Industry Case Write-Up

NCSU - College of Management Industry Case Write-Up Close examination of Wal-Mart

Yanlong Li 2/8/2009 Li

Yanlong Li BUS 340 – 001 2/8/2009

The retail industry has always been in the frontline of utilizing information technology infrastructures and information systems. Many major businesses within the industry quickly adopt and adapt the new way of doing business, tracking shipments, and monitoring inventories – all through the utilization of new technologies and electronic communications. Wal-Mart, being the industry leader in low cost operations and low price products, surpasses its competitors, such as Target, J.C. Penney, Sears or any other major discount stores in the U.S., in its operational efficiency and resource management.

That provides War-Mart the competitive advantage over its rivalries, making it the number one place to shop for low price products, groceries and other items. By having low operation costs and keeping inventories low, this allow Wal-Mart to survive the furious market competition, this is especially true when consider the current economic situation, where the consumer spending will is low, Wal-Mart becomes the ultimate place to shop for bargain price. This makes Wal-Mart stands out of the rest even further and making it the company that this case write-up is all about.

Just like every other industry, the retail industry no doubt follows closely to the

Porter’s Model and the five fundamental forces within the framework of the model – entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among the existing players (ValueBasedManagement). Within the retail industry, the potential for entry of new competitors is very low and rare, since Li the starting cost is huge and not to mention the infrastructures, buildings, equipments, contracts with suppliers, utilities, and other costs, all have to put in place even before the actual store is opened. The amount of money that these costs add up would prevent many competitions from even entering the market, let alone to compete with current major stores. Especially when facing the challenges from Wal-Mart – a corporation that has been in the business since the 1960s. When Sam Walton, founder of Wal-Mart, began his first discount store in 1962, then soon five years later, there were 24 more Wal-Mart stores opened up and ringing up $12.6 million in sales (WalMartStores). These figures were merely the beginning of Wal-Mart back more than 40 years ago, even so today, it is still near impossible for new competitors to enter this industry.

The threat of substitutes is another important factor and problem for the retail industry. When one retail store jacks the prices of the goods much lower than its competitors do, then consumers will no doubt choose the store that has lower prices than stores that have much higher prices, even though the other stores might have products that are slightly better in terms of quality. And this is exactly the case for Wal-Mart, the only reason why it remains so popular in America for the past 40 years is because of the simple fact that goods sold in Wal-Mart have much lower prices than they do in other discount stores. Wal-Mart is the low cost leader in the retail business, when the prices are lower than any other stores then the threat of substitution is minimized to almost non- existence. No other retail stores would dare to lower their prices than Wal-Mart, because of the overhead, operations, supply costs are much higher than Wal-Mart’s. And this makes Wal-Mart still the number one place to shop for low price goods and items. Li

The principles of bargaining power of the buyers and suppliers interconnect with one and another; they both share the basic fundamental principle of market buying behavior. Regardless whether it is the consuming side of the business or the supplying side of the business, buyers and suppliers want to make the best deal possible out of the retail relationship. The amount of order and the price of the order are most concerned by the retail stores, and this is another instance where Wal-Mart stands strong and ahead of its competition. Because of the prices of goods offered at Wal-Mart stores are so low, that they have to make up the price in volume – the more goods and items they sell, the better control they will have over the rotation between cash and inventories. Another reason is because Wal-Mart has large amount of suppliers at their disposal, both domestically and internationally, this makes them very easy to control and choose over the vast amount of suppliers.

The rivalry between existing players is absolutely intense in the retail industry.

There is strong competition among the major discount stores, but from time to time, Wal-

Mart just absolutely dominates the market. With annual sales of $288.2 billion dollars

(2007), Wal-Mart leaves the competition in the dust, Target - $46.8 billion, Sears - $36.1 billion (Information Systems at Wal-Mart Inc.). Though Wal-Mart dominates the retail market, however, the rest of the industry, for stores such as Target, Sears, Costco, etc, the market share is distributed quite evenly. Because the rest of the industry all have their strengths and weaknesses, that all their resources are matched evenly with each other, that produced such even competition amongst them, while Wal-Mart still owns the majority of the market.

The chart below illustrates the retail industry in Porter’s Model: Li

Within the retail industry, information technology and information systems come in place in logistics function of the organization – operation and supply chain. They are the heart of everyday operation of the stores, how managers manage inventories, how supervisors monitor shipments, and how factories know when and how many to produce.

All these information need to be communicated constantly and everything needs to be frequently updated. No doubt that with the advance of technology, the retail industry is among the industries that benefits most from such advances. This is the area where Wal-

Mart outshines everyone else within the retail industry, and differentiates itself from its Li competitions. Wal-Mart fully embraces the concept of utilizing technologies to deliver efficiency and accuracy. By utilizing advance and new technologies within the Wal-Mart distribution centers and transportations, Wal-Mart is able to move millions of products to customers every day (WalMartStores). Communicate with suppliers in real time across seas; know where the shipments are, and the schedule of arrival for each shipment. All these things contribute to the huge business success of Wal-Mart, and keep it on top of the competition. All these functions are demonstrated in the follow Industry Value Chain chart:

As the chart suggests, the technological and informational infrastructures have to be in place for every major sector and level of the operation and supply chain – control, monitor, and retrieve data and information from various suppliers, various distribution centers, and finally down to the local stores. At every level, information needs to be Li shared to a centralized data center that coordinates the overall flow of the day-to-day operation of the store. And that’s where Wal-Mart’s information systems show just how important it is for a retail stores to utilize modern technologies to maintain and manage tremulously amount of information at any given time (Press Action).

When taking a closer look at Wal-Mart’s business analysis, one might find that information systems play a major role at every level and function within the company.

Wal-Mart, the largest and most profitable retailer in the world, with more than 2,100,000 employees worldwide, more than 2000 attractive stores across continental U.S. and internationally. No doubt that the use of information technology has been an essential part of Wal-Mart’s growth - over one 5 year period, Wal-Mart invested over $600 million in information systems (Information Systems – A Management Perspective), when considering just how many stores, suppliers, and distribution centers that there are to manage. By effectively using electronic communication tools, that transfer real time data to local distribution centers and to suppliers overseas, the information systems are able to tell managers when to order new items and when to stock hot selling items. This way,

Wal-Mart is able to keep the inventory space low, only 10% of the floor space in Wal-

Mart stores is used as inventory area, while when compared to its competitors that uses more than 25% on average within the retail industry (Information System – A

Management Perspective).

Not only does Wal-Mart have the information systems infrastructures in place, but other technical equipments are also being consistently adopted by the inventory and operation management. Such as the early utilization of the bar code scanners and the universal product code (UPC), this technique effectively help the accuracy of the Li inventory storage and daily tracking, but also reduce the cost and the man power on saving a human worker to stamp the code on a daily basis. Not only that, it also helps customers in searching for missing items, all Wal-Mart employees need to do is scan or enter the code, then the information will show up on the PDA (Personal Data Assistant) and tell the employees just how many inventories are left in storage, where the items are located. This dramatically increased worker productivity and customer service and relationship (Information Week). As stated earlier, Wal-Mart has always been embracing new technologies and new equipments to enhance its inventory management. It shows in the case of Wal-Mart adopting the RFID (Radio-Frequency Identification) technology or

“Smart Tags”. That this will result in “deployment of nearly 1 billion RFID tags with embedded electronic product codes (EPC) for tracking and identifying items at the individual crate and pallet level” (Wal-Mart Backs RFID Technology). Although such implementation would be expensive, but it is the long-term benefits that Wal-Mart is looking at - the savings that Wal-Mart will accumulate in the future will out weight the costs of implementation today. And this shows exactly just how Wal-Mart is willing to change and keep up with current technology trends, and willing to adapt to the new long- term strategic planning.

Over the years, especially in recent years, Wal-Mart has been quick to adapt and adopt new ways of managing business. Because of furious global and domestic competition, Wal-Mart has to stay on top of its rivalries in order to attract new customers and make the loyal ones keep on shopping at Wal-Mart. By using information technology and information systems, and apply them to Wal-Mart’s day-to-day operations, it shows just how successful Wal-Mart is at finding new solutions to solve existing problems. Li

However, the one aspect that Wal-Mart is lacking is its online stores. Information on

Wal-Mart’s website is not always up to date, but most importantly, they are not customized to cater local shoppers. For instance, some items show up on Wal-Mart’s website as available at store, but in reality, these items are not necessarily in stores at some locations, thus cause confusions among customers. Wal-Mart also needs to improve its corporate image, as it is often perceived by the public as a corporation that moves into towns and tries to take away local businesses. However, this can be solved if Wal-Mart is willing to do more community works and promotion, hire more local workers, use and sell more locally made products instead of foreign made.

Wal-Mart no doubt will be and will continue to be successful in the foreseeable future, especially now with the current situation of the U.S. and world economy, where people crave for low price products and goods, and Wal-Mart is in absolute good shape in catering these customers. Because customers will always seek the lowest price they can find, and willing to sacrifice quality for cheaper price, no matter what kind of political, economic, or social condition is in effect. Li

WORKS CITED

“Five Competitive Forces Model Porter.” ValueBasedManagement.net. 25 Mar. 2008. 9 Feb. 2009.

“Wal-Mart About Us.” WalMartStores.com. 9 Feb. 2009.

“Information Systems at Wal-Mart Inc.” Scribd.com. 14 Jul. 2008. 9 Feb. 2009.

“Information Systems – A Management Perspective.” PrenHall.com. 1999. 9 Feb. 2009.

“Wal-Mart Backs RFID Technology.” ComputerWorld.com. 16 Jun. 2003. 9 Feb. 2009. < http://www.computerworld.com/softwaretopics/erp/story/0,10801, 82155,00.html>

“Wal-Mart wins the information wars.” PressAction.com. 1 Dec. 2002. 9 Feb. 2009. < http://www.pressaction.com/news/weblog/full_article/hand12022002/>

“Wal-Mart’s Way.” InformationWeek.com. 27 Sep. 2004. 9 Feb. 2009. < http://www. informationweek.com/news/mobility/RFID/showArticle.jhtml? articleID=47902662>