Wal-Mart & September 15VlasicPicklesAssignment 2011ESLSCA 34C, 3rd Semester, Strategic Management By: Ahmed M. Adel
Q1. Analyze the differences betweena marketing orientation and a salesorientation and identify the effects ofnot considering both in developing abusiness strategy.What are the differences between sales orientation and marketingorientation:Sales Orientation Marketing Orientation A business approach or philosophy A business approach or philosophy that focuses on identifying and that focuses on promoting sales of meeting the stated or hidden needs whatever a companymakes or or wants of customers. See also supplies, through marketing and sales product orientation and sales calls. See also market orientation and orientation. product orientation. The firm focuses on the skills of The firm tries to get the company to selling rather than on the needs of produce what the customer wants. the buyer. Is an emphasis on "moving" your The company tries to satisfy a product via advertising and/or consumer need (a felt deprivation). salesforce. The product and The product and production activity production capacity preceded the follows consumer research. A segment consumer. There is a lot of emphasis of the market is chosen. The system is on image. It worked for many years molded to fit the consumer. There is (and still works), but in more an emphasis in "positioning" (Image + competitive environments started to high Ranking as a solution). fail.1. a. Corporate StrategyBefore analyzing Wal-Mart’s corporate strategy, it is important to decide what business it is in.For example, if Wal-Mart is in the business of selling consumer goods such as TV’s, sheets,clothes, etc then it is pursuing a concentric strategy by entering the food business. However, thischanges depending on how you analyze what business Wal-Mart is in. Wal-Mart is in thebusiness of selling everything customers need in their everyday lives. This includes the consumergoods listed above as well as food-service items. Even still, Wal-Mart pursues multiple
strategies. Concerning concentration, Wal-Mart continually finds more consumer goods to sellat its stores which can take money from competitors. Additionally, when Wal-Mart entered intothe food market, it quickly consolidated and held to good, saleable products. Wal-Mart neverforays too far into a market and only sells what will make it a profit.Recently, Wal-Mart has pursued a conglomerate strategy by starting to sell used cars at some ofits stores in Buffalo, New York. Selling cars is an entirely different industry than selling consumergoods. Additionally, it requires a whole new set of expertise that does not come easily. As far asfuture plans are concerned, Wal-Mart should abandon this strategy and stick to what they dobest.Lastly, an argument can be made that Wal-Mart is also pursuing a vertical integration strategy.Wal-Mart has developed its own name brand to sell products called Sam’s Choice. This putsWal-Mart into the business of making things like soda, cereal, and dog food. While they stilldon’t grow their own crops or raise their own livestock, it is still a form of vertical integration.Also, Wal-Mart works heavily with its suppliers. This symbiotic relationship can be see as verticalintegration due to the level at which Wal-Mart analyzes its suppliers and improves theirmanufacturing processes, etc.b. Business StrategyWal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to reallydifferentiate themselves from competitors and provide no-frills self-service stores that alwaysprovide the lowest prices. Wal-Mart has built enough clout with suppliers that they can dictatethe prices and go in and change suppliers manufacturing processes in order to wring out moreand more savings for the consumer. Everything that Wal-Mart does from calling suppliers collectto having execs double up in hotel rooms, is to save the customer money. While they do try toprovide good customer service on top of low prices, Wal-Mart’s strength is low-prices. No onehas such a supplier and distribution network like Wal-Mart that allows such low prices.
Q2. Analyze the distribution strengthand power of Wal-Mart using MichaelPorter’s Five Forces Theory andnotions of Competitive Advantage.Porter’s Five Forces: 1- The threat of the entry of new competitorsProfitable markets that yield high returns will attract new firms. This results in many newentrants, which eventually will decrease profitability for all firms in the industry. Unless theentry of new firms can be blocked by incumbents, the abnormal profit rate will tend towardszero (perfect competition).
The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non- performing firms can exit easily. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute costIndustry profitability; the more profitable the industry the more attractive it will be to newcompetitors. 2- The threat of substitute products or servicesThe existence of products outside of the realm of the common product boundaries increases thepropensity of customers to switch to alternatives: Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation 3- The bargaining power of customers (buyers)The bargaining power of customers is also described as the market of outputs: the ability ofcustomers to put the firm under pressure, which also affects the customers sensitivity to pricechanges. Buyer concentration to firmconcentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM Analysis
4- The bargaining power of suppliersThe bargaining power of suppliers is also described as the market of inputs. Suppliers of rawmaterials, components, labor, and services (such as expertise) to the firm can be a source ofpower over the firm, when there are few substitutes. Suppliers may refuse to work with thefirm, or, e.g., charge excessively high prices for unique resources. Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYEREx. If you are making biscuits and there is only one person who sells flour, you have noalternative but to buy it from him. 5- The intensity of competitive rivalryFor most industries, the intensity of competitive rivalry is the major determinant of thecompetitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy The visibility of proprietary items on the Web used by a company which can intensify competitive pressures on their rivals.How will competition react to a certain behavior by another firm? Competitive rivalry is likely tobe based on dimensions such as price, quality, and innovation. Technological advances protectcompanies from competition. This applies to products and services. Companies that aresuccessful with introducing new technology, are able to charge higher prices and achieve higherprofits, until competitors imitate them. Examples of recent technology advantage in have beenmp3 players and mobile telephones. Vertical integration is a strategy to reduce a business owncost and thereby intensify pressure on its rival...
UsageStrategy consultants occasionally use Porters five forces framework when making a qualitativeevaluation of a firms strategic position. However, for most consultants, the framework is only astarting point or "checklist" they might use " Value Chain " afterward. Like all generalframeworks, an analysis that uses it to the exclusion of specifics about a particular situation isconsidered naïve.According to Porter, the five forces model should be used at the line-of-business industry level;it is not designed to be used at the industry group or industry sector level. An industry is definedat a lower, more basic level: a market in which similar or closely related products and/orservices are sold to buyers. (See industry information.) A firm that competes in a single industryshould develop, at a minimum, one five forces analysis for its industry. Porter makes clear thatfor diversified companies, the first fundamental issue in corporate strategy is the selection ofindustries (lines of business) in which the company should compete; and each line of businessshould develop its own, industry-specific, five forces analysis. The average Global 1,000company competes in approximately 52 industries (lines of business).One aspect of Wal-Mart that sets them apart from other corporations is how they manage theirrelationship with their suppliers. We have determined that Wal-Mart is such a dominant forceand has become such an important account for their suppliers that they have managed toeliminate Supplier Power. By eliminating Supplier Power, Wal-Mart can pursue achieving theirgoals and concentrate purely on their Cost Leadership Strategy, which serves the consumer with“Everyday low prices.” However, the fact that Wal-Mart is able to disregard Supplier Power begsthe question of where exactly does Wal-Mart derive its power? Additionally, if Wal-Mart hasnearly eliminated Supplier Power, then what kind of relationship do they have with theirsuppliers?Wal-Mart’s power is derived from their size and the influence that comes with it. A quick look atWal-Mart’s numbers is the proof of Wal-Mart’s size and power. Some of Wal-Mart’s numbersinclude 23% of Clorox’s sales and 20% of Revlon and RJR Tobacco’s sales. If these companieschoose to walk away from their supplier relationship with Wal-Mart, then they would lose outon nearly a quarter of their revenue. The fact of the matter is that this same concept extends toall of Wal-Mart’s other suppliers like Kraft, Proctor & Gamble, Gillette, Campbell’s Soup, andmany more. The reality that these suppliers live in is one where they know that their Wal-Martaccount is one that they cannot afford to lose. In fact, suppliers are also faced to look at thepredictions that, in an estimated five years, Wal-Mart will double in size, which mean Wal-Mart’s account with only continue to grow.Since Wal-Mart has effectively eliminated Supplier Power, it is also important to consider thestate of their relationship with suppliers. In many ways, Wal-Mart has changed the dynamic ofthe supplier and buyer relationship. Joe Galli, Newell CEO, was quoted as saying, “The days of
price increase are over.” Often times, Wal-Mart will tell their suppliers upfront what they willand will not pay for a good. However, despite the fact that Wal-Mart has removed the possibilityfor supplier price increase, their suppliers generally feel one of two ways about Wal-Mart. Thefirst supplier sentiment is serving a client like Wal-Mart forces a company to become moreefficient. Many suppliers feel that doing business with Wal-Mart is the equivalent of entering acorporate basic training exercise. Robin Prever, who was CEO of Saratoga Beverage Group, wasquoted as saying that this relationship with Wal-Mart, “… wakes everybody up. And all ourcustomers benefited. We changed our whole approach to doing business."The secondsentiment of suppliers is that Wal-Mart is the big brother who likes to push them around. Insome instances when suppliers have attempted to raise prices, Wal-Mart has either denied theirrequest or they also been known to pay the same previous amount to their supplier with noquestions asked. An example of this situation is Wal-Mart’s relationship with Vlasic, who was“forced” by Wal-Mart to sell pickles in gallon containers for under $3.00 a jar. Making onlypennies a jar and watching their supply of pickles dwindle, Vlasic attempted to negotiate a priceincrease for their product with Wal-Mart and was denied causing a loss of millions of dollars forVlasic.In this regard, if their suppliers feel cheated, does it really affect Wal-Mart in the end sincesuppliers cannot afford to lose their business? The answer is yes because, “suppliers can affectmanufacturing time, product quality, and inventory levels.” All of these aspects of supply canshape Wal-Mart’s ability to effectively restock their shelves for their inventory turnover. Inaddition, if Wal-Mart pursued avenues that would seriously undercut their suppliers, then theyface a variety of possible repercussions. For instance, if suppliers became unable to take care oftheir workforces, then Wal-Mart could see significant drops in their product inventories.Therefore, even though suppliers do not have power in regards to their relationship with Wal-Mart, it is still important for Wal-Mart to maintain relations with their 21,000 suppliers becausesuppliers are the key to Wal-Mart achieving its goals and strategy.
Q3. What is the strategic dilemmathat Vlasic faces in this situation?What would occur if Vlasic choseNOT to do business with Wal-Mart? Isthis a realistic option for them? Why?Why not?Wal-Mart and VlasicWal-Mart is not only the world’s largest retailer, but is the largest company in the world as far asrevenue is concerned. If Wal-Mart was a country, it would rank number 30 in the world behindSaudi Arabia. With 100 million customers per week, Wal-Mart’s revenue for a year is around 250billion dollars. To get a feel of the magnitude of Wal-Mart, consider that in the 30 seconds that itwill take you to read the current paragraph Wal-Mart’s revenue will increase by $250,000. Wal-Mart’s revenue increases by $250,000 every 30 seconds, of every day or night, whether it is aholiday or a working day, 365 days each year.Vlasic is the maker of America’s favorite pickles and is as American as apple pie. The companywas founded by Frank Vlasic, a Polish immigrant. It took three generations of Vlasics, in order tomake Vlasic pickles the number one pickle in the US.If Vlasic chose not to do business with Wal-MartFor Wal-Mart it was not planning to become rich byselling 12lb jars of pickles at a profit marginof maybe 1%.For Vlasic it was a different story. Wal-Mart accounted for a third ofVlasic’s business. A littleglitch in the cooperation or a small miscalculationon the part of Vlasic and this could easily meanthe downfall of Vlasic.So it’s not realistic for both of them to stop the business between them as it will affectnegatively on Vlasic revenue and Wal-Mart was making a simple statement: the numberonepickle company in the US was producing pickles the Wal-Mart way. Wal-Mart was able tocarry the best brands at the best prices.
Q4. What role do supply chainmanagement and logistics play in theway Wal-Mart conducts its business?by Captain Vernon L. Beatty, Jr.“Supply chain management is moving the right items to the right customer at the right time bythe most efficient means.” No one does that better than Wal-Mart.Supply chain management practices of Wal-Mart, is one of the major reasons for Wal-Mart’scontinuing success globally.Wal-Mart was named the number one ranked in the prestigious global Fortune 500 for thefinancial year 2002 with earning revenues amounting to $219.81 billion has earned itsreputation as the largest retailing company in the world. Wal-Mart focused on four coreprinciples that engulfs the overwhelming success,the focus on the improvement of sales,constantly reducing costs such that they will be able to capitalize on cost saving opportunitiesto be passed on the customers, the adoption of efficient distribution and logisticsmanagement systems to ensure the constant flow of the goods and the use of highly-advantageous innovative information technology (IT) tools that makes the operatingprocesses even faster, efficient and up to date.Analysts perceived the phenomenal growth of Wal-Mart to the emphasis being placed in thecustomer needs and the reduction of cost through efficient supply chain managementpractices.Main Part 1- The essential pre-requisites for cross-docking and highlight the key benefits to Wal-Mart.Cross-docking refers to the logistics practice in the unloading and loading of materials withlittle or no unnecessary storage in between to ensure the that the quality of goods would beenjoyed by the customers by first hand.To avoid all sorts of potent causes of inefficiencies in the distribution operations, Wal-Martfeatures a logistics infrastructure that is guaranteed to be fast and responsive transportationsystem wherein the distribution centers are being serviced.
The essential pre-requisite for cross docking are very basic and monitorable. Basics are strongbuilding foundations in which it ensures the overall efficiency of the whole process. Wal-Martrecognizes the need to hire dedicated drivers who can share in their belief of prioritizingcustomer service. Upon hiring potential drivers, they “filter” the driver’s capabilities andmeasure the responsibleness and reliability in being able to handle the pertinent standardsessentially needed to maximize the worth of the drivers. Far more interesting is that after theyhave “filtered” and honed drivers commitment as being stated in the code of conduct embodiedin the The Private Fleet Driver Handbook which contains the check-list to be followed at all timesin the safe exchanges of goods and the roles they are expected to act on. Further, Wal-Martafter implementation, monitors their drivers progress in which drivers have to report the hoursof service they have done on a daily basis to their respective coordinators. By these means, Wal-Mart is constantly assured that their drivers are able to do their jobs accordingly and do notcause unnecessary delays that may hamper the efficiency of the distribution operations. To beable to make it up on time, the coordinators on the other hand, gives information to the driveras to what is the expected time of arrival or delivery of the goods should be made. Part of Wal-Mart’s expectations to the drivers is that they are to take a loaded truck trailer from thedistribution center to be delivered to the retail store and such time drivers will be headed back,their trailer would be empty and surely have unloaded everything to the point of destinationwhere it is supposed to be delivered.Other than the standards being strictly imposed to Wal-Mart’s drivers, the structure of thedistribution process is truly well-organized that can be attributed to the efficient distributionpractices Wal-Mart has been employing. Like for example, the scheduling of the unloading timeat the dock of a store with two hours interval in between unloading. The precise unloading timeof goods to a dock permits the constant, smooth flow of the distribution process without thefuzziness of rushing into the completion of the delivery process. Further, the purpose of thetime interval permits the employees to do their job without the pressure and hassle of doing itimpromptu. By the time the 2 hour lapses, Wal-Mart is then assured that everything has beenunloaded and the distribution is followed accordingly.Cross-docking is an add-on technique that Wal-Mart employs to further contribute to theefficient distribution process they already had. In this system, it requires the direct pick-up fromthe manufacturing plant or supplier the finished goods, to be sorted out and also directlysupplied to the customers. With the shift of focus to the supply chain to the demand chain, ittakes out the centralization and allows the customers to pull products the moment they areneeded. The benefits of cross-docking technique Wal-Mart has reaped is the reduction in thehandling and storage of finished goods and most importantly the competitive edge of having anefficient supply chain management system that includes reduction in lead time, speedyinventory turnover, accurate forecast of inventory levels, reduction in safety stock, reduction inthe dependency of the distribution center, thereby, further causes reduction in the trainingcosts and errors. Overall, the cross-docking helped in the minimization of storage, labor andhandling cost.
2- The use of “state- of –the- art technology” systems to track and predict levels of inventories in Wal-Mart.The use of technological infrastructure such as information technology and state-of-the artcommunication system is a very powerful tool in any business today that guarantees up-to-date and hasten process in the logistics operations which leads to being able to cater to theneeds and demands of the customer in the least time possible. Therefore, to hand overexcellent service that is tantamount to customer satisfaction. For example, in many companiesthe incorporation of e-business allows companies to keep up with the wants of customers in afast changing world of business and it enable companies to reach more customers while at thesame time increasing the number of customer retention. The use of the said state-of the arttechnology guarantees Wal-Mart to readily and steadily track down the sales and merchandisein all of its stores across the United States including the follow-up track down to theglobaloperations. In fact, in 1983, Wal-Mart launches its own satellite communication system asthey see the need to expand not only their operations but also their communication systemsuch that they can sustain the growing demand of communication essential to keep terms inthe operation of the increasingretail outlets or distribution centers. The satellitecommunication system has been utilized in Wal-Mart at its maximum level including theemployees. Wal-Mart ensures that potent problems are being settled readily and just like thevaluable importance given by other companies to communication system, Wal-Mart, asideseeing its importance, they regard the communication system as being pivotal aspect of theirentire operations.The benefits of the communication system, “We can walk in the satellite room, where ourtechnicians sit in front of the computer screens talking on telephone to any stor es thatmight be having a problem with the system, and just looking over their shoulders for aminute or two will tell me a lot about how a particular day is going. On the screen, I cansee the total of the day’s bank credit sales adding up as they occur. If we have somethingreally important or urgent to communicate to the stores and distribution centers, I, orany other Wal-Mart executive can walk back to our TV studio and get on that satellitetransmission and get it right out there. I can also go every Saturday morning aroundthree, look over these printouts and know precisely what kind of work we have had.”With the use of communication system, Wal-Mart also actuates information technology in thesupply chain management. The manual way of using inventory which is sometimes costly ofthe potential human errors has been minimized by Wal-Mart by the full usage of IT to makeinventories instantly available when needed. Similarly, Wal-Mart was able to network itssuppliers through the use of commuters where Wal-Mart in this regard can have a cooperatedcollaboration with its leading big time suppliers like Procter and Gamble. Both the use of IT onone hand monitors the inventory supply through automatically updating the IT system which inturn, reciprocates by sending signal directly to the supplier and the communication system, onthe other hand, proposes a win-win solution for both the supplier and Wal-Mart due to the
open communication line between them results to better coordination and collaboration forboth parties. Thus, the supplier on one hand would love to do business with Wal-Mart of theutmost convenience Wal-Mart has been offering to the suppliers.Wal-Mart was very genius in the optimization use of information technology andcommunication system because they only did not limit its usage to the executives and thesuppliers but they extend the usage and made available for the employees that can also benefitthe use of the said technologies in aiding them to do better of their work with no stress.Employees of Wal-Mart in every store had what they called the ‘Magic Wand’, a hand heldcomputer which was linked to in-store terminals through a radio frequency network, that givesassistance to employees of tracking down the inventory, deliveries and back-up merchandise instores at the distribution centers. The Point of Sales (POS) System is another application in theuse of IT that is used in the monitoring and tracking down of sales on the store shelves. Thesehelped employees to keep track of the inventory in stores, deliveries and backup merchandise instock at thedistributioncenters. The execution of both the order management and storereplenishment of goods was made possible by the use of the said POS system.Another use of Wal-Mart’s information technology is the establishment of the centralizedinventory data system wherein it enables the store personnel to know precisely the status ofinventory levels and the location of every product since the centralized inventory data systemis made to monitor the progress of inventory, whether it has been already been loaded to adistribution center or still in transit. By this means, the store is able to know what to expectand make sure that every store has adequate supply to cater to the customers. 3- Wal-Mart’s in-house transport fleet.The advantages of Wal-Mart’s in-house fleet are that they were able to reap the benefits oflow-cost in transportation for the delivering of goods to the different stores and distributioncenters. Given the benefits of having owned a transportation system, Wal-Mart capabilities ofreplenishing the shelves, is four times faster than the other competitors. Not only that, itenables Wal-Mart to save 3% compare with the 5% of the competitors. Moreover, the code ofconduct that is being imposed to the Wal-Mart’s drivers boosted more confidence for Wal-Mart that the goods are being delivered exactly on time and right on the money.A disadvantage of Wal-Mart’s in-house transport fleet is hard to pinpoint and cannot be readilynoticeable since the reputation of Wal-Mart is impeccable. Perhaps, one disadvantage of havingan owned transport fleet is that the repairs and maintenance may be a bit costly for Wal-Martsince they have that sole responsibility of taking care of their trucks. Additional expenditure willbe evident and Wal-Mart is expected to sustain and allocate ample amount of money in theoperations of in-house transport fleet. Amidst of the disadvantage of the additional cost, the
easiness and effectiveness of the use of in-house fleet transportation system wins over theslight disadvantage it brings.ConclusionThe success of Wal-Mart is proved to be in the reliability and efficiency in the supply chainmanagement system. Having gone through the essence of the underlying operations of Wal-Mart, they always seek to improve and explore over the possible ways to give customers superbquality service without an additional expense. From the purchasing to transporting and thenfinally to selling, at Wal-Mart they were able to have a well-coordinated and systematizedsystem that ensures the success of the whole supply chain management which in turn wouldbenefit and satisfy Wal-Mart’s customers.From the external environment dealings, Wal-Mart started first by bargaining prices with thesuppliers and manufacturers until Wal-Mart gets the bottom or the drop-down price and thendevelops a more than a business relationship with the suppliers such that they give suppliersfull business loyalty and expresses how much Wal-Mart look forward of having years ofbusiness with them. Then in the transportation, the monitoring and tracking down of the goodsallows Wal-Mart to constantly replenish the shelves giving its customers the taste of thefreshness of goods. Aided by the use of satellite communication system and the informationtechnology system, undoubtedly added to the effectiveness and efficiency of the whole supplychain management and thus, certified the provision of uninterrupted service to its customers,suppliers, stockholders and trading partners that leads to the integration and coherence of whathas been established.True to the basic principle of business, the minimization of cost, high production leads to themaximization of profit. The practice of thesecore principles on constantly improving sales isbrought about by the service they have been offering at no extra cost. At Wal-Mart, they havebeen very successful in finding means in which to capitalize on every cost saving opportunitiesand the adoption of efficient logistics system enable Wal-Mart to earn unrivaled intangiblecompetitive advantage and edge to the rest of the business.Q5. What were the problemsassociated with the Vlasic Foodscontract with Wal-Mart? Use theconcepts of supply chains, loss leader,
brand equity, and manufacturing inyour answer.While supply chain efficiencies and its distribution system helps Wal-Mart to keep its prices verylow it may be logical to argue that all the members of its supply chain have to follow low coststrategy without any option.Vlasic Pickles was roped into a contract with Wal-Mart, in which Wal-Mart sold a 3 gallon jar ofwhole pickles for $2.97. Wal-Mart sold 240,000 gallons of pickles per week. But the price of the3 gallon jar was so low, that it vastly undercut Vlasics sales of 8 ounce and 16 ounce jars of cutpickles; further, Vlasic only made a few pennies per 3 gallon jar. With its profits tumbling, Vlasicasked Wal-Mart for the right to raise the price per 3 gallon jar to $3.49, and according to a Vlasicexecutive, Wal-Mart threatened that if Vlasic tried to back out of this feature of the contract,Wal-Mart would cease carrying any Vlasic product. Eventually, a Wal-Mart executive said, "Well,weve done to pickles what we did to orange juice. Weve killed it"-meaning it had wiped outcompetitor products. Finally, it allowed Vlasic to raise prices; but in January 2001, Vlasic filed forbankruptcy.
Q6. Using the checklist in Appendix I,show how the concepts of globalaccount management could be usedto avoid a situation like the Wal-Martand Vlasic deal described in the case.Q7. What management steps shouldbe taken to protect Vlasic from beingin this situation again? What is thelesson that other Wal-Mart vendorsshould learn from this story?