers begins sending RFID-tagged cases and pallets of products through the doors of Wal-Mart's Sanger, Texas, distribution center. Yet Wal-Mart spends below the average on IT for retailers--less than 1% of worldwide revenue, which reached $256.3 billion in 2003. "The strength of this division is, we are doers and do things faster than lightning," says Dillman, the owner of a Mercedes SLK 320 convertible that gives her the opportunity to drive in the fast lane in her private life, too. "We can implement things faster than anyone could with a third party. We run the entire world out of the facilities in this area at a cost that no one can touch," she says. "We'd be nuts to outsource."

The company's IT budget has, in fact, grown at less than the rate of sales growth, says Dillman, who reports to executive VP and CFO Tom Schoewe. Of course, it doesn't hurt that Wal-Mart's sales far exceed those of other retailers. Plus, its "No. 1 status gives it the capability to pass on some IT investments to suppliers, as demonstrated by the RFID and UCCnet mandates for 2005," says Gene Alvarez, VP of technology research services at research firm Meta Group.

Wal-Mart's reputation for designing applications and working with new technology acts as a powerful recruiting tool, drawing 95% of new IT employees to its Bentonville, Ark., headquarters from outside the state. And many of those who come to work for Wal-Mart's Information Systems Division stay for a long time. The executives in charge of key operations, including the company's data warehouse, its human-resources systems, and its international systems, each count a decade or more of experience with Wal-Mart.

Just last March, Carolyn Walton gave up her cabinet-level post as Arkansas' CIO to become a VP in Wal-Mart's Information Systems Division. Ask her why, and she'll tell you about the 7:30 a.m. Valentine's Day meeting she attended this year. Saturday morning meetings are just part of the normal business routine for the hundreds of Wal-Mart business and IT executives who must regularly attend them, but for Walton, this particular event was a revelation.

She listened to executives analyzing sales of Valentine's favorites such as chocolates, red roses, plush teddy bears, and fine jewelry, comparing results to previous years at any given time of the day at specific store locations, right up until midnight on Friday, Feb. 13. And she watched as an IT employee was recognized for developing an application to get fresh flowers to stores more quickly than in the past.

"That was the telltale sign Wal-Mart relies on information to run its business and depends on technology as the enabler to meet the customers' needs," says Walton (no relation to the retailer's founding family), who's responsible for the worldwide rollout of RFID technology. "There's confidence and credibility in the IT organization to deliver results."

That's important in a company where business technologists, like everyone else, are considered merchants first, responsible for moving the business forward. Expectations are spelled out in one of the many sayings--including those of the deceased co-founder, Sam Walton, whom everyone there still calls "Mr. Sam"--that garnish doorways and walls throughout the David Glass Technology Center, a converted manufacturing building two miles from headquarters, where Dillman's staff is housed. "The greatest pleasure in life is doing what other people say can't be done," reads the quote from Mr. Sam.

Straight From The Source

Wal-Mart's RFID information page for suppliers

Wal-Mart press release on the rollout of electronic product codes

The Wal-Mart Culture, including 3 basic beliefs

Sam Walton and the Sundown Rule

The History of Wal-Mart

Biography of CIO Linda Dillman


For business technologists to prevail where others fear failure, they must experience the real-life environment of the business. "The best systems are built by people who understand how they're used," Dillman says. She learned that at her first job at a small retailer, where she worked closely with business execs on strategy but also carried a soldering iron on road trips so she could run cabling to hook up terminals in the stores she visited.

That philosophy is playing out now as Wal-Mart prepares for the January go-live date of its RFID initiative, aimed at solving the decades-old problem of making sure the products customers want are not only in the store but on the shelves. Dillman recounts how Carolyn Walton, working at a Wal-Mart store as part of the company's mandatory training, saw firsthand the difficulty of finding a specific case of hair spray to refill shelf stock. It took three days to locate the case in the back room--something that would take minutes using a handheld RFID reader. Dillman, though she never did make it to beautician school, knows enough about the beauty business to point out that most customers won't swap hair-spray brands, so Wal-Mart lost sales during those three days.

Wal-Mart expects its RFID project to help not only its sales but also those of its suppliers, and it may even aid competitors and other industries. How much it will benefit suppliers, however, is one of the biggest debates in the IT industry.




The Potential Of RFID
Dillman arrives late to a meeting partly, she explains, because she was involved "in a very lengthy discussion with someone who says RFID has no business case for manufacturers, even at a zero-cost tag." She chuckles over that one as much as over another analysis that posited RFID would deliver $7 billion in benefits next year--almost more than Wal-Mart's total profits. Still, "this technology has a bigger potential to make a difference in retailing than anything we've ever done," says Dillman, who joined Wal-Mart 10 years ago and until two years ago was its VP of international systems development. She replaced former CIO Kevin Turner, who became president and CEO of Sam's Club.

RFID tags on cases and pallets will be read not only when inventory enters a stockroom but also when those cases or pallets go to the floor and, ultimately, when empty cases go to the compactor, she explains. Much of the data collected during RFID reads will be passed on to Retail Link, Wal-Mart's Web-based software that lets the retailer's buyers and some 30,000 suppliers check inventory, sales, and more. The company is developing software for Retail Link that will leverage that data and trigger a business process--for example, initiating a purchase order. The use of RFID "can dramatically improve suppliers' in-stock positions," says Simon Langford, manager of global RFID strategy, who came to Bentonville from England, after Wal-Mart's acquisition of grocery chain ASDA.

One of Wal-Mart's suppliers, Pacific Cycle LLC, was so eager to test its RFID systems for applicability across the globe that it requested Wal-Mart start accepting in September four models of Schwinn Sting-Ray bikes, tagged with both EPCglobal Class 0+ and Class 1 tags, at the retailer's Dallas distribution center. Wal-Mart willingly agreed to the request. "I get feedback regularly on the RFID project, and they respond to our questions the same day they're asked," says Edward Matthews, the bike maker's director of information systems.

Radio-frequency identification has a bigger potential to change retailing than anything Wal-Mart's ever done, CIO Linda Dillman says.

Radio-frequency identification has a bigger potential to change retailing than anything Wal-Mart's ever done, CIO Linda Dillman says.

Photo by Bob Stefko
Dillman expects Wal-Mart to use all the data gleaned to draw conclusions about when to bring additional stock to the floor, of course, but also to figure out if too much of a product has been ordered by a store (monitoring how long a case sits in the stockroom before its contents are emptied) or is sitting in a distribution center (if the case doesn't get shipped out for days).

Critical to the RFID effort is global data synchronization to enable communications with the industry-standard EPCglobal registry so that accurately described and consistent product information is exchanged between trading partners. Wal-Mart has selected UCCnet and, so far, 650 suppliers send item information to the data pool on a machine-to-machine basis.

The potential benefits across the supply chain from deploying RFID are such that Wal-Mart has taken the unprecedented step of collaborating with its competitors to make the technology easier for suppliers to adopt. "We must be inventing and implementing faster the competition is stealing," reads one of the quotes posted in the lobby of the Technology Center. Yet the unlikely duo of Wal-Mart and Target Corp. agreed to begin with their Dallas-area distribution centers, using the same standards and requirements. The best way to make RFID happen is if retail stores are all in this together, Dillman says. (For more about Dillman's perspective on the RFID initiative, go to Linda Dillman On RFID.)

Of course, that level of collaboration "won't happen very often," Dillman adds. Wal-Mart isn't about to share with competitors other supply-chain efforts that are consuming much of Dillman's time these days. "As good as we've ever gotten, there's still so much room for improvement," she says.

Among the next set of innovations in the area is an effort dubbed Remix. The project, being tested in Florida with a dozen stores, will turn upside down distribution processes that have been in place since 1992. The aim is to revamp the distribution network to eliminate mixing different types of freight so that associates won't have to pick through trucks to find items, and to provide Wal-Mart buyers with additional visibility into inventory in the system. Wal-Mart is turning grocery-distribution centers into "high-velocity" buildings out of which will be distributed fast-selling products, such as paper, that are pallet-loaded onto trucks and can go straight to shelves, while regional distribution centers handle merchandise that gets loaded onto trucks without pallets.

Five months into the test, "we've seen dramatic decreases in inventory levels while improving in-stock and same-store sales compared with last year," says Randy Salley, VP of applications development, who's working with the global-supply-chain team on the project. Before the 2007 rollout, Wal-Mart wants to understand what's happening in the logistics network and what it may mean to suppliers' own forecasting and delivery operations.

Straight From The Source

Wal-Mart's RFID information page for suppliers

Wal-Mart press release on the rollout of electronic product codes

The Wal-Mart Culture, including 3 basic beliefs

Sam Walton and the Sundown Rule

The History of Wal-Mart

Biography of CIO Linda Dillman


That's just one example of where Wal-Mart IT pros get the opportunity to drive projects that drive the business--in contrast with businesses in which outsourcing is common, or IT is treated as a service provider. "If we can generate ideas and take them to the business, and they get excited about them," that's when everyone wins, Dillman says.

Wal-Mart is structured so those projects can happen fast, too. The centralized IS group doesn't have some of the budget and governance issues many companies do. It charges nothing out to the divisions--budget and project resources are allocated to what's most important in the company, not to the person with the biggest budget. No steering committees exist to slow the process, making it possible to give new projects a try on a small-scale basis, as well as to simplify projects for the critical piece that adds the most value. The Wal-Mart way, VP Walton notes, is to look for the 80% to 90% solution and deliver it with 100% accuracy.

The technology department's "secret weapon is that everyone is completely focused on how they can make it easier, faster, and/or more efficient for our operators, merchants, and support teams to do their jobs," writes Schoewe in an E-mail. As for Dillman, "I'm glad she's on our team because I'd hate to be going up against her as a competitor."




Massive, Centralized Infrastructure
It's an intense work atmosphere--and maybe not everyone is cut out for the challenges, or for the isolation. The do-it-yourself approach means that Wal-Mart "doesn't have the peer-group support and industry best-practice knowledge from other retailers using the same application," says AMR Research retail analyst Robert Garf.

Yet the engine keeps accelerating. The nucleus of the IT infrastructure Dillman presides over is a single, centralized, 423-terabyte Teradata system that churns data from 1,387 discount stores, 1,615 Supercenters, 542 Sam's Clubs, and 75 Neighborhood Markets in the United States, plus 1,520 more stores worldwide. "That's key to how we can leverage what we do into the future," says Dan Phillips. The VP of operations, data warehousing, databases, large systems, and communications led the IT effort when Wal-Mart opened its first international unit, a Sam's Club store in Polanco, a suburb of Mexico City, and was a critical player in the company's decision in 1995 to bring together all its businesses under a common IT system for distribution, replenishment, and so on. "The common system, centrally managed, is our competitive advantage at Wal-Mart," enabling the same data set for both buyers and suppliers, he says.

Wal-Mart in the 1990s tried having IT executives report to the business, a "well-intentioned" but not well-executed experiment, Phillips says. "We lost touch with what was going on in [the IT group] and with being able to leverage the synergies of being able to do everything for everyone."

Key to Wal-Mart's development efforts today is its build-it-once-for-all-systems mentality. That means build it for both domestic and global operations--the retailer's growing international presence encompasses operations in nine countries and Puerto Rico, including the most recent acquisitions of Brazil's Bompreco in March . "When you're writing the code, you automate, enhance, and change processes globally," says Tony Puckett, VP of international systems. As Wal-Mart learns from its experiences in new countries--about Brazil's complex tax structure, for instance--"we bring back the structure into our core system and that becomes a tool we have in the future," he says.

Today, Wal-Mart captures all the day's sales and product data across its global operations on an hourly basis. Database queries can start running as soon as data is available. That ability comes in handy, particularly on the Friday after Thanksgiving, when Wal-Mart buyers start watching what's happening in stores at 6 a.m. on the East Coast, then use that data to make decisions in real time that can affect the big day's sales. Wal-Mart once used its data prowess on a Black Friday to query sales of a PC advertised in a circular; when execs found out it wasn't selling well, they called stores and discovered the reason was that customers thought they had to pay separately for the system and monitor. So store clerks quickly put the two boxes together and spelled out the pay-one-price deal in a sign. "We've done a lot of work for performance and availability, and making sure the data is current," Phillips says.

Wal-Mart's common IT foundation is textbook, but not often seen in the real world. Now Wal-Mart is engaged in bringing its online operations onto a common platform as well. An initiative dubbed Global.com that encompasses the retailer's online sites--www.walmart.com, www.samsclub.com, www.asda.com, and www.walmartmexico.com.mx--will move by 2005 from the disparate technology platforms on which they were developed onto a Java-based platform running on IBM's WebSphere and an Informix database. That way, "scalability is easier to maintain," says Matt Carey, VP of technology, who started as a programmer trainee writing code in CICS Cobol for Sam's Clubs merchandising systems.

Straight From The Source

Wal-Mart's RFID information page for suppliers

Wal-Mart press release on the rollout of electronic product codes

The Wal-Mart Culture, including 3 basic beliefs

Sam Walton and the Sundown Rule

The History of Wal-Mart

Biography of CIO Linda Dillman


There's been a lot of talk in the past about leveraging the strengths of brick-and-mortar businesses with E-commerce operations, but Dillman says that's really happening now. Wal-Mart has made some of its own missteps, such as spinning out its Web site in a partnership with a venture-capital firm before bringing it back in-house. Also, an attempt at online grocery shopping and home delivery in the United States failed because it proved too costly. (The service is more successful in the United Kingdom and Mexico, where housing is more concentrated and people are more willing to pay delivery fees.)

Greater hopes are pinned on a test under way to let customers order specialty merchandise that's available on Walmart.com, which stocks more than 700,000 items, including textbooks, and then pick it up at several Dallas-area stores. The initiative builds on Wal-Mart's existing architecture for letting customers order prescriptions or contact lenses online and pick them up in stores.

In stores, Wal-Mart is tinkering with how to make the most of its everyday- low-prices formula. It began rolling out in January the first modules of a markdown and sales-optimization package it's creating to help predict at what point in the selling cycle a product becomes less desirable by consumers; the last modules are due next year. The goal is to provide tools to reduce an item's price at the most optimal time in the cycle to increase sales and profit.

"Most stores drop the price 50% after a holiday," says Rob Hey, Wal-Mart's VP of merchandising systems, who began as a stockman 23 years ago at Wal-Mart's Parsons, Kan., store. "But why drop 50% when you can take a reduction earlier in the season and create additional sales for the company?"

Creating value for the company and the customer is what it's all about, Dillman says. And Wal-Mart even now has a small group looking at how it can transform development to deliver business-technology solutions to Wal-Mart faster, cheaper, and better.

In this, as in every other area, the Information Systems Division is being proactive. "What makes our job fun is bringing many ideas to the table," Dillman says. "If we were always sitting on the other side waiting for someone to tell us what to do, it wouldn't be nearly as exciting."