Wal Mart Case

1. What impresses you about this company? What accounts for Wal-Mart’s success over the past 25+ years? Is it a great strategy, superb strategy implementation and execution, or great leadership? What aspects of Wal-Mart do you find unimpressive? The most impressive thing about Wal-Mart is its unwavering promise of selling every day consumer products at sustainable lowest prices, since its foundation in 1962 by Sam Walton. This unwavering penchant to carry sales at everyday low prices and to glue to founder’s vision drives everything company does. Be it pricing, supply chain and suppliers management, store layout designs, technology infrastructure implementation, human resources management, everything is well orchestrated to deliver Wal-Mart’s everyday lowest price promise. Wal-Mart does this orchestration so well that it has become world’s largest retailer. Its sales have increased from $1.4 Million in 1962 to $375 Billion in 2008, at the phenomenal rate of 31.92% per annum, and its profits grew at the rate of 28.70% in the same period. Both growth rates, well exceeding the store opening rate of 15.66% per annum and historical US inflation rate of 2%-3%, suggests us that Wal-Mart has been able to utilize its resources efficiently. In these period average sales per store has grown to $51 Million with the rate of 13.40% and per store average profit to $1.7 Million at decent rate of 11.35%. Another impressive fact about Wal-Mart is that it continuously finds room to grow, find more items to sell to its customers at prices lower than other competitors. Such impressive growth rates and lowest prices have been result of superb strategy implementation and execution off course aided by great leadership at all levels of management. There is nothing much unimpressive about Wal-Mart, except for the fact that it source most of its products from China, which again has to be done for its lowest price model.

2. Which of the five generic strategies is Wal-Mart employing? What are the chief elements of its strategy? Wal-Mart follows a low-cost provider strategy. It strives to achieve lowest overall costs than its rivals and tries to appeal to broad spectrum of customers. Wal-Mart has taken great care to offer products and services which its consumers consider essential. Wal-Mart offers low everyday prices, wide selection, and big offering of name brand products at its well-lit customer friendly clean stores within drivable 20-mile radius where most of its customers live. Wal-Mart achieves this feat by performing essential value chain activities more cost-effectively than rivals and is always revamping its supply chain to cut waste, and to make supply chain more efficient. At the very core lies Wal-Mart’s strategy to use Sam Walton’s rules for building a business. This has created strong culture of success unique to Wal-Mart. Wal-Mart is able to offer lowest prices because of its huge economies of scale. The volume of products it sells is so high that it is able to have great bargaining power with product manufactures. In almost all product categories Wal-Mart buys 20% to 25% of entire manufacturing capacity of its supplier. Wal-Mart also has big-fatherly relationships with many of the suppliers, by studying their production methods and suggesting ways to cut down manufacturing and downstream supply chain costs. Wal-Mart has lot of competitors such as Target, Best-Buy, Home-Depot, K-Mart, Kroger’s, etc. Most of its competitors are not able to compete on low prices. Some are able to compete because of the specialization and broader range of products they offer than Wal-Mart within the specialization. Many consumers find shopping at Wal-Mart convenient as most of the general use products are available under one-roof. Since most of the Wal-Mart stores are within 20 mile radius where customers live and Wal-Mart offers lowest prices, Consumers do not have much choice and consumers are not able to switch to other Wal-Mart competitors. In field of selling general merchandising and grocery, it is not easy for competitors to grow big suddenly and compete with Wal-Mart just on prices. Many competitors such as Ames have disappeared because they tried to compete on prices and others such as K-Mart are shadow of their former selves. Wal-Mart uses four different store formats to attract and satisfy customer’s needs: Wal-Mart discount stores, Supercenters, Neighborhood Markets and Sam’s Clubs. These stores differ by size and product offerings. Sam’s Club carries bulk quantities for customers who pay annual fee to be member of the club. 47 million members who pay on average of $35 to $40 annual membership fee brings copious amount of cash to Wal-Mart’s coffers. Wal-Mart also offers many of its products at its ecommerce site www.walmart.com. At web-site and at its stores, Wal-Mart offers wider assortment of products at affordable prices in one convenient place. Wal-Mart carries name-brand nationally advertised products and 20 highly profitable private-label brands. These items are kept in the stores in easy-to-shop shelves and attractive displays. Wal-Mart is adept a sending out an effective mix of vibes and signals concerning customer service, low prices, quality merchandise and friendly shopping environment. From beginning itself, Wal-Mart has been eager to try out new merchandising techniques, with immense willingness to learn from its associates and competitors. Wal-Mart continues to experiment with store-layouts, displays, store color schemes, mix of items, and sales promotion techniques to fine tune its merchandising methods. As a principle Wal-Mart spends limited amount of dollars on advertising. It spends only .3 percent of sales on advertising compared to 1.5 to 2.3 percent for its competitors. WalMart has been using very judicious expansion strategy to expand into most continental US. It always expanded in adjoining areas, saturating the area before moving to new area. Wal-Mart used technique of backward expansion, where it first expanded into small towns before expanding to metropolitan areas. Wal-Mart has made use of clever acquisitions to expand into foreign markets in Canada, Mexico, Brazil, Japan, China, South Korea and Great Britain. Acquisitions allowed to Wal-Mart to expand into these markets quickly on the scale which made most economical sense, and simultaneously allowing WalMart to incorporate local tastes in its offering. The key principle was that Wal-Mart had become adept in transferring its key management skills to foreign markets. 3. What policies, practices, support systems, and management approaches underlie Wal-Mart’s efforts to execute the company’s strategy? The key points of Wal-Mart’s strategy execution is its heavy emphasis on getting lowest prices from suppliers, creating close relationship with key suppliers to capture win-win cost savings throughout the supply chain, keeping its internal operations thin and efficient, paying attention to the tiniest details in merchandising and store layouts, making use of most advanced technology, and nurturing hard working customer pleasing culture, and passing cost-savings saved throughout its supply chain to customers as lower prices. Wal-Mart is the biggest buyer of most of its 66,000 suppliers. Wal-Mart because of its immense buying power is able to get bottom prices from all its suppliers. Wal-Mart also deals with numerous small suppliers mostly peddling local produce. Wal-Mart has a special team of buyers who comb world markets to get suitable merchandise for the company. These procurement experts work together with vendors to understand their cost structure. This allows Wal-Mart to make sure vendor is able to provide wares at lowest possible cost. Wal-Mart also believes in no-frill negotiations with its vendors unlike its competitors, resulting in still lower prices Wal-Mart has to pay for its supplies. Many of Wal-Mart suppliers have created offices in Bentonville to keep

continuing close relationship with it. Most of the manufactures rank Wal-Mart as number one customer to deal with. This shows that the relationship WalMart has with its suppliers is win-win to both. Wal-Mart makes sure that its suppliers follow code of integrity and ethics created by Wal-Mart in creating products. Wal-Mart believes that its supplier need comply with all applicable law and regulations to provide safe and clean working environment and decent wages, with no use of child labor at their factories. This helps Wal-Mart to keep its reputation intact with its customers and shareholders. Wal-Mart conducts regular audits and 200 employees are dedicated overseas to make sure that Wal-Mart standards are followed. They also held training sessions for the suppliers to help them to comply. Wal-Mart uses cutting edge technologies to manage its value chain. It deploys newest equipment, retailing techniques, computer software programs, and related technological advances to increase productivity and drive costs down. For last thirty years Wal-Mart has been using computers to manage and forecast inventory. It is one of the largest customers of Teradata, a business intelligence appliance manufacturer. Using machines from Teradata Wal-Mart is able to keep track of consumer pulse and thereby avoid having excessive inventory, a woe in retailing. Wal-Mart was one of the first companies to use point-of-sale scanners to speed up customer check-out process. It has connected all its stores and distribution centers to its headquarters, so that the managers have very detailed current information on what is happening at stores. Wal-Mart is now able to track the movement of goods through its entire value chain. Wal-Mart also pioneered use of Radio Frequency identifiers (RFID) to better control supply chain. It spends less than 1 percent of its revenue on information technology, this being lowest among its competitors. Wal-Mart is super efficient in its distribution. One study showed that Wal-Mart is able to receive 60 percent of its goods and sell them even before suppliers have send invoices and received payments. This gives Wal-Mart a very competitive advantage since much of its inventory becomes supplier financed. It uses cost-efficient system of conveyors, bar coders, handheld computers, and sorting devices in its 112 distribution centers. Wal-Mart uses technology to immediately unload and load packets back to store delivery trucks and avoids storing packets all together. Wal-Mart has been very smart about its capital expenditures since its beginnings. Much of the store designs have been standardized so that WalMart can create specifications for 12 or more new stores a week. This allows Wal-Mart to achieve economies of scale with store design and construction. The store design permits quick, inexpensive construction with allowance for high energy efficiency and low cost maintenance and renovation. Same low cost themes are spilled over to office and distribution center designs. One interesting thing Wal-Mart has done is to connect lightening, heating, and airconditioning controls of all its stores to headquarters. This allows company to follow best energy practices consistently and frees up store staff from worrying about controlling to reduce utility costs. All these above activities are orchestrated to provide pleasant shopping experience to its customers and gives strength to stand behind it pledge “Satisfaction Guaranteed”. Most of the staff at stores is trained to welcome and assist customers in friendly way. Recently Wal-Mart ran a campaign to reduce shelf clutter, to improve store signage, to invest in speedy checkout technologies and make store cleaner and brighter. Wal-Mart is also able of offer good consumer choice in fast growing categories such as electronics and also offers big name brands in select product categories. Wal-Mart also manages its employees well. Wal-Mart pays their employees relatively well with full benefits, medical plans, profit sharing and stock purchase plan at 15% discount. The company treats its employees as associates and shares both good and bad with them so that employees have right motive and means to excel and participate in company mission. Failure is made as chance to learn, which keeps employees motivated and encourages them to try new ideas. Associates are involved in total decision making process. Most of the high level staff at Wal-Mart is home grown. This motivates employees at stores to work extra hard eying promotional opportunities. Wal-Mart management spends lot of their time visiting stores, listening to employees about what was in their mind, learning what is selling and what is not, gathering ideas about how things could be done better, complimenting store employees on their hard work, and challenging them to come up with good ideas. Thus it is clear that Wal-Mart uses varieties of policies, practices, support systems, and management approaches to deliver low cost promise to its customers. 4. What are its chief elements and characteristics of Wal-Mart’s culture? Why does the culture seem to be so much stronger in Bentonville than out in the stores? The three basic elements of Wal-Mart’s culture are respect for individual, service to customers, and strive for excellence. Management keeps nailing the mantra that dedicate, hardworking, ordinary people who team together and who are treated each other with respect and dignity could accomplish extraordinary things. Liberal use of expressions such as “our people make the difference”, “we care about people”, “people helping people” in company grounds and literature create immense physiological boost to employees. Wal-Mart backs up these expressions when it implements ideas suggested by employees. After making employees as the most important concern, Wal-Mart focuses on its customers with the help of motivated employees. Wal-Mart offers high quality merchandise with best customer possible. This earns Wal-Mart trust of its customers. The underlying philosophy of Wal-Mart is that customer is king; it means it when it creates necessary culture and environment to back it up. Intense focus on employees and customers helps Wal-Mart to strive for excellence. The Wal-Mart thought process seeded by its found is that the prices are seldom as low as they needed to be and that product quality seldom as high as customers deserved and expected. Hence Wal-Mart always tries to find room for improvement in what it does. Wal-Mart’s culture is deeply rooted in its headquarters and is founded on Sam Walton’s 10 rules for building a business. The headquarters vibrates with its cultural energy and makes its pervasive power felt to all outsiders including CEOs from various esteemed corporations. The company is infused with frugality, will to wring every penny out of costs, and means to pass the savings to its customers in the form of low prices. Wal-Mart management shows this culture in their frugal ways in the headquarters and in their travels. Wal-Mart faces a big challenge in fostering same kind of culture in its distribution centers and stores. The retail industry faces very high turnover. Hence it is difficult to maintain a deeply ingrained, values-driven culture with ever changing individuals. The second challenge comes from the fact that every year Wal-Mart adds 12,000 new employees and it is not possible to indoctrinate them in short period. Another issue is that Wal-Mart being one of the largest private employers employs 2.1Million associates, and most of them come from diverse background in terms of educational, national and cultural, personal traits. It is a herculean task to make all these 2.1 Million associates share same culture. The company tries hard with training, video conferencing, and motivational actions, but due to sheer amount of ever changing employees it falls short and its culture continues to stay stronger in Bentonville.