interconnecting of all the markets and knowledge centers, they will all have to run at least as fast as the fastest lion-and I suspect that lion will be China, and I suspect that will be pretty darn fast.
I had never seen what a supply chain looked like in action until I visited Wal-Mart headquarters in Bentonville, Arkansas. My Wal-Mart hosts took me over to the 1.2-million-square-foot distribution center, where we climbed up to a viewing perch and watched the show. On one side of the building, scores of white Wal-Mart trailer trucks were dropping off boxes of merchandise from thousands of different suppliers. Boxes large and small were fed up a conveyor belt at each loading dock. These little conveyor belts fed into a bigger belt, like streams feeding into a powerful river. Twenty-four hours a day, seven days a week, the suppliers' trucks feed the twelve miles of conveyor streams, and the conveyor streams feed into a huge Wal-Mart river of boxed products. But that is just half the show. As the Wal-Mart river flows along, an electric eye reads the bar codes on each box on its way to the other side of the building. There, the river parts again into a hundred streams. Electric arms from each stream reach out and guide the boxes-ordered by particular Wal-Mart stores– off the main river and down its stream, where another conveyor belt sweeps them into a waiting Wal-Mart truck, which will rush these particular products onto the shelves of a particular Wal-Mart store somewhere in the country. There, a consumer will lift one of these products off the shelf, and the cashier will scan it in, and the moment that happens, a signal will be generated. That signal will go out across the Wal-Mart network to the supplier of that product-whether that supplier's factory is in coastal China or coastal Maine. That signal will pop up on the supplier's computer screen and prompt him to make another of that item and ship it via the Wal-Mart supply chain, and the whole cycle will start anew. So no sooner does your arm lift a product off the local Wal-Mart's shelf and onto the checkout counter than another mechanical arm starts making another one somewhere in the world. Call it “the Wal-Mart Symphony” in multiple movements-with no finale. It just plays over and over 24/7/365: delivery, sorting, packing, distribution, buying, manufacturing, reordering, delivery, sorting, packing...
Just one company, Hewlett-Packard, will sell four hundred thousand computers through the four thousand Wal-Mart stores worldwide in one day during the Christmas season, which will require HP to adjust its supply chain, to make sure that all of its standards interface with Wal-Mart's, so that these computers flow smoothly into the Wal-Mart river, into the Wal-Mart streams, into the Wal-Mart stores.
Wal-Mart's ability to bring off this symphony on a global scale-moving 2.3 billion general merchandise cartons a year down its supply chain into its stores-has made it the most important example of the next great flat-tener I want to discuss, which I call supply-chaining. Supply-chaining is a method of collaborating horizontally-among suppliers, retailers, and customers-to create value. Supply-chaining is both enabled by the flattening of the world and a hugely important flattener itself, because the more these supply chains grow and proliferate, the more they force the adoption of common standards between companies (so that every link of every supply chain can interface with the next), the more they eliminate points of friction at borders, the more the efficiencies of one company get adopted by the others, and the more they encourage global collaboration.
As consumers, we love supply chains, because they deliver us all sorts of goods-from tennis shoes to laptop computers-at lower and lower prices. That is how Wal-Mart became the world's biggest retailer. But as workers, we are sometimes ambivalent or hostile to these supply chains, because they expose us to higher and higher pressures to compete, cut costs, and also, at times, cut wages and benefits. That is how Wal-Mart became one of the world's most controversial companies. No company has been more efficient at improving its supply chain (and thereby flattening the world) than Wal-Mart; and no company epitomizes the tension that supply chains evoke between the consumer in us and the worker in us than Wal-Mart. A September 30, 2002, article in Computer-world summed up Wal-Mart's pivotal role: “'Being a supplier to Wal-Mart is a two-edged sword,' says Joseph R. Eckroth Jr., CIO at Mattel Inc. 'They're a phenomenal channel but a tough customer. They demand excellence.' It's a lesson that the El Segundo, Calif.-based toy manufacturer and thousands of other suppliers learned as the world's largest retailer, Wal-Mart Stores Inc., built an inventory and supply chain man-agement system that changed the face of business. By investing early and heavily in cutting-edge technology to identify and track sales on the individual item level, the Bentonville, Ark.-based retail giant made its IT infrastructure a key competitive advantage that has been studied and copied by companies around the world. 'We view Wal-Mart as the best supply chain operator of all time/ says Pete Abell, retail research director at high-tech consultancy AMR Research Inc. in Boston.”
In pursuit of the world's most efficient supply chain, Wal-Mart has piled up a list of business offenses over the years that has given the company several deserved black eyes and that it is belatedly starting to address in a meaningful way. But its role as one of the ten forces that flattened the world is undeniable, and it was to get a handle on this that I decided to make my own pilgrimage to Bentonville. I don't know why, but on the flight in from La Guardia, I was thinking, Boy, I would really like some sushi tonight. But where am I going to find sushi in northwest Arkansas? And even if I found it, would I want to eat it? Could you really trust the eel in Arkansas?
When I arrived at the Hilton near Wal-Mart's headquarters, I was stunned to see, like a mirage, a huge Japanese steak house-sushi restaurant right next door. When I remarked to the desk clerk who was checking me in that I never expected to get my sushi fix in Bentonville, he told me, “We've got three more Japanese restaurants opening up soon.”
Multiple Japanese restaurants in Bentonville?
The demand for sushi in Arkansas is not an accident. It has to do with the fact that all around Wal-Mart's offices, vendors have set up their own operations to be close to the mother ship. Indeed, the area is known as “Vendorville.” The amazing thing about Wal-Mart's headquarters is that it is so, well, Wal-Mart. The corporate offices are crammed into a reconfigured warehouse. As we passed a large building made of corrugated metal, I figured it was the maintenance shed. “Those are our international offices,” said my host, spokesman William Wertz. The corporate suites are housed in offices that are one notch below those of the principal, vice principal, and head counselor at my daughter's public junior high school-before it was remodeled. When you pass through the lobby, you see these little cubicles where potential suppliers are pitching their products to Wal-Mart buyers. One has sewing machines all over the table, another has dolls, another has women's shirts. It feels like a cross between Sam's Club and the covered bazaar of Damascus. Attention Wal-Mart shareholders: The company is definitely not wasting your money on frills.
But how did so much innovative thinking-thinking that has reshaped the world's business landscape in many ways-come out of such a Li'l Abner backwater? It is actually a classic example of a phenomenon I point to often in this book: the coefficient of flatness. The fewer natural resources your country or company has, the more you will dig inside yourself for innovations in order to survive. Wal-Mart became the biggest retailer in the world because it drove a hard bargain with everyone it came in contact with. But make no mistake about one thing: Wal-Mart also became number one because this little hick company from northwest Arkansas was smarter and faster about adopting new technology than any of its competitors. And it still is.
David Glass, the company's CEO from 1988 to 2000, oversaw many of the innovations that made Wal-Mart the biggest and most profitable retailer on the planet. Fortune magazine once dubbed him “the most underrated CEO ever” for the quiet way he built on Sam Walton's vision. David Glass is to supply-chaining what Bill Gates is to word processing. When Wal-Mart was just getting started in northern Arkansas in the 1960s, explained Glass, it wanted to be a discounter. But in those days, every five-and-dime got its goods from the same wholesalers, so there was
