Analysing Resources And Capabilities Of Wal Mart Management Essay

Wal-Mart is one of the largest private sector employers in the world, with employee strength of greater than 2.1 million [i] . The company’s founder, Sam Walton has always focused on improving sales, constantly reducing costs, adopting efficient distribution and logistics management systems and using innovative information technology tools. (P. Mohan Chandran, 2003)

Discount Industry Value Chain

Wal-Mart Value Chain

Four Criteria of Sustainable Competitive Advantage

Valuable

Wal-Mart’s skills in developing and using POP data collection to control inventory

Long-term relationship with vendors

Rare Capabilities

For years, Wal-Mart’s POP system was rare

Ability to allure customers by lowest costs

Costly to Imitate

Wal-Mart’s shorter value chain compared to its competitors

Brand Value

Non-Substitutable

If Wal-Mart continues to expand and sustain sales, there should be no fear of direct substitution in near future

Wal-mart’s Basic Value Chain

ii

Procurement and Distribution

Wal-Mart has always emphasized the need to reduce its costs of purchasing and offer the best prices possible in the market to customers. Wal-Mart procures goods directly from manufactures, bypassing all other intermediaries. Whereas its industry competitors have a longer value chain as shown above. In case of Wal-Mart, it has built a core competency for itself by being a leader in the distribution and retail division, which in turn has led them create a competitive advantage for itself. Wal-Mart is a tough negotiator on prices and finalizes a purchase deal only when it is sure that the price at which they are procuring in the minimum possible. Wal-Mart spends a significant amount of time with vendors and understanding their cost structure. The retailer ensures that manufacturer does the best to cut down prices. Wal-Mart believes in establishing long-term relationship with the vendors. [iii] 

Wal-mart has distribution centers located at different geographical locations in the US. Wal-Marts own warehouses provides 85% of the inventory, as compared to 50-60% for its competitors. Wal-Mart is able to provide replenishments within two days, whereas, its competitors in at least five days. Shipping costs for Wal-Mart is roughly 3% compared to 5% for its competitors. The distribution centers ensured a steady and consistent flow of products to support the supply function.

As Wal-Mart uses sophisticated barcode technology and hand-held computer systems, managing the center becomes easier and more economical. It’s technological systems ensures that information regarding the inventory level of all the products is accessible to every employee. The hand-held computer enables the employee to keep track of the location of a particular product from a particular bin or shelf in the center. The quantity of product required from the center is entered into the hand-held computer which gets updated in the server. The hand-held computer also enables the packaging department to get accurate information about products to be packed. It displays all information about the storage, packaging and shipping of a particular product thus, saving time on unnecessary paperwork. This enables the company to satisfy customer needs quickly and improve the level of efficiency of the distribution center management operations.

Logistics Management

The main feature of Wal-Mart’s Logistics infrastructure is its transportation system. The distribution center is serviced by more than 3500 trucks of its own. These dedicated trucks that Wal-Mart owns help them in shipping goods from the distribution centers to the stores within two days and replenish the store shelves twice a week. Wal-Mart believes that it needs drivers who are committed and dedicated to customer service. The company hires only experienced drivers who have driven more than 3,00,000 accident free miles, with no major traffic violation.

To make its distribution process more efficient, Wal-Mart also made use of a logistics technique known as ‘cross-docking’. In this system, the finished goods were directly picked up from the manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores.

C:UsersSanjuDesktopcrossdocking.gif [iv] 

In Cross docking [v] , requisitions received for different goods from a store were converted into purchase or procurement orders. These purchase orders are then forwarded to the manufacturers who convey their ability or inability to supply the goods within a particular period of time. In cases where the manufacturer agrees to supply the required goods within the specified time, the goods are directly forwarded to a place called staging area. The goods are packed here according to the orders received from different stores and directly sent to different customers. Traditionally, decisions about merchandising, pricing and promotions had been highly centralised and were generally taken at the corporate level. The cross docking system, however, changed this practice. The system shifted focus from “supply chain” to “demand chain” (Byrnes), which meant that instead of the retailer ‘pushing’ products into the system; customers could ‘pull’ products, when and where they need it.

Inventory Management

Wal-Mart has invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country. With rapid expansion of Wal-Mart stores across US, it was essential to have a good communication system. Hence, Wal-Mart set up its own satellite communication system in 1983. Its benefits are as Sam Walton rightly said that he can go to any technician and talk on the phone to any store that might have a problem with system and gauge how a particular day is going. On the screen, he could see total of the day’s bank credit sales adding up as they occur. If something important is to be conveyed to the stores and distribution centers, he or any Wal-Mart executive can walk to the TV studio and get on the satellite transmission and get it right there.

Wal-Mart is able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting inventory across the board, Wal-Mart made full use of IT capabilities to make more inventories available in case of items that customers wanted the most, while reducing the overall inventory levels. Wal-Mart has also networked all its suppliers through computers. Employees at Wal-Mart have hand-held computers which are linked to the in-store terminals through a radio frequency network. These help them track the inventory in stores, deliveries and backup merchandise in stock at the distribution centers. The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system. Through this system it is possible to monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart also made use of the sophisticated algorithm system which enabled them to forecast exact quantities of each item to be delivered, based on inventories in each store. Wal-Mart also uses a centralized inventory data system using which the personnel at stores can find out the level of inventories and the location of each product at any given time.

In 1991, Wal-Mart has invested approximately $4 billion to build a retail link system. More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories. The details of daily transactions, which approximately amounted to more than 10 million per day, were processed through this integrated system and are furnished to every Wal-Mart store by 4AM the next day. Wal-Mart tied up with Atlas Commerce for upgrading the system through the Internet enabled technologies. Wal-Mart owns the largest and most sophisticated computer system in the private sector.

By making effective use of computers in all it’s company operations, Wal-Mart is successful in providing uninterrupted service to its customers, suppliers, stockholders and trade partners.

The Benefits Reaped

Wal-Mart strongly believed and constantly emphasized on strengthening its relationship with its customers, suppliers and employees. The company made efforts to capitalize every cost saving opportunity. The savings on cost were always passed on the the customers, thereby adding value at every stage and process. Wal-Mart enjoyed the benefits of low transportation costs since it had its own transportation system which assisted Wal-Mart in delivering goods to different stores within 48 hours. The company enjoyed good bargaining power as it purchased huge quantities. Low pricing ensured that the sales volume were high and consistent. The benefits of an efficient supply chain management system included reduction in lead time, faster inventory turnover, accurate forecasting of inventory levels, increased warehouse space, reduction in safety stock and better working capital utilization. It also helped reduce the dependency on the distribution center management personnel resulting in minimization of training costs and errors. The stock-out of goods and the subsequent loss arising out of it was completely eliminated. Wal-Mart’s Supply chain management practiced resulted in increased efficiency in operations and better customer service. Cross docking also helped Wal-Mart to reduce inventory storage costs. It also helped to cut down the labor and other handling costs in loading and unloading of goods.