Management Information Systems at Wal-mart - Essay Example

?Task Management Information Systems at Wal-mart Overview of Wal-mart Wal-mart is the largest retail company in the world and has been on the top of Fortune’s 500 list for several years. It is also the largest employer in the world. Wal-mart deals in general merchandise as well as specialized product lines such as pharmacy, tire and lube express and photo processing. Wal-mart sells high quality branded products to its customers at the lowest prices. Wal-mart achieves this seemingly contradictory combination right using advanced management information systems. In addition, it makes special long term contracts with big suppliers and removes middlemen. The basic idea behind Wal-mart’s business is discount merchandising that is keeping margins low by selling at a large discount but improving the top-line by selling a very large volume of products. 2. Role of Management Information Systems in Wal-mart’s success In realizing Wal-mart’s corporate strategies in practice, management information systems have played the most significant role. Wal-mart’s supply chain is considered the best in the world due to a very efficient use of information technology. This is the company’s core competency. Wal-mart has been a pioneer of many supply chain management practices based on advanced information systems. The use of RFID (Radio Frequency Identification) is the biggest and most recent of these. The following sections discuss the use of management information systems used by Wal-mart and the strategic advantages derived by the company as a result of them. 3. Wal-mart’s Inventory Management System Wal-mart uses an inventory management system called Retail Link. This system allows the suppliers to have a look at the number of products of each type at the shelves in each retail store of Wal-mart at any given time. In addition, the system gives information about the sales rate for any period say an hour, a day, a week or a year. The suppliers also get real time information about the time of the day their products sell, the accompanying products which it sells and other details. All this information helps the supplier companies in efficient inventory management. In many cases, Wal-mart leaves the stock decisions entirely to the supplier companies. This saves considerable costs in administration. The inventory risks such as stock-outs are hence transferred to the suppliers. This leads to a significant cost reduction (PriceWaterHouseCoopers, 2010). 4. Channel Partnership with big companies through information systems Wal-mart has forged several strategic partnerships with major supplier companies. These partnerships have been facilitated by modern information systems and flawless execution. A prominent case study is the strategic partnership between Wal-mart and Procter & Gamble. Both the companies are major players in their sectors. They have developed a common supply chain information sharing channel to better co-ordinate the supply chain activities. What began as a data sharing activity slowly permeated through strategic, operational and tactical levels in the two organizations. For achieving their objectives, Wal-mart and P&G together came up with a data highway that allowed the companies to share information on sales at all stores, types and time of sale, shelf information and so on. This drove down costs of both companies and increase customer satisfaction. The conceptual diagram for the data highway is shown in Figure 1.4.1. Figure 1.4.1: Channel Partnership Data Highway between Wal-mart and P&G Source: Grean, Michael; Shaw, Michael J. Supply Chain Integration through Information Sharing: Channel partnership between Wal-mart and Procter & Gamble In this approach, Wal-mart used scanners inside its retail stores to study their own business. The observations were critically analyzed. P&G used consumer buying patterns and compared it with the customer information available from market research or other activities. All the information collected and analyzed by the two companies was collected. This led to the development of various tools such as Joint business scorecards, Customer table checking, EDI and Category Management. The Joint scorecard consisted of several Key Performance Indicators such as Retail Sales, Gross margin, Inventory turns, Service Levels, Invoicing and Revenue details. The scorecard enabled the two companies to measure their performance as a whole rather than of individual entities which made greater business sense. The sharing of information using technologies such as EDI helped in Continuous Replenishment. The initiative enabled Wal-mart to sell its products before paying to its suppliers hence realizing negative cash flow cycles. The use of Category Management and extranet helped Wal-mart in realizing Collaborative Planning, Forecasting and Replenishment (CPFR) (Grean, Michael; Shaw, Michael J.). 5. Data Warehousing at Wal-mart Wal-mart has the world’s largest data warehouse and also the largest non-military based database. The database enables Wal-mart to boast of the tagline ‘Always Low prices. Always.’ The use of data warehouse allows Wal-mart to track sales of billions of products by a large number of customers. Information Systems have not only made Wal-mart’s operations better but it also enables the companies it works with to make their operations leaner, faster and efficient. Wal-mart’s data warehouse is basically a Decision Support System (DSS) that allows Wal-mart to track Point to Point sales, delivery and movement of goods. The success of this data warehouse is due to the fact that both IT and business have contributed significantly to its development. Moreover, Wal-mart makes frequent changes and updates to the warehouse and doesn’t allow it to become obsolete (Ohlinger, 2006). 6. Electronic Selling System Wal-mart was only a brick and mortar retail chain a decade ago but has now expanded to create a web-site that allows the company to sell online and be closer to its customers. While the web-site allows customers to buy products by selecting them in their shopping cart, it also allows suppliers to get this information. For example, Wal-mart has collaboration with Levi Strauss where both of them are connected through the web-site as well as the e-SCM system used by Wal-mart (Clark, Lee 2000). While electronic selling has made a significant difference to the Supply chain costs of Wal-mart, it has also cast a positive impact on its suppliers. Suppliers such as Levi Strauss are motivated to use similar supply chain practices with their own suppliers as used with them b y Wal-mart. This leads to a positive Domino effect and saves costs in the entire supply network (Pena, 2008). 7. Conclusion Wal-mart has achieved very large scale benefits due to the use of Information Technology Systems in it operations. These include better profit margins, lower costs, increased supply chain visibility and velocity, customer trust and loyalty, economies of scale and scope and sustainable competitive advantage (Atkinson, 2005). In fact Wal-mart is treated as a benchmark by many organizations to use management information systems in their operations. However, the companies need to tread cautiously and take decisions based on their size, application and business sense. Task 2: Project Plan Table 2.1 shows the project plan for a typical application development process in an organization. The table shows the activity codes, their description, their duration and the pre-requisites that have to be completed before any activity. Table 2.1: Activities and their durations Activity Code Activity Name Duration (in days) Followed by A As-Is State Study & Gap Analysis 30 - B Planning , Requirements Analysis & Design 15 - C Application Development 30 B D Unit Testing 15 C E Test Case Design 10 C F Application Testing 14 E G UAT Implementation 7 A,C H Production Implementation 14 D,F,G Using the activities and their duration, a Gantt chart has been prepared using Microsoft Excel. The same is shown in Figure 2.1 (Walkenbach, 1997). Figure 2.1: Gantt chart Figure 2.2 shows the PERT chart depicting the paths of the activities. Figure 2.2: PERT Chart for Critical Path Analysis The various paths and their durations can be listed as shown in Table 2.2. Activity 3-4 has been introduced as a dummy activity. From this the normal project duration comes out as 83 days. Table 2.2: Calculation of Normal Path Durations Path Name Path Duration (in days) Path 1 1-4-6-7 51 Path 2 1-2-3-4-6-7 66 Path 3 1-2-3-6-7 74 Path 4 1-2-3-5-6-7 83 Task 3: Discounted Cash Flow Analysis Given that the cash flows are ?100 for each of the next 10 years. This implies that the cash flows start from the end of the first year and continue till the end of the tenth year. The given discount rate is 10%. Using this discount rate the discount factor for each year can be calculated using the following formula: Discount factor = 1/(1+i)^n Where, i= Interest rate = 10% And n = Number of year which varies from 1 to 10 The discounted cash flows for each year are calculated in the Table 3.1. Table 3.1: Discounted Cash Flow Analysis Year Cash Flow Discount Factor Discounted Cash Flow 1 100 0.909090909 90.90909091 2 100 0.826446281 82.6446281 3 100 0.751314801 75.13148009 4 100 0.683013455 68.30134554 5 100 0.620921323 62.09213231 6 100 0.56447393 56.44739301 7 100 0.513158118 51.31581182 8 100 0.46650738 46.65073802 9 100 0.424097618 42.40976184 10 100 0.385543289 38.55432894 NPV 614.4567106 The sum of the discounted cash flows gives the Net present Value (NPV) of all the cash flows which comes out as ?614.46 (Herbohn, Harrison). Task 4: IRR Calculation According to the available data, the net present value at a discount rate of 15% is $850 while the net present value at a discount rate of 18% is -$1240. IRR, by definition, is the discount rate at which the net present value becomes zero (Watters, Hoare). The discount rate at which NPV becomes zero can be calculated by interpolating as shown below: IRR = 15% + (850 – 0)/[850 – (-1240)]*(18 – 15)% = 15% + 850/2090 * 3 % = 15% + 1.22% = 16.22% Thus, the IRR of the project is 16.22%. References: PriceWaterHouseCoopers 2010, “Managing Information: A different game”, The Economist Michael Grean & Michael J Shaw, “Supply Chain Integration through Information Sharing: Channel partnership between Wal-mart and Procter & Gamble” Patrick Ohlinger 2006, “Wal-mart’s Data Warehouse”, Vienna University of Technology Vlad Krotov & Iris Junglas 2008, “RFID as a disruptive innovation”, Journal of Theoretical and Applied Electronic Commerce Research Jorge R. Leon Pena 2008, “E-Business and the Supply Chain Management”, Business Intelligence Journal William Atkinson 2005, “Enterprise Risk Management at Wal-Mart” Dain Ehring 2006, “The Wal-Mart Model”, Mortagage Banking Charles Fishman 2006, “The Wal-mart Effect: How the World’s Most Powerful Company eally Works–and How It’s Transforming the American Economy” Paul Westerman & Morgan Kaufmann 2001, “Data Warehousing: Using the Wal-mart Model” G. Cachon & M. Fisher 1997, “Cambell Soup’s Continuous Replenishment Program: Evaluation and Enhanced Inventory Decision Rules, “ Production and Operation Management, 6, 3, Fall, 1997, 266-276. T.H. Clark & H.G.Lee 2000, “Performance, Interdependence, and Coordination in Business to- Business Electronic Commerce and Supply-Chain Management,” Information Technology and Management, 1, 2000, 85-105. John Walkenbach 1997, “Gantt Charts in Excel”, PC World “Create a Gantt Chart in Excel”, Available online from < http://office.microsoft.com/en-us/excel-help/create-a-gantt-chart-in-excel-HA001034605.aspx> John Herbohn & Steve Harrison, “Introduction to Discounted Cash Flow Analysis and Financial Functions in Excel”, Socio-Economic Research Methods in Forestry Aoife Watters & Jach Hoare, “ Internal rate of Return”, Available online from < http://stephenkinsella.net/WordPress/wp-content/uploads/2008/02/internal-rate-of-return3.pdf> Self-Evaluation The first task in the assignment needs understanding of Wal-mart’s management information systems. I have performed a thorough secondary research using academic resources, journals and internet. This gives an understanding of Wal-mart’s systems from an outsider point of view. I understand that a greater in depth analysis would require certain surveys or interviews with company’s professionals. This could be supported by statistical analysis as well. However, that would be a rigorous exercise and needs more scope. I think I have got a good understanding of Wal-mart’s inventory, supply chain and sales systems. Since Wal-mart has kept a lot of information secretive especially about data warehouses, it was not possible to get major information on Financial and Human Resource Systems at Wal-mart. This is one of the limitations of this study. The second task involves project plan, Gantt chart and critical path analysis for a hypothetical activity. This activity is a basic application development process in Wal-mart or any similar organization. The project may be carried out on-shore or off-shore. The limitation of this task is the use of assumptions especially in durations and order of activities. However, the Gantt chart and PERT chart are developed perfectly within this limited information. Tasks 3 and 4 were financial evaluation tasks and have been solved by me to perfection with the available information. Read More