Forecasting Using Data Warehousing Model: Wal-Mart's Experience

TL;DR: In this article, the authors show how Wal-Mart, the world's largest retailer, achieved excellence in retailing by incorporating a data warehouse, and how it achieved competitive advantages and accuracy in its forecasting operations in an unprecedented manner.

Abstract: Describes why data warehousing system is needed, how it is used and what lessons are learned... provides guidelines for setting up such a system ... Wal-Mart's compulsive obsession to improve, rethink and improve again led the way toward the direction of data warehousing model. It can be said that even today the forecasting process is generally fairly subjective, driven by intuition of so called "experts" who are company executives, sales force, and industry analysts whose prognostications have been far from satisfactory. As a result, companies can miss the boat on achieving profitability, reliability and a competitive vantage position in their industry. Wal-- Mart is a forerunner among retailers to recognize the value of investing in an information system to support their forecasting process. On account of their wise decisions, initiative and leadership in Collaborative Planning, Forecasting and Replenishment (CPFR) has taken a "great leap forward." Business relationships based on CPFR lead to synergies. Buyers and sellers leverage each other's assets and knowledge to create a supply chain whose value is greater than the sum of the parts. A data warehouse plays a pivotal role in gaining this knowledge. It enables companies to collect data from many sources, perform analyses, and make informed decisions in real time. In this article, we will show how Wal-Mart, the world's largest retailer, achieved excellence in retailing by incorporating a data warehouse. By doing so, the company has achieved competitive advantages and accuracy in its forecasting operations in an unprecedented manner. Businesses aspiring to be successful can learn a lesson or two from the Wal-Mart Model. WAL-MART STORES In 1962, Sam Walton opened his first Wal-Mart store in Rogers, Arkansas. Today, Wal-Mart's retail reach is limitless and market penetration enviable. Wal-Mart has annual revenues of nearly $100 billion, and more than 2,900 stores and Sam's Clubs in the United States. Internationally, the store operates more than 720 units. Wal-Mart employs more than 815,000 people in the United States and 220,000 abroad. From the start, one of the goals of Wal-Mart was to be the best store in town and to continue to grow and be successful. To this extent, Sam Walton believed in managing the chain "one store, one day at a time." Soon, Wal-Mart became successful and continued to grow and started moving out of the Midwest to become a nationally recognized retailer. With the rapid growth it became more and more difficult for Wal-- Mart to meet satisfactorily the needs of increasingly divergent customers. What worked in one store didn't necessarily work in another store. Consequently, management started losing its ability to manage "one store, one day at a time." MANAGEMENT GROWTH DILEMMA Wal-Mart's initial systems were capable of reporting only averages and summaries of their operations. They did not support management's changing needs. Soon Wal-Mart realized that relying on averages was not prudent, as it was not a true representation of any specific store at any specific time and for any specific market basket in the chain. Management realized that their decisions had to be very specific to a store level in order to meet the needs of the customers who came to that store. This triggered the need to obtain detailed information at a store level. Senior executives turned to Information Technology and Data Warehousing to regain their capability of managing their stores "one day at time." According to Rick Dalzell, Vice President of Applications Development, the store took the approach of "...want to know everything that happened in the store." This according to him is in stark contrast to their competitors. As such, Wal-Mart searched for a strategic partner capable of meeting their standards and their plans for the future. They found their match with NCR. NCR's Teradata software, a data handling system, which is a core component used in the Wal-Mart's data warehouse, consists of 101 terabytes. …