The Wal-Mart Success Story

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These are ways for Walmart to minimize operation costs and keep its overhead costs low. Profitworks agrees with minimizing operating costs but does not agree with achieving this by paying employees poorly. Instead of minimizing operating costs should be achieved through wise spending, using automation to bring costs down and cutting unnecessary or expenses that are not essential to delivering high-quality services and products.

By the early '80s, Walmart was one of the earliest to take advantage of the barcode to increase efficiency at the checkout counter.

The universal barcode system was first developed by George J. Laurer and offered a barcode that would be recognized by all scanners. This information could also be analyzed and mined to extract insights about customer behaviour and needs, gauge demand, and more importantly, allow the manufacturers to deliver the right amount of goods at the right time, bypassing warehouses. Walmart was also one of the first to adopt radio-frequency identification RFID technology, which requires suppliers to attach microchips to products that will contain detailed product information.

Equipped with the state-of-the-art technology, Walmart was able to identify the products that were selling well, when they need to be replenished in the stores, and how many of them to put on the shelves. This further helped increase efficiency in inventory management and gave Walmart an upper hand in dealing with manufacturers and suppliers.

Single Focus to Keep Prices Low

Since Walmart tracked all the sales information, they were able to identify the price points that customers are willing to accept for certain goods, and therefore Walmart was able to dictate the prices that it was willing to accept from manufacturers. According to reports, during the first 8 months of , Walmart experienced a 16 percent drop in its out-of-stock merchandise at its RFID-equipped stores.

Profitworks agrees leveraging technology was the right strategic move for Walmart because it has given them significant advantages over their competition. In our opinion, Walmart would be wise to ensure they maintain their technology leadership and ensure Amazon does not steal this position from them. Taking a technology leadership position is not always the right strategic choice though for every business. Whether this is right for your business or not depends on the industry you operate in and who your main competition is. Sometimes it is better to be a close follower to the technology leader, allowing them to incur the large costs of being the leader and learning from their mistakes.

Walmart is widely regarded as an industry leader in supply chain management.

Aside from leveraging the most up-to-date technological advances such as the barcode and RFID, Walmart has pioneered a number of approaches that help it remain competitive in the price war against its peers. Walmart pioneered cross-docking in its supply chain strategy.

Cross-docking refers to the practice of moving products from a supplier or manufacturer directly to the customer or the retail chain, with very little handling or storage. Walmart has strategically laid out its distribution centres within miles of the stores that they supply.

Regional distribution centres are usually located in areas that have the lowest labour and transportation costs. Due to the positioning of the distribution centres, Walmart has been able to carry out cross-docking at their warehouses. The products that have arrived from manufacturers are directly loaded onto a truck headed for a Walmart store without being offloaded and stored in the warehouse.

This practice greatly reduces transportation costs, storage costs, and labour costs. Profitworks agrees this was the right strategy for Walmart. Whether being an industry leader in supply chain management is the right strategic focus for your company depends on the business and industry you operate in.

Many large manufacturers and suppliers rely on Walmart for a big portion of their revenue, some for more than 20 percent. Walmart as the leading retailer with its large network of stores around the world has tremendous bargaining power against its manufacturers and Walmart is very good at leveraging that bargaining power. This pressure from Walmart to lower prices has driven many manufacturing companies to lay off workers to enhance efficiency in their factories.

Countless American manufacturers had to outsource their production to countries where labour costs are lower just to be able to accept the prices that Walmart dictated to them and still stay afloat. Smaller companies that could not compete went bankrupt. In , Walmart said that 6 percent of its total merchandise was imported. A decade later, experts estimated that Walmart imported about 60 percent of its merchandise. In addition, Walmart has consolidated all of its point-of-sales data, warehouse inventory levels, and real-time sales data and built a large and comprehensive database called Retail Link.

It took many years to perfect and cost about 4 billion dollars.

Leveraging Technology - The Barcode

This is an industry-leading software that is able to perform analysis and deliver insight into customer behaviour. Walmart shared this software with its manufacturers and suppliers at no cost so they would know exactly when to ship more products to Walmart stores and how many products need to be shipped.

Walmart presented it as a way for suppliers to partner with Walmart to improve efficiency in inventory management and meeting customer needs. With the help of the information provided by Retail Link, the suppliers are held responsible for making sure that customer demands are consistently met and the shelves are always well-stocked with the exact mix of products that customers want at the price that the customers are willing to pay.

It is commonly heard that many small to mid-size businesses view getting their products onto the shelves of Walmart as winning an Olympic gold medal. Of those, only about , or 2 percent, were ultimately accepted.

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In fact, Walmart leverages its bargaining power by dictating the terms of its contracts with the suppliers on price, volume, delivery schedule, packaging, and quality. When Sam Walton created Wal-Mart in , he declared the following core values: Dominance in the American retail market, expansion in international markets and exploration of new retail sectors.

Wal-Mart's corporate management strategy involves selling high quality and brand name products at the lowest price. Scott, In order to keep low prices, the company possesses the strength to reduce costs by the use of advanced electronic technology and well-established warehousing. Scott, Wal-mart is able to maintain its low price through complete expense control and highly automated distribution networks. Its computers are directly linked with vendors, so deliveries are faster. Opportunities exist to form strategic alliances with other global retailers, focussing on Europe or growth markets like China and India.

To be the biggest retailer means to be the main point of attack for competitors. Additionally, because of outsourcing to low-cost regions manufacturing costs have declined. Hence, price competition can be a possible threat for Wal-Mart. Is the retail industry an attractive industry?

Customers do not have to bargain with Wal-Mart for low prices, higher quality or more services because Wal-Mart has already established these issues in its business philosophy. Because of low switching costs in the retail industry there tends to be a lack of customer loyalty. Not so for Wal-Mart, because its price advantage seems to be the most important factor for customers. Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods.

That will not happen for Wal-Mart and their customers because Wal-Mart hand picks its suppliers and has a good and long standing relationship in order to maintain their pricing philosophies. Wal-Mart does not have to worry about the threat of new entrants because they can utilise economies of scale, which spread the costs of production over the number of produced units. As a result the cost of product per unit declines as the volume increases. Wal-Mart has product differentiation with strong brand identification and customer loyalty. The access to distribution channels with secure distribution for their products is one main feature of their strategy.

Technology plays also an important role in helping Wal-Mart stay customer focused. There are high entry barriers for companies aspiring to come into the market because Wal-Mart possesses unique resources and capabilities that are hardly substitutable. Wal-Mart has an excellent customer service that is unique to their value chain. Everything possible is done to ensure that shopping at Wal-Mart will be an experience.

Advanced Supply Chain Management

Kmart and Sear could not beat Wal-Mart due to several reasons: First, Sears' prices are higher than Wal-Mart's because the Sears infrastructure has higher overhead costs. While Wal-Mart concentrated on customer satisfaction, complaints of poor customer service began to surface at Kmart.

Turner, As a result Kmart could not maintain constant low prices with its name-brand products. Shah et al, , Business economics - Operations Research. Business economics - Industrial Management. Business economics - Business Management, Corporate Governance. BWL - Handel und Distribution. Business economics - Supply, Production, Logistics. Business economics - General.

Business economics - Investment and Finance. GRIN Publishing, located in Munich, Germany, has specialized since its foundation in in the publication of academic ebooks and books. The publishing website GRIN.

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