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  1. 1. Wal-Mart2.2.1 Walmart’s Value chain analysisWal-Mart is one of the largest Fortune 500 companies, which is spread across the globe. It is an arguably thelargest retail chain which deals with everything from food to consumer electronics. In terms of the revenuegenerated, it leads the fortune 500 companies like GE and Microsoft. Simply put, it has everything a homemakercan ever think of. Affordable price range coupled with aggressive online and market strategy has lead to wideacceptance for Wal-Mart in towns and cities alike. Wal-Mart is probably the only largest fortune 500corporations in the world, which directly services the common man. Primary Activities2. Inbound and Outbound Logistic ManagementThis involves fast & responsive transportation system. More than 7000 company owned trucks services thedistribution centers. These dedicated truck fleets enables shipping of goods from distribution centers to thestores within 2 days and replenish the store shelves twice a week. The drivers hired are all very experienced &their activities are tracked regularly through “Private Fleet Driver handbook”. This allows the drivers to beaware of the terms & conditions for safe exchange of Wal-Mart property, along with the general code ofconduct.For more efficiency, Wal-Mart uses a logistics technique called “Cross Docking”. In this system, finished goodsare directly picked up from the manufacturing site of supplier, sorted out and directly supplied to the customers.This system reduces handling & storage of finished goods, virtually eliminating role of distribution centers &stores. Because of “cross-docking” the system shifted from “supply chain” to “demand chain” which meant,instead of retailers „pushing‟ the products into the system, the customers could „pull‟ the products, when &where they required.Walmart today about 60% inbound freight (closer to 80% for their grocery segment) is managed by suppliers.The important of Walmart‟s logistics infrastructure was its fast and responsive transportation system. Thedistribution centers were serviced by more than 3,500 company owned trucks. OperationsWal-Mart operations are comprised of three business segments:Wal-Mart StoresSAM‟S CLUBWal-Mart InternationalWal-Mart Stores segment is the largest segment, which accounted for approximately 67.3% of their 2005 fiscalsales. This segment consists of three different retail formats, all of which are located in the United States. Thisincludes the following sections:• Super-centers, which average approximately 187,000 square feet in size and offer a wide variety of productsand a full-line supermarket;• Discount Stores, which average approximately 100,000 square feet in size and offer a wide variety of productsand a limited stock of food products; and• Neighborhood Markets, which average approximately 43,000 square feet in size and offer a full-linesupermarket and a limited variety of general merchandise.SAM‟S CLUB segment consists of membership warehouse clubs in the United States which accounted forapproximately 13.0% of 2005 fiscal sales. SAM‟S CLUBs in the United States average approximately 128,000square feet in size.Wal-Mart International operations are located in Argentina, Canada, Germany, South Korea, Puerto Rico andthe United Kingdom, the operations of joint ventures in China and operations of majority-owned subsidiaries inBrazil and Mexico. This segment generated approximately 19.7% of 2005 fiscal sales. Here, it operates severaldifferent formats of retail stores and restaurants, including Super-centers, Discount Stores and SAM‟S CLUBs. Marketing and salesSam Walton started his retail career in 1940, as a management trainee with the J.C. Penney Company. Later, Hemodeled the Wal-Mart chain on “The Penney Idea” (strength in calling employee “associates” rather thanclerks).Sam walton became convinced in the late 1950s that discounting would transform retailing. He offer namebrand “Merchandise at low price”. Wal-Mart prided itself on its “everyday low price”, prodide the customer with a clean, pleasant, and friendlyshopping experience.The Differences between Wal-Mart and Its Competitors are:Employees wore blue vests to identify themselvesAisles were wideApparel departments were carpeted in warm colors A store employee followed customers to their cars to pick up their shopping cartsCustomer was welcomed at the door by a “people greeter,” who gave directions and struck up conversations.
  2. 2. In some cases, merchandise was bagged in brown paper sacks rather than plastic bags because customersseemed to prefer them.A simple Wal-Mart Logo in while letter on front of the store served to identify the firm2.2.1.2 Support Activities2. ProcurementWal-Mart‟s process of procurement involves reducing its purchasing costs as far as possible so that it can offerbest price to its customers. The company procures goods directly from the manufacturers, bypassing allintermediaries.Wal-Mart has distribution centers in different geographical places in US. Wal-Mart‟s own warehouses suppliesabout 80% of the inventory. Each distribution centre is divided in different groups depending on the quantity ofgoods received. The inventory turnover rate is very high, about once every week for most of the items. Thegoods to be used internally in US arrive in pallets & imported goods arrive in re-usable boxes.The distribution centers ensured steady flow & consistent flow of products. Managing the center is economicalwith the large-scale use of sophisticated technology such as Bar code, hand held computer systems (MagicWand) and now, RFID. Every employee has access to the required information regarding the inventory levels ofall the products in the center. They make 2 scans- one for identifying the pallet, and other to identify the locationfrom where the stock had to be picked up. Bar codes & RFID are used to label different products, shelves & binsin the center. The hand held computers guide employee to the location of the specific product. The quantity ofthe product required from the center is entered in the hand held computer, which updates the information on themain central server. The computers also enabled the packaging department to get accurate information such asstorage, packaging & shipping, thus saving time in unnecessary paperwork. It also enables supervisors tomonitor their employees closely in order to guide them & give directions. This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency of distribution centermanagement operations. Wal-Mart TechnologiesTechnology is inevitable in every sphere of life today; it has always made things easier. Wal-Mart works on thesame strategy. Traditionally, technology has been upgraded in billing systems and for storage purposes. A newarea where technology could be applied to, where many expenses could be saved was in inventory managementand logistics. Wal-Mart being so huge, needed to keep track of men and material sent across different countriesand had to maintain hundreds of warehouses across the world. Bar-codes have been initially identified as asuitable technology to meet the purpose.But due to the limitations of barcodes, a new emerging technology called RFID has been identified to meet thedemands. RFID is low cost Radio Frequency Identification system which requires minimum human interventionto carry out tasks ranging from billing to materials tracking and supply chain management. It is a small wirelessdevice which can store good amount of data and can virtually be tagged to anything.RFID is an electronic tagging technology that allows an object, place, or person to be automatically identified ata distance without a direct line-of-sight, using an electromagnetic challenge/response exchange.Why RFID over Bar-Code?The ability to read without line-of-sight is the best advantage of RFID over bar-code systems. RFID readers cansense items even when the tagged items are hidden behind other tagged items. This enables automation. Thechallenging part of implementing RFID is that tagged items should not be missed by the reader due tointerference, multipath fading, transient effects etc. Missed reads are an unfortunate reality with RFID systems.RFID uses a serialized numbering scheme such as EPC (Electronic Product Code). Each tag has a unique serialnumber. Serial number information is extremely powerful in understanding and controlling the supply chain andprovides much more detailed behavior of the supply chain than can non-serialized bar codes such as UPC(Universal Product Codes) and EAN (European Article Numbering). Serial numbers have many advantagessuch as food freshness/expiration. This can tell how for how long an item has been in the supply chain where assuch information is not captured in bar code system. Hence items can be reached the right place at the righttime. Furthermore RFID implementation monitors theft too. For example if number of items reached at theretailer‟s outlet is less than that was departed from supplier‟s location, it can be easily tracked for. In all theseways, RFID systems have stronger sensor networking system or monitoring system than bar code systems. Wal-Mart Human Resource ManagementIn related to the Human resource development, Turner, Chief Executive Officer of Wal-Marts subsidiary corporation, explained in hisinterview that in any development effort, our [IS] people are expected to get out and do the function before theydo the system specification, design or change analysis. The key there is to do the function, not just observe it. Sowe actually insert them into the business roles. As a result, they come back with a lot more empathy and a wholelot better understanding and vision of where we need to go and how we need to proceed.We‟ve learned some hard lessons in our stores, clubs and distribution centers when we developed something andpeople didn‟t use it, and they chose to find other ways to get the job done. We are working hard to develop
  3. 3. systems that are easy to use. That puts an awesome responsibility on that developer to get out and understandthe business. That‟s one of our key things: We‟re merchant first, technologists second.We have a very clear set of critical success factors that every associate in our division has to live by, and theyare generally conditions of employment. Some of them are complicated and some of them are very simple:excellent customer service, testing and validation before you roll it out, balance and controls, payback and ROI.All new [IS] associates are indoctrinated into that set of disciplines, and all associates review it at least on anannual basis. The disciplines are the same for everybody regardless of what team you‟re on. Wal-Mart InfrastructureConsidering the rapid expansion of Wal-Mart stores, it was essential to have a very good communicationsystem. For this, Wal-Mart set up its own satellite communication system in 1983. This allowed themanagement to monitor each and every activity going on in a particular store at any point of the day and analyzethe course of action taken depending on how the things went.Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores to manage their ownstocks, thereby reducing pack sizes across many categories and timely price markdowns. Wal-Mart makes fulluse of its IT infrastructure to make more inventories available in case of items that customers wanted most,while reducing overall inventory. By making use of Bar-coding & RFID technologies, different processes likeefficient picking, receiving & proper inventory control of the products along with easy packing and counting ofthe inventories was ensured.Wal-Mart owns the “Massively Parallel Processor (MPP)”, largest & the most sophisticated computer system inprivate sector, which enables it to easily track movement of goods & stock levels across all distribution centersand stores. For emergency backup, it has an extensive contingency plan in place as well.Employees use “Magic Wand”, which is linked to in-store terminals through a Radio frequency network, tokeep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers. Theorder management and store replenishment of goods is entirely executed with the help of computers throughPoint of Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to forecast the quantities ofeach item to be delivered, based on inventories in the store. A Centralized inventory database allows thepersonnel at the store to find out the level of inventories and location of each product at a given time. It alsoshows the location of the product like distribution center or transit on the truck. When the goods are unloaded atthe store, the inventory system is immediately updated.In November 19, 2001, Wal-Mart spends an estimated $40 million to upgrade its e-business infrastructure. Dan Phillips,vice president of technology support and operations, said the new systems from IBM will give Wal-Mart "afaster processing time, greater availability of our systems and better systems operation without interruption." Headded that the new systems have yielded a "significant improvement in our processing time, in some casesallowing us to cut our processing time for some jobs by more than half." Wal-Mart is replacing its old IBMmainframes with a dozen new IBM eServer z900 mainframes and its older storage systems with IBMs newEnterprise Storage Servers code-named Shark.The mainframes and the storage servers provide the backbone of Wal-Marts data center infrastructure. Amongother things, the data center is used for data processing, reconciliation, debit and credit transactions, as well asproduct replenishment.2.2.2 Wal-Mart Competitive forces modelsThe five forces model is an outside-in business unit strategy tool that is used to make an analysis of theattractiveness (value) of an industry structure. And it is the tool to understand where power lies in a businesssituation. It is useful to help us to understand both the strength of our current competitive position, and thestrength of a position of our considering moving into. Furthermore, the tool is used to identify whether newproducts, services or businesses have the potential to be profitable.Wal-Marts competitiveness can be interpreted in terms of Porters five forces model very well. Here we focuson Wal-Marts position as a retail giant and competes with fellow retail chains or online stores such as K-mart,Target and Amazon.The details explanation of Competitive Five Forces Model for Wal-Mart specifically Wal-Mart‟s competition inthe consumer retail industry are as follow: Threat of New Entry: New entrants to an industry can raise the level of competition, thereby reducingits attractiveness. The threat of new entrants largely depends on the barriers to entry.For Wal-Mart, Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations,brand name, and financial capital to fend off competitors. Wal-Mart often has an absolute cost advantage overother competitors. Cost to build retail enterprise like Wal-Mart is formidable. The Threat of SubstitutesWhen it comes to this market, there are not many substitutes that offer convenience and low pricing.The customers has the choice of going to many specialty stores to get their desired products but arenot going to find Wal-Mart’s low pricing
  4. 4. Online shopping proves another alternative because it is so different and the customer can gain priceadvantages because the company does not necessarily have to have a brick and mortar store,passing the savings onto the consumer. The Bargaining Power of BuyersThe individual buyer has little to no pressure on Wal-Mart. Consumer advocate groups havecomplained about Wal-Mart’s pricing techniques. Consumer could shop at a competitor who offerscomparable products at comparable prices, but the convenience is lost. The Bargaining Power of SuppliersSome of the major suppliers of Wal-Mart are:Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle, Purina PetCare Company,Procter & Gamble and Unilever.Kimberly-ClarkKimberly Clark is a manufacturer of paper goods products that include Kleenex, Huggies and Depend. In April2004, Kimberly Clark tagged its Scott paper towels shipment with RFID tags to be shipped to Sanger, Texas.Kraft FoodsKraft Foods, the largest food company employs RFID system to improve handling of its bulk containers. Krafthas outsourced its RFID system to TrenStar to handle the complete supply chain.GilletteSmart razor blades have been introduced to the supermarkets. Gillette has ordered half a billion tags to trackrazors. The Gillette Company uses RFID for both pallet and case applications. All the cases in a pallet arescanned with RFID readers as they move along the conveyor belt. In a trial at Tescos new market Road branchin Cambridge, the packaging of Gillette Mach3 razor blades has been fitted with tiny chips.Since Wal-Mart holds so much of the market share, they offer a lot of business to manufacturers andwholesalers. This gives Wal-Mart a lot of power because by Wal-Mart threatening to switch to a differentsupplier would create a scare tactic to the suppliers. Wal-Mart could vertically integrate.Wal-Mart does dealwith some large suppliers like Proctor & Gamble, Coca-Cola who have more bargaining power than smallsuppliers. The Rivalry among the Existing PlayersCurrently, there are three main incumbent companies that exist in the same market as Wal-Mart:Sears, K Mart, and Target. Target is the strongest of the three in relation to retail. Target hasexperienced tremendous growth in their domestic markets and have defined their niche quiteeffectively Sears and K-Mart seem to be drifting and have not challenged K-Mart in sometime. Matureindustry life cycle.