ABS

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Table of Contents
Introduction:...............................................................................................................................2
From Suppliers to Partners:.......................................................................................................2
EDLP and Supporting Activities across the Value Chain..................................................................2
Global Leader in Implementing IT-based Distribution Management Systems:........................................2
Balance of Power as Displayed by Walmart......................................................................................3
The Final Word:..........................................................................................................................3
Exhibits:.....................................................................................................................................4
Exhibit 1 (Sam Waltons Vision):...................................................................................................4
Exhibit 2 (Value Chain Analysis):...................................................................................................4
Exhibit 3 (Global Presence):.........................................................................................................4
Exhibit 4 (An example of why they are unbeatable role of IT and exception reporting):.............................4
Exhibit 5 (Strategic Changes):.......................................................................................................5
References..................................................................................................................................5

Introduction:
Whenever the name Walmart comes up for discussion, the first word that comes into our mind is EDLP. However,
historically, Walmart has brought about strategic changes in the domain of Sales and Distribution that can be seen
as critical push behind its stupendous success over the years. This paper aims to:
- Look at different distribution related strategic implementations and changes in the company over the years
- Critically analyse each of the above and state how it has affected the companys growth
- Try to come up with recommendations for the road ahead

From Suppliers to Partners:

Right from the very onset, Sam Waltons Business Model was different (Exhibit 1):
- Given that a large portion of their total earnings comes from the rural markets: they thereby need a
distribution network that is robust enough to reach the remotest of locations
- The business encouraged partnerships with suppliers as well as the employees
- This led to plenty of firsts in the IT space with regards to operations and further improved their
distribution

EDLP and Supporting Activities across the Value Chain

Every day low price (EDLP) is a pricing strategy used by retail stores that provides low prices to the customers
every single day without any special pricing discount, sale etc. The other pricing strategy that is used in the retail
industry is the HiLo strategy which focuses on temporary price reductions to advertise their products and draw
customers into the stores. Implementing a low cost strategy requires use of efficient technologies, efficient use of
manufacturing and human resources, in short an efficient distribution network. With this Walmart could improve
the efficiency of internal processes, reduce operating costs and get reliable sales forecasting.
Value chain analysis of Walmart: Refer Exhibit 2 for details. As part of its primary activities Walmart has
developed several competitive advantages. Cross docking, distribution management and efficient transportation
help reduce time and eliminate inefficiencies. Cross docking is a technique by which pre-assembled orders for
individual stores from a suppliers truck go seamlessly from an unloading dock at Wal-Marts Distribution Centre
directly into a truck bound for stores. This drastically reduces the storage costs associated with the operations and
allows for even less room for pilferage. With strategic partners like P&G, products end up on the shelves of
Walmart stores within 4 hours and are sold within 24 hours in a normal scenario, the products end up being in the
warehouse itself for more than a few days.
Infrastructure: The map in Exhibit 3 shows the presence of Walmart across different locations in the world. There
are over 11,270 Wal-Mart stores all across the world. The headquarters has the control over the flow of orders
and local stores are held responsible for catering to the local requirements. This strategy of Glocalization
has helped Walmart expand in the international markets achieving standardization and simultaneously catering to
the requirements of the local population respecting and utilizing the Expert Power of Local Support Teams.
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.

Global Leader in Implementing IT-based Distribution Management Systems:

Wal-Mart uses just in time inventory management 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 Centre.
This just-in-time inventory management reduces overhead associated boxes of unneeded merchandise sitting in
warehouses and stock rooms.
- Gaining a competitive edge: With hundreds of Terabytes of Customer Data to play with, Walmart was one of
the worlds first companies to have a dedicated Consumer Insights Team relying heavily on the use of
advanced analytics to not only keep a check on the prevailing buying patterns amongst its consumers, but to
also predict possible future scenarios using advanced modelling techniques.

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Reducing Pilferage: Another important aspect of having such an infrastructure was how easy it was to
maintain records of items being shipped across the value chain given that with appropriate tagging at all stages,
tracking anomalies across the supply chain became all the more easy for the higher associates.
Timely information a key to maximizing sales and minimizing costs: The better your info about whats
selling and whats not, the better you can avoid the twin perils of retailing overstocking and understocking.
Exception Management: Problems at Walmart are termed as exceptions and follow the age old Kanban
theory albeit in a new avatar (Exhibit 4). Given the robust data warehousing system in place, daily, weekly and
monthly reports all have exception reporting built in as an internal feature wherein all the department and
category heads get a store-by-store view of problems or exceptions in their line. The emphasis with such
reports is to move to the most granular level to ensure that all decisions are made One Store at a Time.

Balance of Power as Displayed by Walmart

-Coercive Power with Market Research Firms: Of late the company has announced that it would no longer share
sales data with market research vendors like Information Resources Inc. and AC Nielsen, since the reports of
the vendors are available to all retailers who subscribe to that service. However, as a dichotomy, the retailer
continues to use information from the same research vendors (including AC Nielsen and Experian) to get
market insights all down to its financial muscle.
-Legitimate and Referent Powers with Suppliers: The biggest benefits of having such rich customer data started
coming in during the early 2000s when the company decided to share most of its customer data with key
suppliers like P&G to encourage partnerships. The suppliers even advertised on television saying their products
were available at the nearest Walmart store (Referent Power). The vision behind the move was to:
- Treat Suppliers as Partners, NOT Adversaries
- Implementing a Collaborative Planning, Forecasting and Replenishment (CPFR) Program
The above led to further benefits for Walmart as a result of:
- JIT Inventory Program leading to reduced Carrying Costs - for Both Wal-Mart AND Its Suppliers
- Wal-Marts Cost of Goods : 5% - 10% Less Than Competitors
-Coercive Power with Suppliers: The relationship over the past few decades has been asymmetrical given
Walmarts growing financial muscle, leading to a situation where the retailer often ends up demanding things of
its suppliers. One such initiative is Walmarts now famous Supplier Scorecard system which ensures:
- Punctuality of deliveries and data-documented problems on meeting orders or returns of defective products
- Suppliers not meeting sales targets would face tougher negotiations in the future from the Wal-Mart buyers
- Adherence to Walmart initiated measures like the RFID Mandate to Top 100 Suppliers in 2003
-Extending Expert & Reward Power to Employees: The Company owns its distribution network fully and hence,
motivating its own employees to ensure flawless operation is of utmost importance. Most of the managers
started as hourly associates which gives motivation to all employees regardless of their background (Reward).
Employees also get benefits like profit sharing, stock purchase program, medical coverage, private counselling
and scholarships. All associates are selected from the local community because they have better understanding
of the local needs of the customers and also language is not a barrier while communicating with customers
(Expert).
-Respecting and Utilizing Expert Power of Local Stores: Refer Infrastructure segment on Page 1 for details.

The Final Word:

The recent store expansions clearly indicate that the way forward is to come up with centrally located smaller
stores and not the ginormous Supercenters the company is best known for. Customers are getting choosy in
traveling to suburbs located outside the city just to visit a Walmart, hence, the company came up with the idea of
these smaller, Neighbourhood stores. My recommendations for the same:
1. A word of caution - these stores would need dedicated focus on their own. As of this writing, everything, right
from distribution management to exception reporting and supplier scorecards, for all Walmart stores is done
centrally combining all store formats. Given the difference in store assortment and the size, it is important to
have dedicated and separate resources for the new format for proper assessment and delivery.
2. Given most of these stores are located in busy localities, to serve the customers better, the company would be
better off if these neighbourhood stores deploy a hybrid delivery system order online and the product would
be ready for pick-up at a time of your choosing from the store thereby avoiding long queues!

Exhibits:
Exhibit 1 (Sam Waltons Vision):
Theres no two ways about it: Im cheap. Wal-Mart never bought a jet until we hit $40B in sales and
expanded as far away as California and Maine, and even then they had to practically tie me up and hold me
down to do it.
A lot of what goes on these days with high-flying companies and these overpaid CEOs, whore really just
looting from the top and arent watching out for anybody but themselves, really upsets me
Why should we stay so cheap when were a $50+B company: Because we believe in the value of the dollar.
We exist to provide value to our customers, which means that, in addition to quality and service, we have to
save them money. Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers
pockets.
- Same Walton (Founder, Walmart)
Exhibit 2 (Value Chain Analysis):

Figure 1: Value Chain Analysis of Walmart

Exhibit 3 (Global Presence):

Figure 2: Walmart's Global Presence

Exhibit 4 (An example of why they are unbeatable role of IT and exception reporting):
Source www.fastcompany.com
Why Walmart seem unbeatable? An example of their approach:
- Disappointing sales on Friday, Nov 26, 2004 (the day after Thanksgiving),
- Traditionally the biggest shopping day of the year
- Wal-Mart knows it literally at the end of the day because of their state-of-the-art information system
What do they do?

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Within a couple of hours, Michael Duke, the president of Wal-Mart, had gotten messages on his
Blackberry that sales were off at stores around the country.
- He brainstormed with execs and store managers about which products to mark down.
- A team met over the weekend to finalize the list and contact suppliers.
- On Tuesday, stores nationwide offered the new prices.
- On Thursday, Wal-Mart broadcast a video for its stores suggesting new displays.
- The next day, the displays were up, and a new ad campaign was underway.
- On Saturday, the company conducted a meeting with 500 employees asking for more ideas -- and acted on
21 of their recommendations.
The Result:
The retailer expects December sales to be up three percent. Although it's not the holiday season it had
initially hoped for, it represents a heck of a comeback.
Exhibit 5 (Strategic Changes):

Figure 5: Strategic Changes

References
1.
2.
3.
4.
5.

Walmart An American Original: Report by Dr. Lakshmi Mohan

Walmarts Corporate and Public Websites
http://www.economist.com/node/3868756
http://247wallst.com/retail/2014/03/22/walmart-now-has-six-types-of-stores/
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/04/09/everyday-low-prices-wal-martscompetitors-can-play-that-game-too/
6. http://www.scribd.com/doc/73274288/Value-Chain-of-WalMart
7. http://www.sagepub.com/ridley/Examples%20of%20literature%20reviews/Dino%20Ovcina%20literature
%20review.pdf
8. http://people.ucsc.edu/~rbaden/Case%20Study%20Example.pdf
9. http://upetd.up.ac.za/thesis/available/etd-06102012-114726/unrestricted/dissertation.pdf
10. http://www.corp-research.org/wal-mart