Constraints And Key Challenges Of Wal Mart Management Essay

Wal-Mart establishes a distribution channel that is hard to imitate. System gives the firm competitive advantage over the competitors. Distribution channels were very efficient and allowed for lower pricing. The company also develops unique resources like electronic data interchange (EDI) system that improves communication with suppliers and distribution centers and improves inventory control. Moreover, Wal-Mart everyday low pricing and organic foods policy is useful in developing the customer loyalty that drives the company’s growth. This consistency in price and service allowed Wal-Mart to establish a reputation of reliability. (Basker, 2007)

Constraints and key challenges

First constraint is about criticism of Wal-Mart. The firm dealt with a torrent of lawsuits and issues regard to its workforce including low wages, poor working environment, sex discrimination, restriction in supplier. This criticism may impact its corporate reputation. The challenges here are how Wal-Mart can control the balance between low pricing system and employee benefits. (Basker, 2007)

Second constraint is when Wal-Mart tries to grow in global market. The company faced with differentiation in culture. The retail giant had some problems with consumers and had to make some adjustments. Some research says that Wal-Mart is behind the locals in their knowledge of taste. However, the road has not been without stumble, Wal-Mart has to analyze carefully before going overseas (Kim, 2008)

Goals and objectives:

“No family should have to choose between food that is healthier for them and food they can afford,” said Bill Simon, president and CEO of Wal-Mart U.S. Indeed, Wal-Mart now is working with suppliers to bring fresh food with affordable price to customer. With this kind of ideas, the first lady of US, Michelle Obama has supported a five-year plan to make family especially children a healthy eating in order to reduce children obesity. There are some key elements that program follows: adding nutrition to food and reducing some unhealthy chemicals such as sodium; reducing unnecessary costs of supply chain like transportation, logistics, sourcing and build relationship with farmers in order to add more income for farmers and lower price for customers; helping customers to identify the healthier food option and to save customer’s time to choose the healthy products. (Walmart Launches Major Initiative to Make Food Healthier and Healthier Food More Affordable, 2011)

Value Chain

Wal-Mart is able to offer values for customers at lowest cost due to two factors – it is highly automated distribution centres which reduce shipping time and cost, and its computerized inventory system which speeds up the checking out time and recording of transactions. (Chandran, 2003)

The company purchases goods directly from manufacturers to avoid intermediaries. It also builds the long relationship with local and regional vendors to drive down cost. Wal-Mart is able to provide replenishments twice faster than competitors because it has its own warehouses which supply 85 percent of inventory. The distribution centres ensures a steady and consistent flow of products to support the supply function. Wal-Mart applies technology to manage the centre easier and more economical like barcode and hand-held computer system. These systems help employees to check the right information of products such as storage, packing, shipping of particular product so that it can save a lot of paperwork. The systems also provide function for supervisors to monitor theirs employees and even give them guide that help company to satisfy customer needs quickly. (Chandran, 2003)

In logistics management, Wal-Mart’s logistics infrastructure considers fast and responsive transportation system. The distribution centres are serviced by more than 3500 company owned trucks with experienced drivers who have more than 300,000 accident- free miles. Wal-Mart keeps information of drivers through a book named “Private Fleet Driver Handbook”. This book aims to educate drivers the code of conduct, safe exchange of trailers with the store personnel and safety of Wal-Mart properties. In order to make the distribution process more efficient, Wal-Mart introduces the logistics techniques called “cross-docking”. By using this, the finished goods are directly picked up from the manufacturer of supplier, sorted out and then directly supplied to customers. The purpose of this system is to reduce the handling and storage charge of finished goods, and eliminate the role of distribution centres and stores. (Chandran, 2003)

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In inventory management, Wal-Mart set up its own satellite communication and use of information technology (IT) systems to track sales and merchandise inventories across countries to help communication in stores. As Walton, company’s founder, mentioned this system enables him to “see the total of the day’s bank credit sales” or “something important to communicate to the stores and distribution centres”. Wal-Mart then collaborated with P&G for mutual benefit. There was linkage of computers between two companies for sharing information of inventory. For instance, Wal-Mart sent “re-supply order” to P&G to inform “item which was low in stock”, P&G then received signal then acknowledged by delivering items to Wal-Mart distribution centre or stores. This helps Wal-Mart to get items fast from P&G and reduce unproductive inventory. (Chandran, 2003)

Aside from support of IT in supply chain management, marketing also plays the main strategic role to help Wal-Mart gain its value. Wal-Mart broadcasts itself through media advertising with messages “We have lower prices than anyone else”, and then the “opening price point”. These create customers’ perception that prices in Wal-Mart are much cheaper than its competitors. Customers then keep shopping at Wal-Mart again and again when they are convinced by this advertisement. (Zenith Management Consulting, 2005)

SWOT Analysis:

Strength

First strength of Wal-Mart is price. Compared to non- Wal-Mart grocery stores, Wal-Mart stores charged lower prices. For instance, a 2002 UBS Warburg survey of 100 grocery and non-grocery found that “Wal-Mart’s prices were 17-39% lower than competitors’ prices” (Currie and Jain, 2002 cited in Basker and Noel, 2009, p 981). In every Wal-Mart store, some products are shown as “Unbeatable” products with discount price for everyone, so it not necessity for customers to have coupon or promotion code. In addition, customers who met conditions of frequent-shopper program can be offered lower price with free “frequent shopper” cards. (Basker and Noel, 2009)

To achieve low cost strategy, Wal-Mart gained advantages due to its large and early investment in Information Technology which were applied to logistic, distribution, and inventory management. Wal-Mart was an “early adopter of bar-code technology” to help company control products better and save labour cost. In 1990, Wal-Mart launched “Retail Link” software which provided connection between distribution centres, suppliers and stores for sharing detailed inventory data so it makes product replenishment just in time. At store level, it introduced “Radio Frequency Identification” system to facilitate tracking shipment, inventory and sales. Moreover, Wal-Mart has its own the private satellite network communication. (Basker, 2007)

Wal-Mart locates its stores in profitable places. It enters into market after analyzing various demographic factors such as density of population, age and income and stores tend to locate near one another as well as close to distributors. That helps to reduce the distribution, training and advertising cost. (Basker, 2007)

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At the supply chain management system, Wal-Mart has long term contracts with foreign suppliers to import products at lower average cost than others. Wal-Mart shifted most of its product purchasing to Asia in the early 1990s and China became its biggest supplier. Therefore, it can get better prices from its suppliers than other retailers and maintain the fixed cost products. (Basker, 2007)

“Wal-Mart as Globalizer” describes Wal-Mart’s density is everywhere around the world. It started from a small town in Arkansas in 1962, and then it grew up to be not only the number one retailer in US but also a symbol which everyone in other countries can recognize for example, it acquired the UK supermarket Asda. The powerful retail brand name makes its products, services become popular. (Lavallee and Boyer, 2006)

Finally, Wal-Mart has its e-commerce website which is convenient for customers to purchase online. It is the second most visited retail site in US after Amazon according the research of comScore (Mcintyre, 2010)

Weakness:

Lower price means not good quality, services and convenience. However, customers are easy to forgive Wal-Mart for these drawbacks because its price is best compared to Target, Kmart. Wal-Mart uses multimedia to promote its image by transferring messages such as workers are happy during their working with Wal-Mart, citizens feel enjoyable to have Wal-Mart in their neighbourhoods. In fact, more and more communities try to resist Wal-Mart’s growth because its lower prices make customers away from other smaller business. (Zenith Management Consulting, 2005).

Moreover, lawsuits by current and former workers against Wal-Mart of various illegal and unethical practices including not paying enough wages, requiring employees work overtime “after 10 p.m., workers were locked in the stores, no one could leave, even if they had an emergency”, missing meal break and treating employees humiliating. Therefore, lots of employees quit their job after working for Wal-Mart a few months resulting that “Turnover is particularly high at Wal-Mart compared to the retail industry as a whole-35 to 45 percent a year among full time workers; 56 percent among part timers”. Sex and race discrimination are considered a culture of Wal-Mart. About of 70 percents of sales associated are women and they get paid lower than men and excluded from higher position. (Rosen, 2005)

In a report from Columbus, OH-based Retail Forward Inc, a global management consulting and market research firm, demonstrated that Wal-Mart’s mistake in global operations to “transplant its U.S. business model and management methods directly to a new market.” And it met resistant of local citizens to “foreign approaches”.

Opportunities:

For international expansion, Wal-Mart can enter into joint venture, merger, or acquisition with other retailers. The Wal-Mart stores website shows that it acquired Asda plc food chain of UK for $10.8 billion, Massmart in South Africa, Seiyu in Japan etc. Wal-Mart has started its operation in 15 countries including Mexico, Japan, Brazil, Italy, South Africa etc. since 1991 and the economies of Wal-Mart in countries outside US has grown significantly. Moreover, Wal-Mart tends to go to countries with a sizable middle class. (Wikerson, 2009)

Wal-Mart attempts for new business strategy by focusing more on services such as health care, banking, and broadband access aimed at its core customers. It helps to secure customers who are more loyal. (Gogoi, 2007)

Wal-Mart wants to save more organic foods for better and healthier life (Walmart Launches Major Initiative to Make Food Healthier and Healthier Food More Affordable, 2011)

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Threats:

The New York Amsterdam news newspaper published on February 2011 has mentioned that employees were fighting Wal-Mart for their better working environment. Employees are in doubt of Wal-Mart promises like creating job, saving consumer money and helping business thrives because in fact, Wal-Mart offers low paying job with no benefits (Applebaum, 2011).

To expand to overseas market successfully means that Wal-Mart has to understand other culture of places which it wants to enter. Wal-Mart meets difficulty of culture differences. One of a good example is when it entered South Korea in late 1990s. However, it left Korea in 2005 because the Korean consumers had different taste and preferences compared to American consumers (Kim, 2008)

Five forces model

Threat of new entrants:

“Always low prices” – that slogan creates a high barrier to entry which means the influence of potential entrants to Wal-Mart is weak. Customers are likely stuck with Wal-Mart’s low price image so it is very hard for new entrants to change consumers’ perception that Wal-Mart is cheaper. As such a large firm, Wal-Mart achieves economies of scale. The firm produces at larger volumes with lower cost because the fixed cost is spread over more units. New entrants want to enter to markets must have plenty of capital. New entrants also cannot compete with Wal-Mart for a better service because a research shows that customers prefer “self service” model. Ken Stone of Iowa State University advised that new entrants are better to provide differentiated goods and services including more specialized product lines and more personalized services. (Zenith Management Consulting, 2005)

Additionally, the distribution channels with huge IT investment are very efficient and allow Wal-Mart lower pricing, thus it creates barrier to entry for firms who wished to enter the market. (Basker, 2007)

Rivalry among existing competitors:

“Without experts who know exactly how to counter these problems, Wal-Mart’s competitors will not be able to significantly affect Wal-Mart’s growing dominance” (Zenith Management Consulting, 2005). Existing rivalry has low influence on Wal-Mart. Its competitors are divided into two categories: “local competitors” like grocery stores, apparel stores and “large retail chain competitors” who compete with Wal-Mart in various markets. Some small competitors did not affect much on Wall-Mart’s market shares. Some large competitors like Target, Kmart are noticeable competitors of Wal-Mart. They always consider Wal-Mart’s store location before deciding market to enter. (Basker, 2007)

Bargaining power of buyers

In Pew Research Center (2005) indicated that 50% of customers favour Wal-Mart for its low price. The bargaining power of buyers highly influences Wal-Mart. Company maintains reasonable prices for their products and service to satisfy the buyers. Customers can choose to shop elsewhere or none shop if the price is not affordable.

Bargaining power of suppliers

Wal-Mart has relationship with a hundred of major suppliers which their offices near Wal-Mart headquarter in Bentonville, Arkansas. Therefore, the bargaining power of Wal-Mart is high. It has opportunity to switch among competitors and “push down wholesale prices”. Wal-Mart also imported goods especially clothes from low cost countries such as Mexico, Bangladesh, and China. It helps Wal-Mart to maintain large fixed cost with large volumes of goods. Therefore, Wal-Mart gained much more advantage from global sourcing. (Basker, 2007)

Threat of substitute

Wal-Mart does not worry much about substitutes because there are no competitors offer lower prices. The substitute can be in form of “brick and mortar” stores or online stores. Since Wal-Mart website was developed, customers can order product online with delivery services.

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