Wal-Mart Case Analysis

Yunfei Li

ACCT521

CWID: 890898265

Wal-Mart Case Analysis

Wal-Mart had been growing its stores rapidly from 1995 to 2005. In 2005, it became the largest retail store in the world. As we can find in this case, by 2005, Wal-Mart held an 8.9% market share of retail store in United States. Wal-Mart's success comes from its excellent winning strategy and the excellent management skills from Sam Walton, Wal-Mart’s founder.

Wal-Mart's winning strategy was to provide customers high-quality products at everyday low price. Wal-Mart focused on taking advantage of information technology that could improve its supply chain and logistics. By doing this, Wal-Mart could ensure the lowest price that it had promised to its customers and beat its competitors. First, Wal-Mart encouraged all its suppliers to build electronic connections with its stores and to use the latest supply chain technologies to inspect and monitor the inventories. These technologies would greatly improve the operation efficiency of the supply chain. Also, they allowed Wal-Mart to deal with more suppliers than before. By taking electronic network technology, Wal-Mart didn’t have to reply on any supplier. Moreover, Wal-Mart could decrease its purchase cost by comparing the price offer from multiple suppliers. In addition, Wal-Mart introduced advanced techniques in its distribution system, such as laser-guided conveyor belts and cross-docking techniques. Wal-Mart built distribution centers nearby its stores. So, the short products in the stores could be refilled in a short time. Therefore, the new techniques satisfied the increased demand on distribution speed and efficiency, and decreased distribution cost greatly. Finally, Wal-Mart introduced 24 million dollars satellite communication system in 1987. This system could help Wal-Mart to share the internal information among its departments and share the demand information with its suppliers. For example, when the stock of certain products hit a reordering point, an automated response would be sent out instantaneously via satellite to the supplier of that product. Then, the system could automatically purchase more units, ship the units to its stores, and pay for the new units electronically.

Wal-Mart implemented investment center evaluation system to achieve a lower price. In this system, Wal-Mart treated each store as an investment center and evaluate its profitability. First, Wal-Mart analyzed sales and costs of each investment center on a real-time basis and therefore reduced the risk of stock-out and its backlog costs. Second, Wal-Mart incentive its front-line employees to reduce the pilferage cost that is a significant cost for Wal-Mart. It had a policy that it would share fifty percent of savings from decreases in pilferage. Also, it encouraged employees to greet actively to customers within10 feet and the employees' presence could reduce theft as well. Third, Wal-Mart offered profit-sharing policy that stimulated employees' performance. These incentive policies included incentive bonuses, discount stock purchase, pay raises based on performance not seniority and open-door policy. Providing employees with a bonus and better wages could help drive additional sales and allow the company to remain competitive in the retail industry.