Wal-Mart’s executives admit that one of the company’s biggest problems is running out of popular items. Customers who don’t find what they want at Wal-Mart will buy somewhere else. But the problem is not as easily solvable as it might seem. Suppose Wal-Mart orders double what it expects to sell. Stores might never run out of products, but Wal-Mart would have to pay for buying and storing the extra goods. The company eventually would no longer be able to compete based on low price. Therefore, Wal-Mart’s managers become experts in planning exactly what stores will need.

Consider how Wal-Mart prepared after a recent Black Friday, the Friday after Thanksgiving, which launches the year’s biggest selling season. At Wal-Mart, planning starts a year in advance. On the Monday after Black Friday, a team of employees under Steve Bratspies, executive vice president of general merchandise, reviewed what worked that Friday and how the company could do better the following year. The team identified its major problem (out-of-stock items) and its major success: one-hour price guarantees for featured items, meaning that shoppers who come to the store for a featured item will receive it at the featured price even if the store runs out of the item and provides it later.

The team determined that on the following Black Friday, Wal-Mart would carry more inventory of items expected to be hot sellers and would expand its one-hour guarantees to cover 21 items, up from 3 in the current year. Also, the planners expected stiffer competition because of the shorter holiday season (Thanksgiving would fall relatively late in the month). They decided to match competitors’ Black Friday deals the entire week preceding Black Friday and to open stores the evening of Thanksgiving Day.

Although Black Friday is a big event, satisfying customers is a year-round challenge that requires plans for day-to-day activities. In particular, Wal-Mart managers plan how to minimize the costs of moving products from suppliers to warehouses to stores and to online shoppers. A major cost is transportation. Logistics managers have developed a sophisticated network for transportation and storage aimed at more than 95 percent of products being available when desired. Managers are beginning to apply this expertise to the stores by improving plans for staffing stores and creating better procedures for keeping shelves stocked.

Technology helps Wal-Mart meet these planning challenges. Wal-Mart uses a computer system called store-level distribution resource planning (DRP) in which planners forecast the level of demand they expect at each store, and the system calculates the product amounts needed in each warehouse and from each supplier to meet demand in the months ahead. The DRP system also collects sales data from the stores, and if actual sales differ from the forecasted sales, it adjusts the amounts to be ordered.

Skilled planners and sophisticated planning tools are essential for Wal-Mart. The budget-conscious consumers who shop at Wal-Mart are increasingly stressed in today’s economy, so Wal-Mart and its competitors are fighting for every dollar they can earn or save.¹