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WAL MART STORES, INC.

SUMMARY OF CASE
Wal-Mart Stores, Inc., is an American Multinational Retailer Corporation that
runs chains of large discount department stores and warehouse stores.
The company is the world's third largest public corporation, according to the Fortune
Global 500 list in 2012.
It is also the biggest private employer in the world with over two million employees,
and is the largest retailer in the world. Wal mart remains a family-owned business, as
the company is controlled by the Walton family who own a 48% stake in Wal mart.
It is also one of the world's most valuable companies.
Wal-Mart has revolutionized many aspects of retailing and it is well known for its
heavy investments in Information Technology.
The main issue with Wal-Mart is that they were facing the problem of how to sustain
the companys phenomenal performance.
Wal-Mart has also seen down fall in the market but they have brought some changes
in them and again became more profitable.
Prime growth vehicle for Wal*Mart was supercentres and international expansion.
Wal-Mart has a competitive advantage over its rivals because of its profitability which
is greater than the average profitability of all companies competing in the market
of discount retailing.
In addition, Wal-Mart has a high reputation (intangible resource) because of its
successful business model which enables millions of customers to buy goods for low
prices since the first Wal-Mart store was opened in 1962.
Wal-Marts competitive advantage is based on its understanding on how to coordinate
its resources and putting them to productive use.
Wal-Mart does anything possible to beat its competitors.
The respect of individual is also about properly taking care of the Wal-Mart
employees and empowering them to succeed in their daily activities. This enables
them to be committed to the company and to provide satisfactory services to
customers.
Striving for excellence is a culture which has enabled Wal-Mart to be innovative, to
see its growth and to invest in new markets.
Wal-Mart has since then been on top of the game through employing its management
strategies which emphasize on its corporate culture and its workforce of being
religious, conserving morality and being a business which is family oriented.
Wal-Mart is a keen listener to the problems and needs of the workforce and they are
encouraged to come up with suggestions of improving the companys practices and
policies.
Wal-Mart is an s gigantic business in the retail industry which many rivals have found
it difficult to copy.
The company operates at the lowest price and ensuring that there is constant supply of
a variety of fast moving goods required by the consumers

ANALYSIS
After analysing the case of Wal-Mart its more clear that they have used three main strategies
to me the most powerful in the retail industry the strategies are as follows;
Cost Leadership
Differentiation
Adding value
A firm like Wal-Mart has used all this strategies so effectively that it is now able to create its
image in the retail industry and to sustain in the market.
This has helps Wal-Mart to get in to a chain of Discounting stores with and cost effective
supply chain management system.
Wal-Mart has avoided supplier power by not allowing any single supplier to have more
than2.4% of its purchases. Therefore, Wal-Mart is better able to control its negotiation
position with its suppliers.
Wal-Marts competitive advantage is its vendor relations. Wal-Mart has made specific
supplier choices along the way that are geared towards minimizing costs and maximizing
efficiency.
With the centralised procurement system they are able to minimise the administrative cost
and derives competitive advantages from its specific activities and capabilities.
Installations of electronic data interchange installation of 3600 vendors which gave them the
benefits of vendor development and competitive advantage in market.


Q1. The sources of Wal-Marts competitive advantage in discount retailing.
Prime growth vehicle for Wal*Mart was supercentres and international expansion.
Wal-Mart has a competitive advantage over its rivals because of its profitability which
is greater than the average profitability of all companies competing in the market
of discount retailing.
In addition, Wal-Mart has a high reputation (intangible resource) because of its
successful business model which enables millions of customers to buy goods for low
prices since the first Wal-Mart store was opened in 1962.
In conclusion, Wal-Marts competitive advantage is based on its understanding on
how to coordinate its resources and putting them to productive use.

Plan for growth form initial stages:
When Wal-Mart was in its initial phase it was known that the suppliers will not come
behind the Wal-Mart as it was new in market. So it builds its own warehouse that
gave him an advantage over competitors to buy in volume and get attractive price
discount which can be further shared with customers.
Locate the store in isolated rural areas and small town where no other competitors are
already there. This was the area which was ignored by its competitors and not
served. This gave benefits to Wal-mart that customer from that area now they can
shop at home.
For keeping low price philosophy of Sam was implemented which says that trip
expenses should not exceed 1% of the purchases.
From first that the culture of Wal-Mart was that if you want to make customer happy
for that first you need to make your employees happy. They also believe on giving
responsibility to their employees and trust them.
Also sharing nature with its associates; they prefer open-door policy for their
associated.
Wal-Mart also offers SATISFACTION GUARANTEE policy which meant that
you can return merchandise to Wal-Mart without any clarification. This added the
value in customer serving for Wal-Mart.
Merchandising strategy of Wal-Mart
Wal-Mart promotion strategy of everyday low prices meant offering customer
brand name merchandise for less than department and speciality store.
It adopted very competitive pricing strategy, where full liberty was given to store
manager as per local condition.
In remote area where Wal-Mart was not having competition, companies price were
6% higher than at location where it was next to a Kmart
Wal-Mart created brand strategy and the majority of its sales consisted of nationally
advertised branded products
IT to gain competitive advantage:
For tailoring merchandise to individual store they made information system available
through traiting process.
They develop the Uniform Product Code (UPC) at point of sale. This was
communicated with stores computerizes inventory system to ensure accurate pricing
and improve efficiency.
This lead to improved communication between stores, distribution centre and also
head office. This gave better coordination in the supply chain of Wal-Mart.
They also launch the satellite system in 1983. This system gave an advantage to
track the goods such as slow moving, and avoid overstocking and deep discounting.
All destitution centres were also highly automated and was empowered with Pick to
light system.
Later it shared its IT infrastructure with P&G that helped in improvement in
performance. And also manufacture of P&G was linked to this system with gave an
POS forecasting to manufacturer.
Installations of electronic data interchange installation of 3600 vendors which gave
them the benefits of vendor development and competitive advantage in market.
In 1990 development of retail link Gave an advantage that supplier getting data
and information store-by-store.
Strong store operations over competitors:
Retail discounts stores are designed in a way which they can operate at a Low costs
within the services and makeup levels.
In 1993 company rental expense were 3% of discount store sales as compared to an
average 3.3% for direct competitor.
Sales per square foot of $300 was much higher as compared to Targets at 209$ and
Kmart at 147$ and Wal-mart operating expenses were 18.1% of discount store sales in
19932 compare to industry average of 24.6%.
Companies had installed various technology related to inventory information and
communication among various department which help them to get accurate pricing
and improve efficiency
Human Resource Management
Wal-Mart was recognized as one of the 100 best companies to work in America.
The respect of individual is also about properly taking care of the Wal-Mart
employees and empowering them to succeed in their daily activities. This enables
them to be committed to the company and to provide satisfactory services to
customers
The company was non-unionized and information and idea were shared at
individual level. Along with basic salary, employees were rewarded on the basis
of performance. They had various profit sharing plan under which profits are
gained by employees
They encourage suggestion from employees as they keep program such as yes we
can Sam under which employees give suggestion and which are finally
implemented.
Vendor relationship and distribution
In 1980s many supplier were using vendor managed inventory systems to replenish
stock in Wal-Mart store and warehouse as a result vendors benefited from reduced
inventory cost and increase in sales.
Wal-mart adopted technique called cross-docking where products were directly
transferred to warehouse, repacked and dispatched to stores often without ever sitting
in inventory.
This enable company to reduce cost of inbound logistic which was 3.7% of discount
store sales, compared to 4.8% for its direct competitors.
Wal-Mart has highly automated distribution centres operated 24 hours to serves needs
of approximately 150 stores within average radius of 200 miles.

Q2 How sustainable their position in discount retailing will be in future?
Wal-Mart has gained benefits from economies of scale that helps to keep the prices lower as
compared to the competitors. The company is able to spread its fixed cost over a large
number of units of products resulting in a lower cost per unit.

Due to its enormous size and large number of stores worldwide, Wal-Mart has the
tremendous bargaining power with its suppliers and thus it purchases products at lower
prices.

Starting with imitation:

Imitation means it is the direct threat to sustainability of added value. Wal-Mart has
large barriers that protect it:

1. Scale economies:
There was no place for another discounter as Wal-Mart was located in small
towns.
Possessing a hub-and-spoke distribution system and dealing strongly with its
suppliers, it was able to exploit regional and national economies of scale.

2. Private Information:
Wal-Mart has gone to detail information of retailing i.e. cross docking, minimize
space, part time labour, and computerise excess to have a perfect data of their
sales and inventory.

3. Switching Cost:
Wal-Mart has the best prizing policy they have the lowest price in the market
among their competitors so it has minimal switching cost.
Relationships with its suppliers are high due to daily and in a real-time
computerized access on inventories and sales.

4. Threat of Retaliation:
They had given full liberty to their managers to decide price as per their
competitors. So store managers were able to set the lowest price in the market.

5. Time lags, upgrading and strategic complexity:
Due to its powerful logistics and technology, it has constantly upgrading its
capabilities. It would take a very long time to imitate its complex activity system
or its culture.

Response to Substitution:

1. Migration:
Wal-Mart was able to build its own warehouse and buy in volumes to get large
discounts.
Located the stores in the isolated and rural areas where no other competitors
were existed.

2. Leapfrogging:
Wal-Mart were continuously upgrading and improving their technology, sales,
discounting, and management so there was no scope of competition with them.
So because of this they were able to out substitute their substitution threat by
continuously giving best performance.

3. Wal-Mart was exploring potential substitute for its traditional discount stores by
entering warehouse clubs in big way by having success format of supercentres and
exploring smaller formats with neighbouring markets.

4. Due to high technology integrations they were able to track the holdings of their
inventory in warehouse, tracking of stock outs, re-order levels...


Response to holdup:

1. Wal-Mart extra ordinary growth allowed them to build the unusual amount of
bargaining power even visa vi large suppliers.
2. In early days the power supplier was P&G
3. Wal-Mart has become P&G largest customer doing about $3 billion in business
annually which is about 10% of P&G;s revenue.
4. Its relationship with few suppliers turned up into partnership. A key element of which
was sharing information electronically to improve performance.
5. 80% of the purchase was from the distribution centre as opposed to 50% from Kmart.
And the balance was delivered from the suppliers.





Response to Slack:

1. Offering performance incentives:
They tried to motivate their employees giving continuous incentives. (other
stores persons and part time people)
They rewarded their associates in the management of their area by emphasize
stores within stores.
Managers and supervisors were compensated on salaried basis with incentives,
compensation based on store profits.

2. Changing Governance:
Walson family which owns 48% stack in the Wal-Mart due to which nobody
was able to come inside.

However, Wal-Mart is sustainable because it has managed a successful business model,
different from its competitors and attractive for customers. But sustainability is not forever!
A main challenge will be the handling of the rapid growth rate, yet presuming the same
success with this as in the past no greater problems should occur. Since Wal-Mart has been
continuously growing, they can make use of their existing expansion capacities and specified
knowledge in this area.
















STRATEGIC MANAGEMENT


WAL MART


A SWOT analysis and a Value Chain Analysis













WAL MART Always the low price

There were two main objectives, which guided the firm through its growth years.
In the first objective the customer was featured, customers would be provided
what they want, when they want it, all at a value.
In the second objective the team spirit was emphasized, Treating each other as
we would hope to be treated, acknowledging out total dependency in our
associate-partners to sustain out success
The approach included aggressive plans for new store openings; expansion to
additional states; upgrading, relocation, refurbishing, and remodeling existing
stores; and opening new distribution centers.

A SWOT ANALYSIS FOR WAL-MART
Strategic management is the process of formulating and implementing strategies to
advance an organizations mission and objectives and secure competitive
advantage. Two critical steps in the strategic management process are the analysis
of the organization and the analysis of its environment. These steps can be
approached by a technique known as a SWOT analysis.

Strengths
Wal-Marts strengths include manufacturing efficiency, a skilled work force, good
market share, strong financing, and a superior reputation. Wal-Marts
manufacturing efficiency is probably the best out of all other retail stores. Wal-
Mart is currently backed with the latest technology. It has a complex, sophisticated
corporate satellite system and computer network that keeps the home office in
Bentonville, Arkansas in touch with all operations going on at all stores in the
world. Inventories are also monitored around the clock so that all stores are rarely
out of the items in which customers are seeking. A skill workforce is also one of
Wal-Mart's strengths. Each new associate is thoroughly trained in skills to better
serve the customers and to make their shopping environment more pleasant.
Producing and selling quality merchandise at competitive price is another major
strength of Wal-Mart. Shoppers are purchasing environmental friendly products in
terms of manufacturing, use and disposal. It is also the channel commander in the
distribution of brand name items. Since Wal-Mart is such a successful
organization, it does not need a lot of financing from outside the company. Another
advantage of Wal-Mart is a superior reputation.

Weakness
Potential weaknesses of a company include outdated facilities, obsolete
technologies, weak management, and past planning failures. Wal-Mart does not
contain any of these weak aspects. Wal-Mart definitely does not have outdated
facilities. New Wal-Marts are being built all over at a steady pace and many of the
older Stores are being rebuilt as super center stores. But Wal-Mart is accused of
threatening to by from other producers, if firms refused to sell directly to it.

Threats
Some of Wal-Marts threats include new competitors, shortage of resources,
changing market tastes, new market tastes, and substitute products. Many other
retail stores cannot compete with Wal-Mart. Wal-Marts major competitors that
have managed to stay in business are mainly K-Mart and Target. But one question
confronting Wal-Mart is could the firm maintain its blistering growth pace
outmaneuvering the competition with the innovating retailing concepts that it has
continued to develop well than anyone else?

Opportunities
Wal-Marts opportunities include possible new markets, a strong economy, weak
market rivals, emerging technologies, and growth of the existing market. Wal-Mart
is always looking for the opportunity to grow by creating new markets. Wal-Mart
will occasionally have surveys that require the zip code of the customer to be
entered into the register when checking out. This shows what areas people are
coming from to shop and can determine if a new store should be located in that
area. Wal-Marts strong economy has helped it to excel over other market rivals.
The emergence of Wal-Marts satellite system has definitely proved to be
opportunistic, and it is sure that more technical opportunities will arrive at a later
time.

VALUE CHAIN ANALYSIS
A primary analytical tool of strategic cost analysis is Porters value chain analysis.
The value chain concept is based on the idea that the main purpose of a company is
to create value for the users of its products or services. Value chain analysis
identifies primary activities that create value for the customers and support
activities that provide the necessary information for the performance of the primary
activities.

Value Chain: Purchasing
Dependency on very few suppliers is avoided
o The largest vendor shares the supplies of around 2.4% of total supplies
Wal-Mart has a reputation for hard bargaining, which has enabled it to pass the
savings to the customers
This advantage is sustainable only in the medium run, the competitors will catch up
with similar systems over a period of time

Value Chain: Distribution
Extremely efficient (1.1% margin)
Hub & Spoke system
Because of large size of orders it can play on the scale of economies:
It uses one truck to supply to deliver at multiple stores.
A number of deliveries are made in a week to a store to so that less inventory needs to
be maintained.
This kind of operation is highly sustainable because of the expertise gained in due
course of time, as it will be very costly for competitors to reconfigure their stores and
distribution systems

Value Chain: Merchandising
Wal-Mart first adopted the philosophy of everyday low price and this reputation
enables it to attract more number of consumers
Its moderate to low advertising expenditures helps it to keep its costs at a lower level.
o It gives only 1 circular per month while the competitors do it once a week.
o It uses many nationally advertised brands, like P&G for the promotions.
This is again an advantageous factor for Wal-Mart; this can be sustained in the long
run.
o The reputation it has built over time cannot be emulated easily

Value Chain: Merchandising-1
Because of the price flexibility at store level the customers can have a good bargain.
o At the same time higher prices marked where competition is weak.
The sustainability of this advantage is not very high its rather moderate.
o Other chains could adopt flexibility fairly easily, but may not be able to price
as low.
Wal-Mart sell with satisfaction Guaranteed or refund which is a attractive option for
the customers
o But the sustainability is low for such kind of advantage as its just a policy
which can be emulated any time
o Other chains could adopt fairly easily.

Value Chain: Store Operations
Wal-Mart has been able to keep the leasing cost low for its stores
o One of the reasons it operates a large no. of stores in rural locations
o Another being, it buys bankrupt chains which sell cheap.
Because of better operations it sells more per unit store area (90% vs. 75%).
o As sales are linked to distribution & purchasing, it has an advantage, which is
reflected in the top line.
The sustainability is very high in terms of this advantage as the advantage is a result
of whole operation, from purchasing to sales.
o In rural areas Wal-Mart commands monopoly and added with good leases it is
able to sustain the advantage
o And because this complex capability is linked to all other activities, which is
very difficult to imitate fast.
Its policy to give managerial autonomy in departments has helped to make the
management streamlined and more responsible.
Store hours 9-9 not very sustainable.

Value Chain: Human Resources
Culture of Wal-Mart is very down to earth as reflected by the very personality of San
Walton.
o It gives a feeling of ordinary people overachieving, and that how big one
can get and still be so humble.
o It breads a sense responsibility and recognition among its employees.
o The age old tag of clerk is replaced by Associates, the employees no more
remain employees once they are in Wal-Mart, even they are provided P&L
information.
Compensation:
o The employees are paid lower pay, as it has a large concentration in the rural
non-unionized Sunbelt the management finds it easy to handle.
o But does not mean that the associates are not taken care of. They are given
Stock options and are made a part of profit sharing.
Lower shrinkage (with incentive)
This advantage is sustainable only for a medium term as the understanding may not
remain uniform among the associates for long.
o Still the competitors will find it difficult to get such a system in order. They
can change policies but changing culture takes a long time.

Sustainability of Leadership
Sam Walton cannot be duplicated. There is only one Sam Walton. He just has to be
admired and lessons taken from his deeds.
Now though Sam Walton is no more but still the culture that he has nurtured around
Wal-Mart is the guiding post for the new caretakers in whose hands the future of Wal-
Mart lies. The culture will develop a substitute for Sams leadership.
o New CEO and managers preserve the culture.
The principles and vision with which Sam Walton has worked through out the years,
any Wal-Mart CEO will be less valuable than before, unless he keeps up those
thoughts upfront in the every aspect of running the company, the business.
Only time will tell who will have the next brilliant strategy in retailing? Who will be
carving out a new name suitable to be put along with the big shots like Sam Walton?






COMPETITIVE POSITION
Certain key success factors were identified and were graded on a scale of 10 for
Wal-Mart as well as one of its competitors Sears.

Competitive strength analysis

KSFs Weights
Wal-
Mart Sears
Quality 0.1 7 0.7 7 0.7
Manufacturing 0.12 8 0.96 5 0.6
Skilled work force 0.15 6 0.9 5 0.75
Competitive pricing 0.2 9 1.8 7 1.4
Distribution 0.15 6 0.9 6 0.9
Customer 0.13 6 0.78 5 0.65
Financing 0.15 7 1.05 5 0.75
Sum Total 1 7.09 5.75


STRATEGIES TO BE ADOPTED
Wal-Marts Grand strategy for the next decade consists of adding new retail
divisions, both locally and globally, continue offering the lowest prices and good
quality, keep good customer service and personnel quality, continue the use of on-
line shopping, and keep making commitments to the environment. Porters generic
strategies offer an alternative that gives special attention to the organizations
current and potential competitive environment. The three generic strategies that an
organization may pursue are differentiation, cost leadership, and focus. Of these
three strategies, Wal-Mart should focus mainly on the cost leadership strategy for
its Grand strategy. The objective is to have lower costs than competitors and
thereby achieving higher profits. Wal-Mart must continue to aim to keep its costs
so low that it can always offer the lowest prices and still make a reasonable profit.
Wal-Mart should follow a strategy, which involves pursuing innovation and new
opportunities in the face of risk and with prospects for growth. This will enable
Wall-Mart to continue to lead the industry by using existing technology to new
advantage and creating new products to which competitors must respond.









Value Chain Analysis: Wal-Mart

Infrastructure:
There are 2485 Wal-Mart stores all over the world. This includes 682 Supercentres,
457 Sams Clubs, 5 Wal-Mart Neighbourhood Markets and 1007 units of Wal-Mart
International. Wal-Mart serves over 100 million customers weekly worldwide. There are
1035000 associates, and the company is Americas largest private employer.
Wal-Mart is run from a national headquarter. The headquarter takes care of orders,
and every local store has to report to the headquarter. The local store is responsible
for satisfying the local customer.
Every associate is challenged to reduce the cost of doing business, ranging from
reduced paper use to making suggestions that can save millions of dollars. This
challenge is met every day because associates understand that the savings they create
are passed to the customer in low prices.

Human resources:
Almost 60% of all managers in Wal-Mart stores started as hourly associates. This
indicates that Wal-Mart gives employees the opportunity for career advancement. The
employees are encouraged to communicate openly, offer new ideas, take risks, strive
for excellence and have fun. Wal-Mart has been ranked as one of Americas 100 best
companies to work for in recent surveys.
Employees are getting competitive wages and comprehensive benefits. These benefits
include both full-time and part-time people. Some of these benefits are; profit sharing,
stock purchase program, medical coverage, vacation, holiday pay, leave of absence,
private counselling, scholarship program and dental coverage.
When recruiting new associates the company begins a comprehensive recruitment
program in the community where the store is to identify candidates. Recruitment
programs are well publicised and convenient, providing an opportunity for job applicants
and the company to start getting acquainted.
When new employees start at Wal-Mart they are presented to the two basic rules of
Wal-Mart. These are:
Rule 1: The customer is always right
Rule 2: If the customer happens to be wrong, refer rule 1.

Technology:
Wal-Mart uses computer-based technology. As a products bar code is swiped at the
checkout aisle, information is instantaneously sent to Wal-Marts data warehouse. The
data warehouse projects when the item needs to be replenished and then places the
order directly to the vendor or to a Wal-Mart Distribution Center. This just-in-time
inventory management reduces overhead associated boxes of unneeded merchandise
sitting in warehouses and stock rooms.

Ordering:
The national headquarter apply goods for all Wal-Mart stores. The bar codes of each
item is sent to a central computer at the headquarters. This computer collects orders
from all Wal-Mart stores and then transmits them to suppliers. Wal-Mart works
together with suppliers to identify ways to reduce costs and still realize a reasonable
profit. As a result of this teamwork, packaging is reduced and distribution systems are
streamlined to lower the total cost of the product.

Marketing:
The majority of sales in the stores account for nationally advertised merchandise. The
company both sells their own brands and licensed brands. Wal-Mart is committed to
purchasing products from local and regional vendors, instead of buying it cheaper from
elsewhere.
The Wal-Mart Innovation Network encourages new products and ideas. It offers
inexperienced inventors and entrepreneurs the advice of professionals to determine
the commercial potential of products that are still in development stage, or have a
sales history of less than six months. The process also helps identify the risks involved
with bringing the product to market. The program offers referrals to government or
university economic development organizations that may assist with further
development, production and marketing of new products.

Service:
Opening hours at Wal-Mart generally range from 7.00 a.m. to 11.00 p.m. six days a
week, and from 10.00 a.m. to 8.00 p.m. on Sunday. All Wal-Mart stores maintain uniform
prices, except where lower prices are necessary to meet local competition. Sales are
primarily on a self-service, cash-and-carry basis with the objective of maximizing sales
volume and inventory turnover while minimizing expenses. Bank credit card programs,
operates without recourse to the Company, is available in all stores.
The replenishment system also helps the store adjust to customers demands. The
stores are organised the same way all over the world, so the customers will recognise
the stores wherever they go.

Operations:
Recycling is a high priority at Wal-Mart. Wal-Mart has recycling programs for
cardboard, plastics, aluminium cans, car batteries and paper products. They also work
to reduce waste by encouraging vendors to reduce packaging.
Wal-Mart stores have advanced energy management systems to regulate and reduce
energy use.
They also strive to provide a safe shopping experience for our customers and a safe
work place for our associates.

Logistics:
The company uses the retail last-in, first-out (LIFO) method for the Wal-Mart stores
segment. They use the cost LIFO for the Sams Club segment and another cost method
for the international segment.
During the 1999 fiscal year, approximately 84% of the Wal-Mart discount stores and
Supercenters purchases were shipped from Wal-Marts 43 distribution centers, nine of
which are grocery distribution centers and two of which are import distribution
centers. The balance of merchandise purchased was shipped directly to the stores
from suppliers.
The international segment operates export consolidation facilities in Jacksonville,
Seattle and Laredo in support of product flow to its Mexican, Asian and Latin American
markets. In addition, distribution facilities are located Argentina, Brazil, Canada, China
and Mexico, which process and flow both imported and domestic product to the
operating units. Operationally, the principle focus is on crossdocking product, while
maintaining stored inventory is minimized.
References:

1. Professor Joe Komar
2. www.wal-mart.com
3. The management of business logistics
4. Operation Management focusing on quality and competitiveness
5. Innfring i strategi
6. Wal-Mart associative
7. Management Information Systems


2.2 Wal-Mart
2.2.1 Walmarts Value chain analysis
Wal-Mart is one of the largest Fortune 500 companies, which is spread across the globe. It is an arguably the
largest retail chain which deals with everything from food to consumer electronics. In terms of the revenue
generated, it leads the fortune 500 companies like GE and Microsoft. Simply put, it has everything a
homemaker can ever think of. Affordable price range coupled with aggressive online and market strategy has
lead to wide acceptance for Wal-Mart in towns and cities alike. Wal-Mart is probably the only largest fortune
500 corporations in the world, which directly services the common man.
2.2.1.1 Primary Activities
2.2.1.1.1 Inbound and Outbound Logistic Management
This involves fast & responsive transportation system. More than 7000 company owned trucks services the
distribution centers. These dedicated truck fleets enables shipping of goods from distribution centers to the
stores within 2 days and replenish the store shelves twice a week. The drivers hired are all very experienced &
their activities are tracked regularly through Private Fleet Driver handbook. This allows the drivers to be
aware of the terms & conditions for safe exchange of Wal-Mart property, along with the general code of
conduct.
For more efficiency, Wal-Mart uses a logistics technique called Cross Docking. In this system, finished goods
are directly picked up from the manufacturing site of supplier, sorted out and directly supplied to the
customers. This system reduces handling & storage of finished goods, virtually eliminating role of distribution
centers & stores. Because of cross-docking the system shifted from supply chain to demand chain which
meant, instead of retailers pushing the products into the system, the customers could pull the products,
when & where they required.
Walmart today about 60% inbound freight (closer to 80% for their grocery segment) is managed by suppliers.
The important of Walmarts logistics infrastructure was its fast and responsive transportation system. The
distribution centers were serviced by more than 3,500 company owned trucks.
2.2.1.1.2 Operations
Wal-Mart operations are comprised of three business segments:
Wal-Mart Stores
SAMS CLUB
Wal-Mart International
Wal-Mart Stores segment is the largest segment, which accounted for approximately 67.3% of their 2005 fiscal
sales. This segment consists of three different retail formats, all of which are located in the United States. This
includes the following sections:
Super-centers, which average approximately 187,000 square feet in size and offer a wide variety of products
and a full-line supermarket;
Discount Stores, which average approximately 100,000 square feet in size and offer a wide variety of
products and a limited stock of food products; and
Neighborhood Markets, which average approximately 43,000 square feet in size and offer a full-line
supermarket and a limited variety of general merchandise.
SAMS CLUB segment consists of membership warehouse clubs in the United States which accounted for
approximately 13.0% of 2005 fiscal sales. SAMS CLUBs in the United States average approximately 128,000
square feet in size.
Wal-Mart International operations are located in Argentina, Canada, Germany, South Korea, Puerto Rico and
the United Kingdom, the operations of joint ventures in China and operations of majority-owned subsidiaries
in Brazil and Mexico. This segment generated approximately 19.7% of 2005 fiscal sales. Here, it operates
several different formats of retail stores and restaurants, including Super-centers, Discount Stores and SAMS
CLUBs.
2.2.1.1.4 Marketing and sales
Sam Walton started his retail career in 1940, as a management trainee with the J.C. Penney Company. Later,
He modeled the Wal-Mart chain on The Penney Idea (strength in calling employee associates rather than
clerks).
Sam walton became convinced in the late 1950s that discounting would transform retailing. He offer name
brand Merchandise at low price.
Wal-Mart prided itself on its everyday low price, prodide the customer with a clean, pleasant, and friendly
shopping experience.
The Differences between Wal-Mart and Its Competitors are:
Employees wore blue vests to identify themselves
Aisles were wide
Apparel departments were carpeted in warm colors
A store employee followed customers to their cars to pick up their shopping carts
Customer was welcomed at the door by a people greeter, who gave directions and struck up conversations.
In some cases, merchandise was bagged in brown paper sacks rather than plastic bags because customers
seemed to prefer them.
A simple Wal-Mart Logo in while letter on front of the store served to identify the firm
2.2.1.2 Support Activities
2.2.1.2.1 Procurement
Wal-Marts process of procurement involves reducing its purchasing costs as far as possible so that it can offer
best price to its customers. The company procures goods directly from the manufacturers, bypassing all
intermediaries.
Wal-Mart has distribution centers in different geographical places in US. Wal-Marts own warehouses supplies
about 80% of the inventory. Each distribution centre is divided in different groups depending on the quantity
of goods received. The inventory turnover rate is very high, about once every week for most of the items. The
goods to be used internally in US arrive in pallets & imported goods arrive in re-usable boxes.
The distribution centers ensured steady flow & consistent flow of products. Managing the center is economical
with the large-scale use of sophisticated technology such as Bar code, hand held computer systems (Magic
Wand) and now, RFID. Every employee has access to the required information regarding the inventory levels
of all the products in the center. They make 2 scans- one for identifying the pallet, and other to identify the
location from where the stock had to be picked up. Bar codes & RFID are used to label different products,
shelves & bins in the center. The hand held computers guide employee to the location of the specific product.
The quantity of the product required from the center is entered in the hand held computer, which updates the
information on the main central server. The computers also enabled the packaging department to get accurate
information such as storage, packaging & shipping, thus saving time in unnecessary paperwork. It also enables
supervisors to monitor their employees closely in order to guide them & give directions.
This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency of distribution center
management operations.
2.2.1.2.2 Wal-Mart Technologies
Technology is inevitable in every sphere of life today; it has always made things easier. Wal-Mart works on the
same strategy. Traditionally, technology has been upgraded in billing systems and for storage purposes. A new
area where technology could be applied to, where many expenses could be saved was in inventory
management and logistics. Wal-Mart being so huge, needed to keep track of men and material sent across
different countries and had to maintain hundreds of warehouses across the world. Bar-codes have been
initially identified as a suitable technology to meet the purpose.
But due to the limitations of barcodes, a new emerging technology called RFID has been identified to meet the
demands. RFID is low cost Radio Frequency Identification system which requires minimum human intervention
to carry out tasks ranging from billing to materials tracking and supply chain management. It is a small wireless
device which can store good amount of data and can virtually be tagged to anything.
RFID is an electronic tagging technology that allows an object, place, or person to be automatically identified
at a distance without a direct line-of-sight, using an electromagnetic challenge/response exchange.
Why RFID over Bar-Code?
The ability to read without line-of-sight is the best advantage of RFID over bar-code systems. RFID readers can
sense items even when the tagged items are hidden behind other tagged items. This enables automation. The
challenging part of implementing RFID is that tagged items should not be missed by the reader due to
interference, multipath fading, transient effects etc. Missed reads are an unfortunate reality with RFID
systems. RFID uses a serialized numbering scheme such as EPC (Electronic Product Code). Each tag has a
unique serial number. Serial number information is extremely powerful in understanding and controlling the
supply chain and provides much more detailed behavior of the supply chain than can non-serialized bar codes
such as UPC (Universal Product Codes) and EAN (European Article Numbering). Serial numbers have many
advantages such as food freshness/expiration. This can tell how for how long an item has been in the supply
chain where as such information is not captured in bar code system. Hence items can be reached the right
place at the right time. Furthermore RFID implementation monitors theft too. For example if number of items
reached at the retailers outlet is less than that was departed from suppliers location, it can be easily tracked
for. In all these ways, RFID systems have stronger sensor networking system or monitoring system than bar
code systems.
2.2.1.2.3 Wal-Mart Human Resource Management
In related to the Human resource development, Turner, Chief Executive Officer of Wal-Mart's subsidiary
corporation, explained in his interview that in any development effort, our [IS] people are expected to get out
and do the function before they do the system specification, design or change analysis. The key there is to do
the function, not just observe it. So we actually insert them into the business roles. As a result, they come back
with a lot more empathy and a whole lot better understanding and vision of where we need to go and how we
need to proceed.
Weve learned some hard lessons in our stores, clubs and distribution centers when we developed something
and people didnt use it, and they chose to find other ways to get the job done. We are working hard to
develop systems that are easy to use. That puts an awesome responsibility on that developer to get out and
understand the business. Thats one of our key things: Were merchant first, technologists second.
We have a very clear set of critical success factors that every associate in our division has to live by, and they
are generally conditions of employment. Some of them are complicated and some of them are very simple:
excellent customer service, testing and validation before you roll it out, balance and controls, payback and ROI.
All new [IS] associates are indoctrinated into that set of disciplines, and all associates review it at least on an
annual basis. The disciplines are the same for everybody regardless of what team youre on.
2.2.1.2.4 Wal-Mart Infrastructure
Considering the rapid expansion of Wal-Mart stores, it was essential to have a very good communication
system. For this, Wal-Mart set up its own satellite communication system in 1983. This allowed the
management to monitor each and every activity going on in a particular store at any point of the day and
analyze the course of action taken depending on how the things went.
Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores to manage their
own stocks, thereby reducing pack sizes across many categories and timely price markdowns. Wal-Mart makes
full use of its IT infrastructure to make more inventories available in case of items that customers wanted
most, while reducing overall inventory. By making use of Bar-coding & RFID technologies, different processes
like efficient picking, receiving & proper inventory control of the products along with easy packing and
counting of the inventories was ensured.
Wal-Mart owns the Massively Parallel Processor (MPP), largest & the most sophisticated computer system in
private sector, which enables it to easily track movement of goods & stock levels across all distribution centers
and stores. For emergency backup, it has an extensive contingency plan in place as well.
Employees use Magic Wand, which is linked to in-store terminals through a Radio frequency network, to
keep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers.
The order management and store replenishment of goods is entirely executed with the help of computers
through Point of Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to forecast the
quantities of each item to be delivered, based on inventories in the store. A Centralized inventory database
allows the personnel at the store to find out the level of inventories and location of each product at a given
time. It also shows the location of the product like distribution center or transit on the truck. When the goods
are unloaded at the store, the inventory system is immediately updated.
In November 19, 2001, Wal-Mart spends an estimated $40 million to upgrade its e-business infrastructure.
Dan Phillips, vice president of technology support and operations, said the new systems from IBM will give
Wal-Mart "a faster processing time, greater availability of our systems and better systems operation without
interruption." He added that the new systems have yielded a "significant improvement in our processing time,
in some cases allowing us to cut our processing time for some jobs by more than half." Wal-Mart is replacing
its old IBM mainframes with a dozen new IBM eServer z900 mainframes and its older storage systems with
IBM's new Enterprise Storage Servers code-named Shark.
The mainframes and the storage servers provide the backbone of Wal-Mart's data center infrastructure.
Among other things, the data center is used for data processing, reconciliation, debit and credit transactions,
as well as product replenishment.
2.2.2 Wal-Mart Competitive forces models
The five forces model is an outside-in business unit strategy tool that is used to make an analysis of the
attractiveness (value) of an industry structure. And it is the tool to understand where power lies in a business
situation. It is useful to help us to understand both the strength of our current competitive position, and the
strength of a position of our considering moving into. Furthermore, the tool is used to identify whether new
products, services or businesses have the potential to be profitable.
Wal-Mart's competitiveness can be interpreted in terms of Porter's five forces model very well. Here we focus
on Wal-Mart's position as a retail giant and competes with fellow retail chains or online stores such as K-mart,
Target and Amazon.
The details explanation of Competitive Five Forces Model for Wal-Mart specifically Wal-Marts competition in
the consumer retail industry are as follow:
2.2.2.1 Threat of New Entry: New entrants to an industry can raise the level of competition, thereby reducing
its attractiveness. The threat of new entrants largely depends on the barriers to entry.
For Wal-Mart, Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems,
locations, brand name, and financial capital to fend off competitors. Wal-Mart often has an absolute cost
advantage over other competitors. Cost to build retail enterprise like Wal-Mart is formidable.
2.2.2.2 The Threat of Substitutes
When it comes to this market, there are not many substitutes that offer convenience and low pricing.
The customers has the choice of going to many specialty stores to get their desired products but are
not going to find Wal-Marts low pricing

Online shopping proves another alternative because it is so different and the customer can gain price
advantages because the company does not necessarily have to have a brick and mortar store,
passing the savings onto the consumer.

2.2.2.3 The Bargaining Power of Buyers
The individual buyer has little to no pressure on Wal-Mart. Consumer advocate groups have
complained about Wal-Marts pricing techniques. Consumer could shop at a competitor who offers
comparable products at comparable prices, but the convenience is lost.

2.2.2.4 The Bargaining Power of Suppliers
Some of the major suppliers of Wal-Mart are:
Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle, Purina PetCare Company,
Procter & Gamble and Unilever.
Kimberly-Clark
Kimberly Clark is a manufacturer of paper goods products that include Kleenex, Huggies and Depend. In April
2004, Kimberly Clark tagged its Scott paper towels shipment with RFID tags to be shipped to Sanger, Texas.
Kraft Foods
Kraft Foods, the largest food company employs RFID system to improve handling of its bulk containers. Kraft
has outsourced its RFID system to TrenStar to handle the complete supply chain.
Gillette
Smart razor blades have been introduced to the supermarkets. Gillette has ordered half a billion tags to track
razors. The Gillette Company uses RFID for both pallet and case applications. All the cases in a pallet are
scanned with RFID readers as they move along the conveyor belt. In a trial at Tesco's new market Road branch
in Cambridge, the packaging of Gillette Mach3 razor blades has been fitted with tiny chips.
Since Wal-Mart holds so much of the market share, they offer a lot of business to manufacturers and
wholesalers. This gives Wal-Mart a lot of power because by Wal-Mart threatening to switch to a different
supplier would create a scare tactic to the suppliers. Wal-Mart could vertically integrate.Wal-Mart does deal
with some large suppliers like Proctor & Gamble, Coca-Cola who have more bargaining power than small
suppliers.

2.2.2.5 The Rivalry among the Existing Players
Currently, there are three main incumbent companies that exist in the same market as Wal-Mart:
Sears, K Mart, and Target. Target is the strongest of the three in relation to retail. Target has
experienced tremendous growth in their domestic markets and have defined their niche quite
effectively Sears and K-Mart seem to be drifting and have not challenged K-Mart in sometime. Mature
industry life cycle.