Wal-Mart

WalMart's competitive advantage is a result of several key strategic choices. First, WalMart's choice

of geographic location in rural/small town locations that were not being served by competitors

allowed it to establish itself as the sole discount retailer in these areas. As Sam Walton describes "the

key strategy was to put good-sized stores into little one-horse towns which everybody else was

ignoring.... If we offered prices as good or better than stores in cities that were four hours by car,

people could shop at home." This key strategic choice of location was completely different from

what competitors had done and gave WalMart a first mover advantage in markets that had not

previously been served by discount retailers. A second key strategic feature is WalMart's inventory

management strategy. From the onset, WalMart has been a leader in implementing new and cost

effective methods to manage inventory. Merchandise is tailored to local market demand via "traiting"

where a product's movements are indexed over a thousand store and market traits. In addition, store

managers are given local control over which items to display based on customer preferences and how

to allocate shelf space based on local demand. Therefore, each store is fine-tuned to best meet local

needs rather than follow a general corporate policy. In addition, WalMart's pricing strategy allows

more local control again based on geographic demand. Store managers can price to meet local

demand, to maximize sales volume and inventory turnover and to minimize expenses. Pricing varies

by geography and by proximity to competitors. This flexible pricing policy allows WalMart to

achieve maximal strategic pricing, whereby it remains most price competitive in regions with higher

concentration of competitors yet avoids pricing too low in areas where it is the sole discount retailer.

Another key to WalMart's competitive advantage is its operations strategy. WalMart's operations

activities fit well together to achieve maximal efficiency and lower costs. By having multiple

distribution centers, WalMart is able to lower a store's square footage that is devoted to inventory to

10% versus 25% for competitors. This allows higher efficient use of store floor space for displaying

more goods and generating greater sales volume. Shelf labeling, as opposed to individual product

labeling, minimizes handling of goods thereby keeping costs lower. Inventory is tracked

electronically at the point of sale by UPC scanners and hand held bar code scanners. This

information is communicated to the store's computerized inventory system, allowing for maximal

efficiency in inventory tracking and repletion. WalMart implemented electronic scanning in all its

stores two years ahead of competitors such as Kmart. Automated inventory management lowers

inventory costs, allows seamless replacement of goods and better meets local demand. Information

regarding sales data is collected and analyzed via satellite network. The ability to do so avoids

overstocking and deep discounting. Early on, WalMart committed resources towards sophisticated

automated technology systems such as electronic scanning and satellite systems in order to achieve

higher operational efficiency and keep costs significantly lower than its competitors.

WalMart's hub and spoke distribution network is another key strategic piece behind its operations.

Merchandise brought in by truck to a distribution center is sorted for delivery within 24-48 hours.

Logistics management by way of cross docking allows seamless "just in time" inventory delivery and

minimizes the cost of inventory sitting idly in distribution centers. WalMart's inbound logistics costs

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are 3.7% of discount store sales versus 4.8% for competitors. In addition, distribution centers are

highly automated and run 24 hours a day. WalMart ships more of its purchases (80%) from its own

distribution centers than competitors such as Kmart (50%), allowing for better control over inventory

and less reliability on the efficiency of suppliers' operations to manage its inventory. Its automated

inventory tracking system at the point of sale allows WalMart to immediately communicate inventory

data to suppliers' distribution centers and headquarters, thereby minimizing lag time in inventory

repletion.

Another key part of WalMart's competitive advantage is its vendor relations. WalMart has made

specific supplier choices along the way that are geared towards minimizing costs and maximizing

efficiency. For example, WalMart eliminated manufacturers' representatives at cost savings of 3-4%

and calls its suppliers collect. Buying is centralized at headquarters which keeps purchasing costs

down. WalMart has avoided supplier power by not allowing any single supplier to have more than

2.4% of its purchases. Therefore, WalMart is better able to control its negotiation position with its

suppliers. WalMart's electronic data