NCSU - College of Management
Industry Case
Write-Up
Close examination of Wal-Mart
Yanlong Li
2/8/2009
Li
Yanlong Li
BUS 340 – 001
2/8/2009
Industry Case Write-Up
The retail industry has always been in the frontline of utilizing information
technology infrastructures and information systems. Many major businesses within the
industry quickly adopt and adapt the new way of doing business, tracking shipments, and
monitoring inventories – all through the utilization of new technologies and electronic
communications. Wal-Mart, being the industry leader in low cost operations and low
price products, surpasses its competitors, such as Target, J.C. Penney, Sears or any other
major discount stores in the U.S., in its operational efficiency and resource management.
That provides War-Mart the competitive advantage over its rivalries, making it the
number one place to shop for low price products, groceries and other items. By having
low operation costs and keeping inventories low, this allow Wal-Mart to survive the
furious market competition, this is especially true when consider the current economic
situation, where the consumer spending will is low, Wal-Mart becomes the ultimate place
to shop for bargain price. This makes Wal-Mart stands out of the rest even further and
making it the company that this case write-up is all about.
Just like every other industry, the retail industry no doubt follows closely to the
Porter’s Model and the five fundamental forces within the framework of the model –
entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power
of suppliers, and rivalry among the existing players (ValueBasedManagement). Within
the retail industry, the potential for entry of new competitors is very low and rare, since
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the starting cost is huge and not to mention the infrastructures, buildings, equipments,
contracts with suppliers, utilities, and other costs, all have to put in place even before the
actual store is opened. The amount of money that these costs add up would prevent many
competitions from even entering the market, let alone to compete with current major
stores. Especially when facing the challenges from Wal-Mart – a corporation that has
been in the business since the 1960s. When Sam Walton, founder of Wal-Mart, began his
first discount store in 1962, then soon five years later, there were 24 more Wal-Mart
stores opened up and ringing up $12.6 million in sales (WalMartStores). These figures
were merely the beginning of Wal-Mart back more than 40 years ago, even so today, it is
still near impossible for new competitors to enter this industry.
The threat of substitutes is another important factor and problem for the retail
industry. When one retail store jacks the prices of the goods much lower than its
competitors do, then consumers will no doubt choose the store that has lower prices than
stores that have much higher prices, even though the other stores might have products
that are slightly better in terms of quality. And this is exactly the case for Wal-Mart, the
only reason why it remains so popular in America for the past 40 years is because of the
simple fact that goods sold in Wal-Mart have much lower prices than they do in other
discount stores. Wal-Mart is the low cost leader in the retail business, when the prices are
lower than any other stores then the threat of substitution is minimized to almost nonexistence. No other retail stores would dare to lower their prices than Wal-Mart, because
of the overhead, operations, supply costs are much higher than Wal-Mart’s. And this
makes Wal-Mart still the number one place to shop for low price goods and items.
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The principles of bargaining power of the buyers and suppliers interconnect with
one and another; they both share the basic fundamental principle of market buying
behavior. Regardless whether it is the consuming side of the business or the supplying
side of the business, buyers and suppliers want to make the best deal possible out of the
retail relationship. The amount of order and the price of the order are most concerned by
the retail stores, and this is another instance where Wal-Mart stands strong and ahead of
its competition. Because of the prices of goods offered at Wal-Mart stores are so low, that
they have to make up the price in volume – the more goods and items they sell, the better
control they will have over the rotation between cash and inventories. Another reason is
because Wal-Mart has large amount of suppliers at their disposal, both domestically and
internationally, this makes them very easy to control and choose over the vast amount of
suppliers.
The rivalry between existing players is absolutely intense in the retail industry.
There is strong competition among the major discount stores, but from time to time, WalMart just absolutely dominates the market. With annual sales of $288.2 billion dollars
(2007), Wal-Mart leaves the competition in the dust, Target - $46.8 billion, Sears - $36.1
billion (Information Systems at Wal-Mart Inc.). Though Wal-Mart dominates the retail
market, however, the rest of the industry, for stores such as Target, Sears, Costco, etc, the
market share is distributed quite evenly. Because the rest of the industry all have their
strengths and weaknesses, that all their resources are matched evenly with each other,
that produced such even competition amongst them, while Wal-Mart still owns the
majority of the market.
The chart below illustrates the retail industry in Porter’s Model:
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Threat of new competitors
entering the market, increase
competition among the stores
Suppliers have the bargaining
power of providing the cheapest
Consumers have the bargaining
power of buying the cheapest
Threat of substituting
cheap for expensive,
quality over average
Within the retail industry, information technology and information systems come
in place in logistics function of the organization – operation and supply chain. They are
the heart of everyday operation of the stores, how managers manage inventories, how
supervisors monitor shipments, and how factories know when and how many to produce.
All these information need to be communicated constantly and everything needs to be
frequently updated. No doubt that with the advance of technology, the retail industry is
among the industries that benefits most from such advances. This is the area where WalMart outshines everyone else within the retail industry, and differentiates itself from its
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competitions. Wal-Mart fully embraces the concept of utilizing technologies to deliver
efficiency and accuracy. By utilizing advance and new technologies within the Wal-Mart
distribution centers and transportations, Wal-Mart is able to move millions of products to
customers every day (WalMartStores). Communicate with suppliers in real time across
seas; know where the shipments are, and the schedule of arrival for each shipment. All
these things contribute to the huge business success of Wal-Mart, and keep it on top of
the competition. All these functions are demonstrated in the follow Industry Value Chain
chart:
Information Technology and Information Systems in place to
oversee and control the overall flow of the operation and supply
chain management of every level of every Wal-Mart store.
As the chart suggests, the technological and informational infrastructures have to
be in place for every major sector and level of the operation and supply chain – control,
monitor, and retrieve data and information from various suppliers, various distribution
centers, and finally down to the local stores. At every level, information needs to be
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shared to a centralized data center that coordinates the overall flow of the day-to-day
operation of the store. And that’s where Wal-Mart’s information systems show just how
important it is for a retail stores to utilize modern technologies to maintain and manage
tremulously amount of information at any given time (Press Action).
When taking a closer look at Wal-Mart’s business analysis, one might find that
information systems play a major role at every level and function within the company.
Wal-Mart, the largest and most profitable retailer in the world, with more than 2,100,000
employees worldwide, more than 2000 attractive stores across continental U.S. and
internationally. No doubt that the use of information technology has been an essential
part of Wal-Mart’s growth - over one 5 year period, Wal-Mart invested over $600 million
in information systems (Information Systems – A Management Perspective), when
considering just how many stores, suppliers, and distribution centers that there are to
manage. By effectively using electronic communication tools, that transfer real time data
to local distribution centers and to suppliers overseas, the information systems are able to
tell managers when to order new items and when to stock hot selling items. This way,
Wal-Mart is able to keep the inventory space low, only 10% of the floor space in WalMart stores is used as inventory area, while when compared to its competitors that uses
more than 25% on average within the retail industry (Information System – A
Management Perspective).
Not only does Wal-Mart have the information systems infrastructures in place, but
other technical equipments are also being consistently adopted by the inventory and
operation management. Such as the early utilization of the bar code scanners and the
universal product code (UPC), this technique effectively help the accuracy of the
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inventory storage and daily tracking, but also reduce the cost and the man power on
saving a human worker to stamp the code on a daily basis. Not only that, it also helps
customers in searching for missing items, all Wal-Mart employees need to do is scan or
enter the code, then the information will show up on the PDA (Personal Data Assistant)
and tell the employees just how many inventories are left in storage, where the items are
located. This dramatically increased worker productivity and customer service and
relationship (Information Week). As stated earlier, Wal-Mart has always been embracing
new technologies and new equipments to enhance its inventory management. It shows in
the case of Wal-Mart adopting the RFID (Radio-Frequency Identification) technology or
“Smart Tags”. That this will result in “deployment of nearly 1 billion RFID tags with
embedded electronic product codes (EPC) for tracking and identifying items at the
individual crate and pallet level” (Wal-Mart Backs RFID Technology). Although such
implementation would be expensive, but it is the long-term benefits that Wal-Mart is
looking at - the savings that Wal-Mart will accumulate in the future will out weight the
costs of implementation today. And this shows exactly just how Wal-Mart is willing to
change and keep up with current technology trends, and willing to adapt to the new longterm strategic planning.
Over the years, especially in recent years, Wal-Mart has been quick to adapt and
adopt new ways of managing business. Because of furious global and domestic
competition, Wal-Mart has to stay on top of its rivalries in order to attract new customers
and make the loyal ones keep on shopping at Wal-Mart. By using information technology
and information systems, and apply them to Wal-Mart’s day-to-day operations, it shows
just how successful Wal-Mart is at finding new solutions to solve existing problems.
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However, the one aspect that Wal-Mart is lacking is its online stores. Information on
Wal-Mart’s website is not always up to date, but most importantly, they are not
customized to cater local shoppers. For instance, some items show up on Wal-Mart’s
website as available at store, but in reality, these items are not necessarily in stores at
some locations, thus cause confusions among customers. Wal-Mart also needs to improve
its corporate image, as it is often perceived by the public as a corporation that moves into
towns and tries to take away local businesses. However, this can be solved if Wal-Mart is
willing to do more community works and promotion, hire more local workers, use and
sell more locally made products instead of foreign made.
Wal-Mart no doubt will be and will continue to be successful in the foreseeable
future, especially now with the current situation of the U.S. and world economy, where
people crave for low price products and goods, and Wal-Mart is in absolute good shape in
catering these customers. Because customers will always seek the lowest price they can
find, and willing to sacrifice quality for cheaper price, no matter what kind of political,
economic, or social condition is in effect.
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WORKS CITED
“Five Competitive Forces Model Porter.” ValueBasedManagement.net. 25 Mar. 2008. 9
Feb. 2009. <http://www.valuebasedmanagement.net/methods_porter_five
_forces.html>
“Wal-Mart About Us.” WalMartStores.com. 9 Feb. 2009. <http://walmartstores.com/
AboutUs/7603.aspx>
“Information Systems at Wal-Mart Inc.” Scribd.com. 14 Jul. 2008. 9 Feb. 2009.
<http://www.scribd.com/doc/11796980/Information-Systems-at-Walmart-Inc>
“Information Systems – A Management Perspective.” PrenHall.com. 1999. 9 Feb. 2009.
<http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html>
“Wal-Mart Backs RFID Technology.” ComputerWorld.com. 16 Jun. 2003. 9 Feb. 2009.
< http://www.computerworld.com/softwaretopics/erp/story/0,10801,
82155,00.html>
“Wal-Mart wins the information wars.” PressAction.com. 1 Dec. 2002. 9 Feb. 2009. <
http://www.pressaction.com/news/weblog/full_article/hand12022002/>
“Wal-Mart’s Way.” InformationWeek.com. 27 Sep. 2004. 9 Feb. 2009. < http://www.
informationweek.com/news/mobility/RFID/showArticle.jhtml?articleID=4790266
2>