All good, but not necessarily alike.

Each of three leading mass retailers — Wal-Mart Stores Inc., Target Stores and Costco Wholesale Corp. — has evolved different supply chain strengths based on individual business models. Which, experts agreed, helps them compete against each other without knocking each other out of the game. Witness Kmart’s disastrous attempts to “out-Wal-Mart Wal-Mart” throughout the Nineties.

Wal-Mart, for example, approaches its supply chain as an Everyday Low Prices, or EDLP, endgame, wringing costs out of the chain in order to roll back shelf prices. According to consultants who have worked with the company, Wal-Mart prefers to work intimately with a few large suppliers, from which it can get multiple brands and steep volume discounts. Those suppliers work hand in glove from dedicated offices ringing Wal-Mart’s headquarters. They review daily sales data and directly manage the inventory of their product on Wal-Mart’s shelves.

The retailer pioneered vendor-managed inventory, or VMI, with Procter & Gamble decades ago, a process by which P&G sets its factory schedules based on shelf demand and controls how often the stores are replenished. By pushing the inventory management and ownership back on P&G, Wal-Mart has full shelves and no inventory costs. It pays for the Tide only after each box is sold.

What falls within Wal-Mart’s supply chain mission — to move the largest inventory at the lowest cost — the retailer does better than anyone. But, “you cannot hold Wal-Mart responsible for every advance or decline in the retail industry,” noted Gilbert. “They are not trying to do everything. If it’s not part of their game plan, they don’t care, or care only peripherally.”

Gib Carey, a partner with Bain & Co. who is conducting an ongoing study of Wal-Mart’s relationships with its suppliers, noted the retailer’s annual capital expenditures (which includes the IT budget) annually exceed that of Target, Sears, Costco and Kmart combined.

“They have the money to experiment more, but they are very disciplined and capable when it comes to experimenting,” Carey said. “They tweak until they find the right solution and as soon as they know they’ve got it, they roll it out very quickly.”

This story first appeared in the January 9, 2004 issue of WWD. Subscribe Today.

Wal-Mart has made most of its innovations with consumer packaged goods suppliers, but analysts said apparel companies — which historically have been smaller, more fragmented and not as technologically sophisticated — will eventually be expected to perform on par. “There is one particular supplier that has three different divisions and a big relationship with Wal-Mart,” said a consultant, who asked for anonymity. “Their food division is excellent in delivery, but their apparel division is very poor. Wal-Mart has issued an edict to this supplier to fix it because they are tired of getting excellence on one side but not on the other.”

Wal-Mart also has excelled at developing a strong core of leaders in the supply chain, logistics and IT departments.

“In inventory management, sourcing, logistics — all those areas that are really critical — they hire really bright people and have had a string of outstanding leaders,” noted Dale Achabal, director of the Retail Management Institute at Santa Clara University.

Both Wal-Mart chief executive H. Lee Scott and the head of the Wal-Mart Stores division, Michael T. Duke, came up through the company’s logistics operations. Kevin Turner, formerly Wal-Mart’s chief information officer, is now running the Sam’s Club division and getting kudos for improved performance there, according to Achabal. Former food industry executive Pamela Kohn, who jumped ship at grocer Stop-N-Shop in 2002, now serves as Wal-Mart’s vice president, global supply chain. According to her résumé filed with the IMRA, Kohn oversees 31 staffers at the Bentonville headquarters.

The supply chain of the second-largest discounter in America, Target, has evolved to be nimble and responsive to its fashionable, fickle customer. While Wal-Mart sticks to EDLP and avoids the demand fluctuations that come with price promotions, Target has become adept at getting in and out of trendy merchandise.

In the early Nineties, for example, Target was the first to develop and implement a markdown management system using algorithms to determine optimal product shelf life, according to Achabal. “They have an ability to take markdowns on a store-by-store basis, if they need to.”

By optimizing markdowns, executives can “drop tens of millions of dollars to a company’s bottom line, just by making these decisions better,” he noted.

Target’s AMC sourcing arm has mass retail’s most sophisticated network of Asian factories, according to Salomon Smith Barney analyst Deborah Weinswig, allowing Target to chase down new products or quickly create private label versions of high-end products. Generally, most analysts characterize Target as a swift and quiet follower behind Wal-Mart, operating under the radar and taking cues from its competitor’s hits and misses. “They are very focused on what Wal-Mart does and watch every move Wal-Mart makes,” White said.

While a warehouse club and not a true discounter, Costco’s forte is its unparalleled purity of operation. It prunes everything but the most essential volume-driving items and receives them packed in one form: palettes.

“As our president [Jim Sinegal] likes to say, we are in the item business, not the category business,” noted chief financial officer Richard Galanti. “We will do over $45 billion [in fiscal 2004] with just 4,000 sku’s.” For the fiscal year ended August 2003, Costco’s revenues were $41.7 billion. That year, its U.S. clubs averaged $112 million in annual sales per store.

He said the company’s annual IT budget, which includes supply chain technology, is roughly $50 million.

A disciplined focus has allowed the wholesaler to standardize rapid-fire cross-docking in all its distribution centers. Seventy-five percent of Costco’s goods are cross-docked, spending on average nine hours in a distribution center, Galanti said. Distributors deliver the remaining 25 percent of goods — fast-moving bulk goods like soda and potato chips — directly to individual stores. Costco operates 430 warehouse clubs, with the bulk being 316 doors in the U.S. and Puerto Rico. Outside the 62 clubs in Canada and 23 in Mexico, the company’s international operations are relatively modest, with a handful of doors in the U.K., Taiwan, South Korea and Japan.

In comparison, industry insiders estimate that less than 50 percent of Wal-Mart’s goods are cross-docked. The standard definition of cross-docking is to have incoming goods unloaded on one side of a distribution center, shuttled across a warehouse and reloaded to store-bound trunks within 24 hours.

“We keep our supply chain as simple as possible. It makes life a lot easier,” Galanti said.