When Coke and Walmart tussle over distribution issues, it should be a clinic of leading edge thinking. The rest of the world should be able to sit back, listen and learn, as the masters go at it. After all, these are two huge, global companies and distribution should be a big deal to both of them. Instead, we get a clinic in ‘what not to do’ – a veritable comedy of incompetence.
On one side we have Coke. As if to prove Bob Sutton’s point that most ‘new’ or ‘breakthrough’ thinking is neither new nor breakthrough, Coke was defining JIT and Vendor Managed Inventory when Sakichi Toyoda was still fiddling around with looms. There is a picture on the Coke web site of a horse drawn wagon hauling Coke directly to stores in 1909. Coke folks have been going directly into stores and stocking their customers’ shelves for 100 years. You would think they would have their distribution model down pat by now. That assumption, however, would be wrong.
On the other side we have Walmart. With over 6,400 stores all over the globe, you would think they would be a pretty important customer for Coke, deserving of Coke’s best performance. By the same token, Walmart claims to have 176 million people a week pass through their stores and even the most obtuse business person knows that people like drinking Coke products. You would think that Walmart would want to have something like a partnership with Coke. For that matter, Coke is based in Georgia and Walmart operates out of Arkansas. You would think that all those good ol’ boys should be able to work just about anything out when they sit next to each other on Saturday afternoons on the NASCAR circuit.
You would think those things, but you would be wrong. Here’s what happened:
Walmart doesn’t like this small lot, direct delivery JIT business one bit. Their management went to business school and they still have the text books from 1967 explaining economy of scale, mass merchandising and mass production on the shelves of their offices. Founder Sam Walton said, "You can’t just keep doing what works one time. Everything around you is always changing. To succeed, stay out in front of that change." Lee Scott, who runs the show now, agrees and he has launched his own "Out In Front" campaign. As a visionary leader in the information age, Scott knows exactly what ‘Out In Front’ means – slicker warehouse automation and bigger computers to keep track of it all. Everyone knows that you can’t make money bringing Coke into stores by the case – it needs to pour into massive distribution centers by the ocean-full – and he has his old Econ 101 text book to prove it. Everyone in Bentonville know you measure progress in gigabytes.
Coke couldn’t execute their century old distribution system for their biggest customer. Their Powerade product kept running out. That was all Walmart needed to make their move. Did they hit Coke with a price penalty based on their delivery performance? No. Did they kick Powerade out of a bunch of their stores, giving the space to Coke’s archrival Pepsi for its Gatorade product until Coke could demonstrate acceptable delivery execution? No. Walmart did what they always do. They told Coke that it had no choice but to knock off this direct distribution/JIT nonsense and ship PowerAde by the tanker truck to their mammoth distribution centers, or else. Or else what, you ask? Or else they would go out on their own and create their own sports drink – WallyAde, I suppose – and launch their ‘category killer’ strategy to drive Coke’s PowerAde into oblivion. Coke agreed and their JIT deliveries to Walmart came to an end.
A pox on both their houses, I say. Coke had better figure out how to make their JIT system work in a big hurry. After 100 years of practice, it is ridiculous that they cannot support their biggest customer. In a few years when real estate brokers all over the world are trying to figure out what to do with all of the abandoned Walmart warehouses that no one wants, only suppliers who can deliver like Coke used to will be making money. Tesco and 7-Eleven will not offer them the fallback of delivering to warehouses. They just won’t sell PowerAde.
And what can be said about Walmart? They force suppliers away from frequent, small lot, direct deliveries and into central distribution centers, and wonder why they had to bail out of Korea and cannot take hold in the UK. They call the strategy "Out In Front". Out in front of what? In recognizing the impact lean thinking is having on supply chain economics Walmart is not even out in front of that horse pulling the Coke wagon in the 1909 photo.