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Autor: anton 28 May 2011
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Wal-Mart and the United States and Global Economy
Azusa Pacific University
Table of Contents
History of Sam Walton 3
Background of Wal-Mart 5
Management Philosophy 9
Use of Information Technology as a Competitive Weapon 10
Purchasing Power 12
Supply Chain and Inventory Management 14
Supply Chain and Distribution 14
Inventory Management 18
Expanded Operation in Groceries 21
Labor Unions and Wal-Mart 22
Role of the Largest Company and Employer on Planet Earth 23
Strengths, Weaknesses, Opportunities, and Threats Analysis (SWOT) 24
Wal-Martâ€™s broad inventory and customer base 25
The ability to customize to and meet any customer segment 25
Wal-Mart management and Corporate Culture 27
Other potential growth opportunities 30
Sources of Images 33
History of Sam Walton
Sam Walton was born on March 29, 1918 in Kingfish, Oklahoma. While growing up in Missouri, he was an active student of retailing. His first job was working for his fatherâ€™s store while he was attending school (Galiano, 2005). Later, Sam attended the University of Missouri and majored in Economics. During his senior year of college Sam was elected Senior Class President (Kennon, 2005).
After college, Sam started his career in the retailing business by running several Ben Franklin five-and-dime franchise stores in Arkansas. He learned some of his first lessons about buying, pricing, and passing good deals on to customers from Harry Weiner, a manufacturerâ€™s agent from New York. Sam learned â€œby cutting your price, you can boost sales to a point where you can earn far more at the cheaper retail than you would have by selling them at the higher priceâ€ (Wal-Mart Stores, 2005).
Sam was convinced that this new discount retailing concept was the wave of the future. If a local barber named Herb Gibson could operate a chain of profitable discount stores outside the same towns where Sam ran his variety stores, Sam knew he could do even better (Huey, 1998). By this time, Sam owned 15 variety stores and was a rich merchant. He was in fact so rich, that he and his wife, Helen, fronted 95 percent of the money needed to open the first Wal-Mart store in Rogers, Arkansas in 1962 (Wal-Mart Stores, 2005).
Surprised by the initial success, Sam later opened up a small chain of Wal-Mart stores across several states. Prior to opening a store, he would fly over small towns and study the lay of the land. He would then buy farmland at major intersections and order another Wal-Mart store to be built (Huey, 1998).
In 1970, Sam was one of the leading pioneers of offering a profit sharing plan for his employees. Employees at Wal-Mart were offered stock options and store discounts. Sam believed that â€œindividuals donâ€™t win, teams doâ€ and that happy employees meant happy customers and more sales. By making an employeeâ€™s success dependent on the companyâ€™s success, the employee would care more about the company (Galiano, 2005).
Sam was never bothered by the fact that many small-town merchants were driven out of business. He believed that any merchant could compete if they were willing to make major changes and to adapt to the new retailing philosophies. Sam saw where the future of retailing was going, so he chose to eat rather than be eaten (Huey, 1998). Wal-Mart soon passed the sales revenue of their competitors K Mart, Target, and Sears. â€œThe secret of successful retailing is to give your customers what they want. And reallyâ€¦you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; â€¦a pleasant shopping experienceâ€ (Wal-Mart Stores, 2005).
By 1992, Samâ€™s vision of discount retailing turned him into one of the worldâ€™s richest and most respected businessmen. However, he lived most of his life largely unnoticed by the public or press. He was known to prefer pickup trucks over limos and the company of his family and dogs over that of investment bankers (Huey, 1998). Sam died on April 5, 1992, leaving his approximated $100 billion fortune to his four children and his wife. Just before he died, President George Bush presented Sam Walton with the Medal of Freedom, the nationâ€™s highest civilian award (Wal-Mart Stores, 2005).
People often asked Sam what his secret was for Wal-Martâ€™s success. He answered that question by explaining ten simple rules he followed for building a better business (Walton, 1992):
â€¢ Commit to your business and your goals. Believe in it more than anyone else.
â€¢ Share your rewards and your profits with your associates. Treat them as partners.
â€¢ Energize and motivate your colleagues. Money and ownership alone are not enough.
â€¢ Communicate all you know to your partners.
â€¢ Value your associates and appreciate everything they do for the business.
â€¢ Celebrate your success and donâ€™t get bogged down in your failures.
â€¢ Listen to everyone and figure out ways to keep associates talking.
â€¢ Deliver more than you promise and exceed your customerâ€™s expectations.
â€¢ Work smarter than others. Control your expenses better than your competition.
â€¢ Blaze your own path. Swim upstream. Ignore conventional wisdom.
Background of Wal-Mart
Discount retailing was first seen in the United States in 1962 with the opening of the first Kmart, Target, and Wal-Mart. Sam Walton, a fairly wealthy variety store owner, opened his first Wal-Mart in Rogers, Arkansas in 1962. In took only five years for Wal-Mart to demonstrate significant growth, and in 1967 it had a total of $12.6 million in sales from its 24 stores, all located in Arkansas. In 1968 Wal-Mart expanded its discount stores outside of Arkansas and opened stores throughout Missouri and Oklahoma. However, it was not until October 31, 1969, that Wal-Mart became Wal-Mart Stores, Incorporated.
During the 1970s, Wal-Mart began to see a rapid growth period moving from a small chain to a large chain. By the early 1970s Wal-Mart had grown to over 1,500 associates in 38 stores across five states. With sales at $44.2, Sam Walton saw a tremendous opportunity for growth and realized he needed to raise funds to build more Wal-Mart stores. In 1970 he decided it was time to take his company public, so Wal-Mart began to trade over the counter stock as a publicly-held company. In 1972 Wal-Mart stock was finally approved and listed on the New York Stock Exchange (NYSE). During this time, Wal-Mart was growing so quickly that their stock went through two 100 percent stock splits in just two short years after being listed on the NYSE. By 1979, Wal-Mart had 276 stores in eleven states and employed over 21,000 people. It had become the first company in America to reach over $1 billion in sales ($1.248) in less than a decade. This reflected an increase of almost 5,000% (50 fold) since Wal-Mart became incorporated in 1969 (Wal-Mart Stores, 2005).
The 1980s saw the emphasis being placed on the further expansion of the company into other markets, as well as the growing use of technology as a competitive weapon. Wal-Mart opened its first warehouse club, SAMâ€™S Club, in April, 1983. The first Wal-Mart Supercenter, which had 36 general merchandise departments and a complete grocery department, opened in 1988. They implemented people greeters at all stores, thus increasing their focus on customer service. Technology was also initiated as a competitive weapon during this time. Early in the 1980s, Wal-Mart was one of the first businesses to utilize Universal Product Code bar-code scanning capabilities to help automate the inventory process. By 1988, 90 percent of Wal-Mart stores used bar-code scanning (Kennon, 2005). In 1987, the Wal-Mart Satellite Network became the largest privately owned satellite communications network in the United States. Its purpose was to link all company operations and the General Office with voice, data, and video communication technology. This network was also used to track the location of Wal-Mart delivery trucks. Expansion continued within the Wal-Mart Company. By Wal-Martâ€™s 25th anniversary in 1987 the company had 1,198 stores in 23 states and had employed over 200,000 associates. Additionally, they had acquired two major retailer acquisitions, owned and operated sixteen decentralized distribution centers, and had reached an all time high of $15.9 billion in sales (Wal-Mart Stores, 2005).
The 1990â€™s witnessed Wal-Mart going international for the first time. The first international Wal-Mart store opened in Mexico City, Mexico in 1991. In 1992, Wal-Mart continued its international expansion and entered into Puerto Rico. This expansion proved to be extremely successful. The international sales helped Wal-Mart to set a billion-dollar sales week record in December of 1993. Further expansion was seen in 1996 when Wal-Mart entered China. The success of this international expansion is seen today. Mexico contains the largest number of Wal-Mart stores outside the United States and China produces approximately 70% of all merchandise found in Wal-Mart (Goldman & Cleeland, 2003). This period of growth for Wal-Mart allowed the company to position itself in 1999 as the largest private employer in the world, with over 1,140,000 associates.
Today, Wal-Mart is a global company and the worldâ€™s largest retailer in general merchandise, food, apparel, health and beauty care, home textiles, and toys. They currently employ over 1.3 million associates and operate 5,000 stores and wholesale clubs across ten countries. By 2003, Wal-Mart ranked number one on the Fortune 500 list as the nationâ€™s most profitable company. During that year it reached $259 billion in global revenue. They also ranked number one on Fortune magazineâ€™s Americaâ€™s Most Admired All-Stars list and number five on its Global Most Admired All-Stars list (Wal-Mart Stores, 2005).
Retail Merchandiser predicts that Wal-Martâ€™s growth in national/international retailing and expansion into other businesses will make it the worldâ€™s first trillion dollar company by 2010. This will happen primarily by displacing conventional Wal-Mart discount stores with more Wal-Mart Supercenters. Wal-Mart also plans on increasing international sales from 20 percent to 33 percent of its total revenue. In all, Wal-Mart plans on operating 3,100 Supercenters by 2010. â€œIt took Wal-Mart 42 years to get as big as it is today, but it will only take five years to double its current size,â€ says Sandy Skrovan, Retail Forwardâ€™s Wal-Mart analyst (Longo, 2005, p. 7).
Sam Walton established â€œThree Basic Beliefs" for doing business in 1962: Respect for the Individual, Strive for Excellence, and Service to Our Customers. Respect for the individual means that Wal-Mart treats their associates with the â€œrespect and dignityâ€ they deserve, despite their background, ethnicity, and beliefs. One way in which Wal-Mart shows its respect is by actively involving themselves in local community programs. Associates volunteer or offer financial support for organizations to help make a difference in local communities. It is put forth in the companyâ€™s slogan, â€œOur people make the difference.â€ By believing in the team of employees, they will be able to accomplish great things (Wal-Mart Stores, 2005).
Second, is the belief to strive for excellence. Their goal is to always find ways to improve, with new ideas and visions. By reaching for more and thinking out side of the box, they understand that their innovations will help them to continue to succeed and remain a leader in the retail industry.
The second belief is service to the customer, the most important element of their business. Sam practiced what he called â€œaggressive hospitality.â€ He said â€œLetâ€™s be the most friendlyâ€¦give better service â€“ over and beyond what our customers expectâ€¦exceed your customersâ€™ expectations. If you do, theyâ€™ll come back over and over again" (Wal-Mart Stores, 2005). The number one way Wal-Mart gives service to their customers is to provide â€œevery day low pricesâ€. By honoring their standard of offering quality products at low prices, the customer will remain loyal to the company.
In addition to the â€œThree Basic Beliefsâ€, there are three highly valued pricing philosophies established by Sam Walton that managers adhere to at Wal-Mart: Every Day Low Price (EDLP), Rollback, and Special Buy. EDLP means that Wal-Mart will offer the lowest price they can offer to make the customerâ€™s money go further every time they make a purchase. Second, rollback allows prices to be lowered every time their costs are reduced for a particular item. Lastly, a Special Buy means that the customer is getting an exceptional value, such as additional amounts of the same product at a particular price, or an item at a very special price while supply lasts. Sam Walton understood that â€œyou can lower your markup but earn more because of the increased volumeâ€ (Wal-Mart Stores, 2005).
Use of Information Technology as a Competitive Weapon
Once Wal-Mart became a public company and began growing at an exuberant rate, there became a need to provide a better distribution system. Wal-Mart Stores were popping up all over the United States. Most of the time, Wal-Mart would be built in small towns. Once these small towns began to grow, so did Wal-Martâ€™s profits. However, as towns expanded and Wal-Marts spread out, getting merchandise to a specific store was often difficult and not done in a timely manner.
In 1966, when Sam owned 20 stores, he began spending money on an extensive computer system and distribution system. He attended an IBM school in New York with the objective of hiring the smartest guy in the class to go to Bentonville, Arkansas, and computerize Wal-Mart Storeâ€™s operations (Huey, 1998). As of the late eighties, Wal-Mart has been able to track merchandise and inventories across the company. This system was one of the first to the retail market. It involved multiple satellites, scanners in stores, and new warehouses within 350 miles of most stores. The strategic placement of these warehouses provided maximum replenishment of inventory when a particular location ran low on an item (Wal-Mart Stores, 2005).
Today, Wal-Mart is the largest retailing company in the world, and most of the credit is due to the companyâ€™s acceptance of modern technology in their distribution system. By realizing early on that computer programs increase the rate at which stores can be resupplied, Wal-Mart has been able to surpass their competitors. For example, Wal-Mart says "I want to keep track of sales in all of my stores simultaneously.â€ Wal-Mart then buys a $1 million Sun E10000 multi-CPU server and a $500,000 Sybase license and builds their normalized SQL data model in data warehouse. A data warehouse is a centralized database that stores data from autonomous information sources distributed in an enterprise. Wal-Mart's data warehouse may collect information from its regional inventory and sales databases. Once the data warehouse is built, it is used to answer analytical or decision support queries. For instance, the Wal-Mart data warehouse may be used to answer queries such as: "Which stores and for what months was shampoo Flex in high demand but short in supply?"
Currently, Wal-Mart is taking a gamble and trying to implement new Radio Frequency Identification (RFID) tags in to more than 100 of its suppliers. With the ever increasing supply-chain management and distribution competition from other retailers, Wal-Mart is seeking a technological edge to help keep costs as low as possible. RFID is a more sophisticated technology than current barcode tags and readers. It can tell suppliers and retailers what is in a case, on a pallet, or where any product is along the supply chain. At this time, analysts are unsure if RFID will be a major improvement in supply-chain management, or if it will end up on the list of technologies that have failed to deliver (McClenahen, 2005).
Wal-Martâ€™s purchasing power is enormous. One of Wal-Martâ€™s suppliers correctly states â€They have such awesome purchasing power that they write their own ticket. If they don't like your prices, they'll go vertical and do it themselves--or they'll find someone that will meet their termsâ€ (Fishman, 2003, p. 4). Wal-Mart has this enourmous purchasing power because it is not just the world's largest retailer, it is the world's largest company. In 2003 it was (and it still is) â€œbigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what number-two retailer Home Depot sells in a yearâ€ (Fishman, 2003, p. 2). Wal-Mart no longer has any real rivals in its own category of general merchandise and groceries; it â€œdoes more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combinedâ€ (Fishman, 2003, p. 2). Many manufacturers on the national and global level sell about 20-30 percent of their output to just one big retailer, which is Wal-Mart. This represents the â€œconsolidated buying power of 100 million customers who shop in its 3,500 stores every weekâ€ (Smith, 2004, p. 2).
Wal-Mart is in control of almost all the consumer goods industries that exist in the United States. It is the number one supplier-retailer of most of our consumer goods. Those goods include clothes, shoes, toys, home appliances, electronic products, sporting goods, bicycles, groceries, and food. Wal-Mart has absolutely reversed a historical trend in which the manufacturer was powerful and the retailer did not have much influence. Wal-Mart, as a global mass retailer, is the center and the power, and the manufacturers have to do the â€œbidding of the retailerâ€ (Smith, 2004, p. 3).
Wal-Mart knows how the global economy works and uses it to its advantage. Wal-Mart decides whether goods will be produced in the U.S., China, Mexico, Bangladesh, or other foreign locations. As a result, U.S. manufacturing jobs have to migrate overseas if they want to continue producing for Wal-Mart, and since those amounts are usually very significant, most suppliers have to bow down before Wal-Mart and its purchasing power. They see that doing business with Wal-Mart can quickly give them higher amounts of sales and market share (Smith, 2004). On the positive side, Wal-Martâ€™s suppliers also become more efficient, focused, and faster. Those suppliers are expected to improve steadily regarding handling, moving and tracking merchandise. The cost of the business relationship of suppliers with Wal-Mart is constant pressure. It is important to recognize that we, as shoppers, have a great amount of power, and we have given a lot of that power to Wal-Mart. We helped to bring the company to the point of absolute dominance.
Supply Chain and Inventory Management
Supply Chain and Distribution
One of the main reasons for Wal-Martâ€™s success is its supply chain management, with which Wal-Mart has established a major sustainable competitive advantage over the last decade. According to the ICFAI Center of Management Research, Wal-Mart has over 40 distribution centers located at different geographical locations in the US. Over 80,000 items are stocked in these centers. Wal-Mart's own warehouses directly supply 85 percent of the inventory, as compared to 50-65 percent for competitors. According to rough estimates, Wal-Mart is able to provide replenishments within two days (on average), against at least five days for competitors. Shipping costs for Wal-Mart are roughly 3 percent versus 5 percent for their competitors (ICFAI, 2004).
Those numbers speak for themselves, and are the result of driving up efficiency to its maximum. Distribution centers are divided into different sections on the basis of the quantity of goods received. Goods meant for distribution within the US usually arrive in pallets, while imported goods arrive in re-usable boxes or cases. In some cases, suppliers deliver goods such as automotive and drug products directly to the stores. About 85% of the goods available at the stores pass through Wal-Martâ€™s distribution centers, which ensure a steady and consistent flow of products to support the supply function.
Using sophisticated barcode technology and hand-held computer systems is key for Wal-Martâ€™s operations. Every employee has access to real-time information regarding the inventory levels of all the products in the center. Employees have to make two scans only, one to identify the pallet, and the other to identify the location from where the stock has to be picked up. Different barcodes are used to label different products, shelves, and bins in a center. The hand-held computer guides employees to the location of a particular product from a particular bin or shelf in the center. When the computer verifies the bin and picks up a product, the employee confirms whether it is the right product or not. The quantity of the product required from the center is entered into the hand-held computer by the employee and the computer updates the information on the main server. The hand-held computer also enables the packaging department to get accurate information about the products to be packed. It displays all information about the storage, packaging, and shipping of a particular product. This saves time on unnecessary paperwork. It also enables the center supervisors to monitor their employees closely, enabling them to give directions and even guide them on the move (ICFAI, 2004).
The way in which Wal-Mart manages its logistics is superior to its competitors. According to the Center of Management Research, Wal-Martâ€™s distribution centers are serviced by more than 3,500 company owned trucks (ICFAI, 2004). These dedicated truck fleets allow the company to ship goods from the distribution centers to the stores within two days and replenish the store shelves twice a week. The truck fleet is the visible link between the stores and distribution centers. Wal-Mart believes that it needs drivers who are committed and dedicated to customer service. The company only hires experienced drivers who have driven more than 300,000 accident-free miles, with no major traffic violations. Wal-Mart truck drivers generally move the merchandise-loaded trailers from Wal-Mart distribution centers to the retail stores serviced by each distribution center. These retail stores are considered to be customers by the distribution centers. The drivers have to report their hours of service to a coordinator daily. The coordinator schedules all dispatches depending on the available driving time and the estimated time for travel between the distribution centers and the retail stores. The coordinator also informs the driver of his dispatches, either on the driver's arrival at the distribution center, or on his return to the distribution center from the retail store. The driver is usually expected to take a loaded truck trailer from the distribution center to the retail store and return back with an empty trailer. He has to dispatch a loaded truck trailer at the retail store and spend the night there. A driver has to bring the trailer to the dock of a store only at its scheduled unloading time, no matter when he arrives at the store. The drivers deliver the trailers in the afternoon and evening hours and they are unloaded at the store at night. There is a gap of two hours between unloading of each trailer. Wal-Mart maintains a strict vigil over its drivers by keeping a record of their activities through the "Private Fleet Driver Handbook". The purpose of the book is to educate the drivers with regard to the code of conduct. It also includes the terms and conditions regarding the safe exchange of trailers with the store personnel and the safety of Wal-Mart's property (ICFAI, 2004).
To make its distribution process more efficient, Wal-Mart also makes use of a logistics technique known as â€œcross-docking.â€ In this system, the finished goods are directly picked up from the manufacturing plant of a supplier, sorted out, and then directly supplied to the customers. The system reduces the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores. There are five types of cross-docking. In cross docking, requisitions received for different goods from a store are 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 the staging area. The goods are packed here according to the orders received from different stores and then directly sent to the respective customers.
To gain a maximum benefit out of cross-docking, Wal-Mart had to make fundamental changes in its approach to managerial control. Traditionally, decisions about merchandising, pricing and promotions had been highly centralized and were generally taken at the corporate level. The cross-docking system, however, changed this practice. The system shifted the focus from "supply chain" to the "demand chainâ€œ, which meant that instead of the retailer â€œpushingâ€ products into the system, customers could â€œpullâ€ products when and where they needed. This approach placed a premium on frequent, informal cooperation among stores, distribution centers and suppliers with far less centralized control than earlier (ICFAI, 2004).
A final key success factor is Wal-Martâ€™s inventory management. According to the Center of Management Research, Wal-Mart invested heavily in IT and communications systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion of Wal-Mart stores in the US, it was essential to have a good communication system. Hence, Wal-Mart set up its own satellite communication system in 1983. Explaining the benefits of the system Walton said, "I can walk in the satellite room, where our technicians sit in front of the computer screens talking on the phone to any stores that might be having a problem with the system, and just looking over their shoulders for a minute or two will tell me a lot about how a particular day is going. On the screen, I can see the total of the day's bank credit sales adding up as they occur. If we have something really important or urgent to communicate to the stores and distribution centers, I, or any other Wal-Mart executive can walk back to our TV studio and get on that satellite transmission and get it right out there. I can also go every Saturday morning around three, look over these printouts and know precisely what kind of work we have had." (Walton, 1992) 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 makes full use of its IT capabilities to make more inventories available in the case of items that customers want most, while reducing the overall inventory levels.
Wal-Mart also networks its suppliers through computers. The company entered into collaboration with P&G for maintaining the inventory in its stores and built an automated re-ordering system, which links all computers between P&G and its stores and other distribution centers. The computer system at Wal-Mart stores identifies an item which is low in stock and sends a signal to P&G. The system then sends a re-supply order to the nearest P&G factory through a satellite communication system. P&G then delivers the item either to the Wal-Mart distribution center or directly to the concerned stores. This collaboration between Wal-Mart and P&G is a win-win proposition for both because Wal-Mart can monitor its stock levels in the stores constantly and also identify the items that are moving fast. P&G can also lower its costs and pass on some of the savings to Wal-Mart due to better coordination. Employees at the stores have the â€œMagic Wand,â€ a hand-held computer which is linked to in-store terminals through a radio frequency network. These help them to keep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers (ICFAI, 2004).
The order management and store replenishment of goods are 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 makes use of the sophisticated algorithm system which enables it to forecast the exact quantities of each item to be delivered, based on the inventories in each store. Since the data is accurate, even bulk items can be broken and supplied to the stores. Wal-Mart also uses a centralized inventory data system which the personnel at the stores use to find out the level of inventories and the location of each product at any given time. It also shows whether a product is being loaded in the distribution center or is in transit on a truck. Once the goods are unloaded at the store, the store is furnished with full stocks of inventories of a particular item and the inventory data system is immediately updated. Wal-Mart also makes use of bar coding and radio frequency technology to manage its inventories. Using bar codes and fixed optical readers, the goods can be directed to the appropriate dock, from where they are loaded on to the trucks for shipment. Bar coding devices enable efficient picking, receiving and proper inventory control of the appropriate goods. It also enables easy order packing and physical counting of the inventories.
In 1991, Wal-Mart had 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 were furnished to every Wal-Mart store by 4 a.m., the next day. In October 2001, 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. The company uses Massively Parallel Processor (MPP) computer system to track the movement of goods and stock levels. All information related to sales and inventories are passed on through an advanced satellite communication system. To provide back-up in case of a major breakdown or service interruption, the company has an extensive contingency plan. By making effective use of computers in all its company's operations, Wal-Mart was successful in providing uninterrupted service to its customers, suppliers, stockholders and trading partners.
As a result, Wal-Mart gains great benefits from its efficient supply chain management system. According to the Center of Management Research, Wal-Martâ€™s supply chain management system results in the 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 helps to 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 has been completely eliminated by increased efficiency in operations and better customer service. Bar coding and radio frequency technologies enable accurate distribution of goods. Cross-docking helps Wal-Mart to reduce inventory storage costs; it also helps to cut down the labor and other handling costs involved in the loading and unloading of goods (ICFAI, 2004).
Expanded Operation in Groceries
Wal-Mart, the world's biggest company, is banking on supercenters to drive domestic revenue and profit growth over the next few years. The stores, some of them as large as four football fields, carry a full line of groceries along with clothing and other goods usually found in its aisles. The retailer dominates rural and suburban markets, but as it bumps up against more urban areas, with plans for increasingly large stores, resistance is mounting (Goldman & Cleeland, 2003).
Wal-Mart plans to open more than 200 supercenters in the United States this year. For the first time in Wal-Mart's history, U.S. supercenters in 2003 outnumbered the smaller discount stores that do not carry a full line of groceries. The retailer opened its first supercenter in 1988, and is now the biggest grocery seller in the world. The idea is, customers may only visit a discount store to stock up on diapers or detergent a couple of times a month, but they'll need bread or milk twice a week (Bianco & Zellner & Brady et al., 2003).
Labor Unions and Wal-Mart
Wal-Mart is the worldâ€™s largest private employer with over 1.3 million workers. However, no one working for Wal-Mart is a union member. They are the labor movementâ€™s most important challenge right now. Wal-Martâ€™s global operation affects the standard of living across the globe. â€œUnions do not have much strength when there is widespread unemployment, as employers have a virtually unlimited pool of people ready, willing, and needing to fill a job slotâ€ (ComputerUser, 2004). Wal-Mart provides many job opportunities to the U.S. and foreign countries. Therefore, Wal-Mart benefits from a variety of manufacturers from around the world. They are able to buy many items from around the world, especially from manufacturers in China and Mexico. To keep costs down in recent years, Wal-Mart has decided to de-emphasize the â€œMade in Americaâ€ concept that Sam Walton promoted in the 1980s (Bianco & Zellner & Brady et al., 2003). As much as 70 percent of all items found at Wal-Mart is now made in China, where labor and manufacturing costs are significantly lower (Goldman & Cleeland, 2003).
Wal-Mart encounters several conflicts with labor unions. They try to hire part-time workers to reduce heir costs. On average, workers at Wal-Mart earn $3 dollars per hour less than workers in other major supermarkets, and $1 dollar per hour less than the average retail wage. An average Wal-Mart employee makes about $11,700 a year, or $7.50 per hour, and the wages are nearly $2,000 below the poverty line for a single mother with two children. The wages are 30% less than unionized workers at Target and Kmart. Most Wal-Mart employees canâ€™t afford health care benefits with their $18,000 salary per month (Goldman & Cleeland, 2003).
The labor unions have no choice but to organize Wal-Mart. Oftentimes, union members earn much more than nonunion workers. The union can force the company to raise the wage to the standard price. As a result, union members earn much more than comparable nonunion workers.
Role of the Largest Company and Employer in the World
Today, becoming a successful company in the United States can be a complicated task, but becoming a successful global company is even tougher. Wal-Mart has been able to accomplish both of these tasks. Wal-Mart can be found internationally in nine countries, including Argentina, Brazil, Canada, China, Germany, Japan, Korea, Mexico, Puerto Rico and the United Kingdom. On the Walmartstores.com website they state that they have â€œexperienced success internationally because of [Wal-Martâ€™s] ability to transport the company's unique culture and effective retailing concepts to each new countryâ€ (2005). Some additional statistics as found in American Demographics, October 2003 edition:
â€œWal-Mart creates 1 in every 20 new jobs in the U.S. and opens a new outlet about every 42 hours, and, by one estimate, sees organized citizen opposition to 1 in 3 proposed new stores. A $244 billion business employing 1.3 million people, operating 3,000-plus stores in the U.S. and a thousand abroad, now accounting for $1 in every $5 spent on groceries, named by Fortune the corporate community's "most admired" company early this year--the Earth has never seen an entity of such leviathan proportions that it can reshape our economic landscape at willâ€ (Grimm, 2003).
Wal-Mart has redefined the shopping experience and consumer expectations to become the benchmark against which American consumers evaluate the functional and emotional shopping experience. So what does this mean for the U.S? Various economic impact studies have found that for every Wal-Mart hire in a new town, it destroys about 1.5 jobs at competing businesses. Furthermore, per its standing policy that a "full-time" job is a 28-hour work-week, the median income of a Wal-Mart employee stands at around $12,000 a year, less than half the national median (Grimm, 2003).
A SWOT (strengths, weaknesses, opportunities, and threats) analysis allows us to better analyze Wal-Martâ€™s internal resource strengths and weaknesses and its external opportunities and threats. A SWOT analysis provides a good overview of whether Wal-Martâ€™s business position is fundamentally healthy or unhealthy. We have determined that Wal-Mart has the following strengths, weaknesses, opportunities, and threats.
Wal-Martâ€™s broad inventory and customer base
Wal-Mart offers a broad variety of merchandise and services, a strength that has continued to evolve and improve since its foundation. Their advantage over other retailers is grounded in the fact that most customers consider Wal-Mart a â€œone stop shopping experience.â€ At Wal-Mart you can find items ranging from pastries and chips to computer equipment and high fidelity DVD systems. Most Wal-Mart shopping centers even offer automotive services, such as oil changes and tire service.
Wal-Mart is rapidly expanding its operations into other parts of the world with a strategy that involves transferring its considerable domestic expertise in distribution and discount retailing to other countries. Its status as the largest, most resource-deep, and most sophisticated user of distribution-retailing know-how has served it well in rapidly building its foreign sales and profitability (Thomson & Strickland, 2001). Wal-Mart has also started offering online sales to help broaden their customer base. They have launched a Web site that offers one-stop shopping strategy.
The ability to customize to and meet any customer segment
Wal-Martâ€™s greatest strength is its dominant market share position in the industry. The expectation is that Wal-Mart will continue to expand market share across virtually all of the business segments in which it competes. The company will press on this year and beyond with the addition of hundreds of new stores, millions of square feet of additional selling space, and an expanding distribution center network.
Another one of Wal-Martâ€™s strengths is that is has found its niche. Wal-Mart retail stores have excelled at serving mainstream shoppers with competitively priced high-demand items, from milk and cereal to shoes and shirts. Wal-Martâ€™s most valuable assets are the supercenters they operate. These stores combine the usual Wal-Mart retail store with food merchandising. In finding its niche, Wal-Mart decision makers considered the growing ethnic diversity of the American consumers (Howell, 2002).
One of the population groups that have drawn the most attention in recent years by retailers in general is the Hispanic population. It's the largest and fastest-growing ethnic group that makes up 12.5% of the U.S. population, and projected to increase to 17% by 2020. African-Americans are the second largest group at 12.3%, followed by Asians that account for 3.6%. From Wal-Martâ€™s perspective, serving an ethnic customer is very important and represents a very sizable chunk of their sales (Howell, 2002).
Wal-Mart has partnered with several other companies to provide a lower price for combined products and services. For example, Walmart.com and Wal-Mart stores have partnered with Fuji to offer a new private label one-time-use camera that includes Wal-Mart's Pictures Online service as part of the price ($6.84 per camera, including the online service fee, a $2.74 value). When the disposable 35mm Walmart.com One-Time-Use Flash Camera is dropped off at Wal-Mart for processing, the pictures are uploaded automatically to the Walmart.com Photo Center for sharing and printing (Drug Store News, 2001).
Another partnership is with Thrifty Car Rental. Thrifty signed an agreement to provide an exclusive "flat rate" for Thrifty cars booked through Walmart.com. Under the agreement, Thrifty provides nationwide flat rates of $29.95 a day for compact cars and $39.95 a day for intermediate vehicles without mileage restrictions through Walmart.com, which directs customers to a co-branded, toll-free number (Sidron, 2002).
A third example of Wal-Martâ€™s partnerships is with Mattel Inc. Mattelâ€™s Boys/Entertainment New Media Group signed an agreement with Walmart.com to expand its Hot Wheels brand's online presence. Mattel utilizes Wal-Mart's site by adding a link directly to the Hot Wheels site, while links to Walmart.com are featured in the "Shop" section of Hotwheels.com. Linking the two stores provide visitors to each respective Web site's purchase options (DSN Retailing Today, 2002).
Wal-Mart management and its Corporate Culture
Since its opening in 1962, Wal-Mart has had a deep pool of management talent capable of running an increasingly complex and global business. The depth of management is a benefit of a strategy that founder Sam Walton instituted early in Wal-Mart's evolution. His approach was to cross-pollinate executives by having them serve in different jobs. Individuals reflective of that strategy now occupy some of the most senior positions in the company (Discount Store News, 1999).
Every company has a unique organizational culture. Corporate culture refers to a companyâ€™s values, beliefs, business principles, traditions, ways of operating, and internal work environment (Thompson & Strickland, 2001). Wal-Martâ€™s culture is dedication to customer satisfaction, zealous pursuit of low costs, and a strong work ethic. Wal-Mart executives have had a long-standing practice of spending two to three days every week visiting Wal-Martâ€™s stores and talking with store managers and employees. Sam Walton insisted, â€œThe key is to get out into the store and listen to what the associates have to say.â€ (Thompson & Strickland, 2001, p. 431).
Wal-Martâ€™s greatest weakness is itself. Wal-Mart is a corporate giant. In a particular place and time it is personal and temporal in character in order to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and the personal pressures existing. More so, the company is so large, it is difficult to effectively manage all aspects of the company, including all employees.
One of the greatest difficulties for most Wal-Mart managers is managing the people â€“ customers and employees. However, as Wal-Mart has grown, the company's senior management team has become more of a blend of those promoted internally and those hired from outside the company. This results in a mixed culture, and managing the several different personalities can be difficult.
Some employees express that â€œpay isnâ€™t substantial, managers do not treat them very well, and the benefits package is awfulâ€ (Duran, 2004). More so, a troop of employees have started a web posting web site that allows Wal-Mart employees and critics to post their thoughts and opinions of Wal-Mart. A worldwide website, Walmartsucks.com, is produced, released and copyrighted by the PHPBB Group. It is made available under the GNU General Public License and is freely distributed. Current or past employees who are/were dissatisfied with their working experience write many of the postings. Employee dissatisfaction of their workplace could be caused by ineffective communication between themselves and their management. Succeeding in todayâ€™s world of work demands that you read, listen, speak, and write effectively (Guffey, 2003).
Wal-Mart Stores, Inc. announced the continuation of its aggressive unit growth for the fiscal year beginning February 1, 2004. Domestically, the Wal-Mart division plans to open approximately 50 to 55 new discount stores and over 200 new supercenters. Relocations or expansions of existing discount stores will account for over one hundred of the supercenters, while the remainder will be built in new locations. The company will further expand its Neighborhood Market concept by adding up to thirty new units in the upcoming fiscal year.
Wal-Mart International plans to open 130 to 140 units in existing markets. Relocations or expansion of existing stores will account for approximately 30 of these units, while the remainder will represent new operating units for the company. The company will construct 3 new regional general merchandise distribution centers and 2 new food distribution centers during the next fiscal year. Combined, these 5 distribution centers will add over 5 million square feet of distribution space. The planned square footage growth for the coming year represents approximately 50 million square feet of new retail space, and represents more than an 8% increase over the estimated fiscal 2004-year end of 606 million square feet. Lee Scott, President and CEO said, â€œWe believe that the combination of square footage growth and same stores sales increases will allow us to achieve total shareholder return in the mid-term of 13 to 15 percentâ€ (Wal-Mart Stores, 2005).
Other potential growth opportunities:
â€¢ Consumer electronics â€“ Wal-Mart can challenge other retailers such as Best Buy because growing trends in direct sourcing and commoditization play towards Wal-Martâ€™s strengths.
â€¢ Fashion apparel â€“ Wal-Mart can use its George brand as a cornerstone for moving beyond its fashion basics.
â€¢ Health care diagnostics and dental clinics â€“ Wal-Mart already has optical centers, these would make good complements.
â€¢ Home, school, and office supplies â€“ Wal-Mart can challenge Staples, Office Max, and Office Depot for supremacy by using its low cost advantage and low price guarantee.
â€¢ Publishing â€“ Wal-Mart already controls 20% of all single copy magazines, and two large publishers have already produced publications for Wal-Mart
Kmart and Target attempt to compete with Wal-Mart in the ethnic market by providing ethnic items. They both provide ethnic food items and lines of clothing that are associated with minorities. For example, Kmart Corporation and Latin entertainer Thalia announced a long-term, exclusive agreement that will bring a collection of branded apparel, accessories, footwear and lingerie designed and inspired by the actress and singer to select Kmart stores across the country. This collection allows Kmart to effectively tap into the Hispanic market and gives them an opportunity to build loyalty among Hispanics.
A bigger threat to Wal-Mart is the possibility of technological changes. Wal-Mart extensively uses technology. Although Wal-Mart has the funds to partake in technological advances, the time and training that is spent improving the technology is a threat to the company. Advances in technology can dramatically alter an industryâ€™s landscape, opening up whole new frontiers, and making it possible to produce new and better products at lower costs. On the other hand, technology can also produce significant changes in capital requirements, minimum efficient plant sizes, distribution channels and distribution logistics, and learning or experience curve effect (Thompson & Strickland, 2001).
Another threat to Wal-Mart is the bargaining power of suppliers. It can create competitive pressures on Wal-Mart. Although they are a large retain chain and typically have considerable negotiating leverage in purchasing products from manufacturers, Wal-Mart still faces the possibility of suppliers escalating their degree of bargaining power.
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