Wal Mart Analysis using Porter's Model - Case Study Example

 Wal Mart Case Analysis using Porter's Model Question 1. What are Wal-Mart's competitive advantages? How sustainable are those advantages. Use Porter's (2008) model for this analysis.  Competitive Advantage Wal mart competitive advantages are its distribution capabilities. One of the activities of Wal mart was efficient distribution. For example cross docking, it had its own distribution centres and inside out location strategy. With Wal-Mart efficient distribution, economies of scale matches the volume strategy. Another advantage is cost saving from low inventory levels which in return can be utilised in consumer satisfaction. Secondly, it had a good partner relationship with its suppliers. Wal Mart integrates its suppliers through information systems and treats them well in terms of pricing. This helps in improving the supply chain and lowering the cost of distribution. Third competitive advantage is its advanced technology of data mining. With the help of data mining, they are able to gather useful data for the suppliers, improves customers satisfaction with the help of accurate demand forecast. The cost is reduced as there is no excess of inventor. The forth competitive advantage is Wal Mart work force culture. It values more for the customers; it is not compromised in any ways. The stores are able to response quickly to the changing demand. Lastly it’s the EDLP (everyday low price). With the help of EDLP customer satisfaction is improved through low price. The advertising cost is also reduced and steady price improves the supply chain (Quelch, p.189-192). Porters Five Force Model Power of Supplier Wal-Mart offers a lot of business to wholesalers and manufacturers. This enhances Wal mart with more powers. It can threat to switch to different suppliers. Thus the power of suppliers is medium. Power of Consumers The individuals can easily shift to some other competitors who offers product at a lower price than Wal-Mart. But the consumers will lose the convenience with the organization. Thus the power of consumer is medium. Threat of New Entrants Entry barriers for new players are high compared to its competitors due to high initial set up costs such as distribution channels and this is because Wal-Mart has good distribution systems, huge brand name. Wal-Mart has an absolute cost advantage. Therefore the threat of new entrant is low. Threat of Substitute Threat of substitute is low as there are not many companies which offer low pricing and convenience. The customers may switch off to other speciality stores but they would not find the low pricing strategy of Wal-Mart. Online shopping also becomes an alternative. Rivalry The rivalry among the firms is high. There are few big competitors of Wal Mart; they are Sears, Amazon.com and Target. Thus the rivalry is high among established competitors. Porters Generic Strategy Porter’s generic strategy focuses on three strategies and they are cost leadership strategy, differentiation strategy and focus strategy. Cost leadership Cost leadership strategy is defined as offering the products or services at a less price than any of its competitors. It aims to be low cost producer in the firm (Karlof, p.190). Wal-mart has adopted the cost leadership strategy and has emerged as one of the largest companies in the world. The company followed cost leadership that involved developing economies of scale and reduction of cost. Differentiation strategy Differentiation strategy aims at offering a product that is unique and should provide superior value of products (Karlof, p.191). Wal-Mart does not apply a differentiation strategy, as Porter’s Generic theory states about the core competency of a business and Wal-Mart core competency lies in its EDLP strategy. Focus strategy The focus strategy is based on the choice of product in the niche market within the industry (Karlof, p.192). Wal-mart does not focus only to a niche sector it serves to a wide range of customers. Therefore Wal-Mart does not have a focus strategy. Sustainability After analysing Wal-Mart competitive advantage and with the help of porters five force model, it can be concluded that Wal-Mart has achieved cost leadership as it offers consumer goods at a lowest price. The company is able to cut the inventory cost through real time information sharing and cross docking which in turn has helped Wal-Mart to earn profits and achieve consumer satisfaction in form of cost savings that can be passed on to the customers as a part of its EDLP strategy. These strategies would help Wal-Mart in the long run and stay ahead from its competitors and have a good relation with the suppliers. Question 2 How does Wal-Mart manage and integrate its supply chain? Use Lee and Whang's (2001) framework for this analysis.  Wal Mart Supply Chain Wal-Mart has always emphasized on the fact of reducing the purchasing cost and offers the standard price to its customers. It purchases directly from its manufacturers on a condition that the goods purchased are not available elsewhere at a lower price but of good quality. Wal mart had 40 distribution centres across US (ICMR, “Managing the Supply Chain”). The Lee and Whang framework had classified the supply chain management into three categories namely, e-commerce, e-procurement and e-collaboration. E-commerce has been an effective mode of operation in the supply chain management. Wal-Mart has turned into internet as channel of distribution. Lee and whang have stated that successful companies has used the framework for making the e-fulfilment effective. One such example is Wal-Mart; Wal-mart e-commerce plays a major role in instituting the management and by structural changes. According to Lee and Whang, an online firm can be a virtual logistic which would consists of its retailers and suppliers. E-procurement is the mirror image of e-commerce. E-procurement deals with the companies unlike e-commerce. With the help of internet efficient procurement is facilitated as many buyers and sellers find themselves and transact according to some specified tools. Wal-Mart has come up with new theories like cross docking and has achieved huge success. The company is able to gets a better visibility which helps it to eliminate the storage. E-collaboration is the business to business interaction which is done through the internet. Wal-Mart RFID technology helps in detecting the inventory record. RFID provides real time visibility which would help in fulfilling the gap in supply chain. It has led to the development of supply chains globally. Lee and whang provides the taxonomy of e-Collaboration (Johnson & Whang, p.4). Question 3 What's the objective of Wal-Mart's RFID initiative? To what extent has this technology been adopted by supply chain partners? Evaluate how this implementation could help Wal-Mart achieve its 2006 corporate objective (i.e., keeping inventory growth slower than sales growth). Objective of Wal-Mart's RFID Initiative The objective of Wal-Mart RFID was to improve the company’s sales strategy, reduce the number of out dated inventory and increase the efficiency to move the products to Wal- Mart store shelves (Reynolds, p.47). Wal-Mart is one of the companies which implemented the use of radio frequency identification in the year 2000 (RFID). It mandated the use of RFID for its top suppliers with an attempt to increase the ability to track the inventory. At present 600 of its suppliers are using RFID. The strategy would help the retailers to collaborate with the suppliers. The RFID technology helped in the flow of goods and information with the demand of the consumers. Companies like Procter & Gamble used the RFID in shipments to Wal mart stores. The chip allowed keeping a track of the goods from the time of its manufacturing to delivering point to the consumers. However this technology has not fared in the retail sector. Only about 10% of the retailers have adopted the technology in compared to 44% of the manufacturer. One of the important factors was to get up to date information (Lamb, et.al., p.413). Wal marts objective is to keeping inventory growth slower than sales growth. Wal mart has always thieved to achieve improvements in supply chain. It had implemented the use of RFID. This technology helps in cutting down the cost, identifying the out of stock and increasing the sales growth. The sales grew by 9.5 % and its inventory grew by 8.2%. This is because with the use of RFID, employees could quickly count as to how many products are available in the store shelf simply by monitoring the aisle. The RFID tag does not require any internal supply of power. The bar code on the cases or pallets need not be swiped in order to identify the contents. In addition the technology can use to transmit information including price, number and when it was made. This technology has helped Wal-Mart to reduce the inventory stock as RFID monitors which stock to keep in and vice versa. Wal Mart could not perform well in the international market. It was felt that that the need of supply chain shifted from business to the consumer use. Therefore the use of the technology in monitoring the inventory and also transportation would help it to achieve its objective. Reference ICMR. Managing the Supply Chain. 2003. Wal-Mart's Supply Chain Management Practices. October 18, 2011 Johnson, M.E. & Whang, S. 2002. e-Business and Supply Chain Management: An Overview and Framework. October 18, 2011 Karlof, B. Key business concepts: a concise guide. Routledge. 1993. Lamb, C.W. et.al. Essentials of Marketing. Cengage Learning. 2011. Quelch, J.A. Readings in Modern Marketing. Chinese University Press, 2007. Reynolds, G. Information Technology for Managers. Cengage Learning. 2009. Read More