Analysis of the Business-to-Business System of Wal-Mart - Case Study Example

Your Lecturers Examination of the Business-to-Business System of Wal-mart The Wal-Mart business-to-business (hereafter referred to as B2B) system is known globally as an example of a model electronic data interchange (EDI ) system that links a business with its suppliers. This paper examines the nature and architecture of the Wal-Mart B2B system. It also evaluates the B2B system of these the Wal-Mart B2B system by examining the benefits and drawbacks of the system. Wal-Marts B2B System Two decades ago, Wal-mart was a small retailing company that was operating only in the southern states of the United States. However, in the past decade and half, Wal-Mart has come up with a strategy that has enabled it to grow and attain national coverage as well as a substantial international presence in international communities around the globe (Geoffrey 223). The growth of Wal-Mart has been powered by sophisticated information technology equipment and systems (Jennings 297). The systems and structures ensure that there are direct transactions and there is no contact between Wal-Mart and its suppliers. This is because the sophisticated information systems are directly linked with that of the suppliers in an electronic data interchange system. Electronic Data Interchange (EDI) is one of the oldest applications of technology to business transactions (Kurtz 102). It involves the linking of computers with each other to ensure that data and information is exchanged in real time. The most popular information exchanged in B2B transactions is the exchange of price quotations, purchase orders, invoices and other sales information between buyers and sellers (Kurtz 102). Such information facilitates communication between two different businesses and enables each of them to take speedy action once they notice there is the need for them to discharge a given responsibility to the other company. An EDI for B2B transactions requires the compatibility of the software systems of both businesses to ensure that information can be exchanged in real time. The advent of the Internet has allowed the use of open source tools like XML (Extensible Markup Language) which can be easily used by different businesses in a harmonized and unified system (Kurtz 102). In more recent times, the use of open source tools over the Internet has led to businesses linking their websites and the harmonization of certain components of the website to allow suppliers to log in and collect information that is necessary for the exchange of information that might be necessary for the conduct of business. Wal-Mart uses a universal bar code system. Each transaction uses the EPOS system whereby the bar code is scanned at the counter. Immediately this is done, Wal-Marts system is updated and the stock is depleted according to the quantity sold at each and every point in time. When the inventory level is updated in Wal-Marts system, it is communicated live to the supplier of that product. This is done by the Radio Frequency Identification (RFID) technology. The radio frequency transmits data stored on small tags attached to the pallets of individual products (Harris 48). The supplier will be updated regularly and this will enable them to identify the quantity of stocks that must be replenished at each Wal-Mart outlet. The suppliers therefore get notified early enough to enable them to provide Wal-Mart enough stocks at the right time to ensure that there is no stock out, which will lead to losses. This is because these stock outs will mean that customers will be disappointed and Wal-Mart will also continue to rake in revenue around the clock. Also, the B2B system enables the Wal-Mart to eliminate the warehousing system. Running a warehouse means the lock up of capital which will remain idle in the warehouse. Also, there is the need to pay holding costs like warehousing rent and security when the suppliers are to supply on a speculative basis. Additionally, there is the exposure of stocks to risks like theft, obsolescence and other matters. Architecture of the Wal-Mart Business-to-Business System Buyers purchase from the various Wal-Mart outlets and this leads to the entry of their data and information into the central information system of Wal-Mart. This centralized system is related to the buyer service system. The matching engine of the Wal-Mart system and structure enables the exact stock limits to be compared with the standard limits. The suppliers system or sellers service is also connected strongly with the buyer services of Wal-Mart. These suppliers are linked with Wal-Mart through what they call Retailink (Kurtz & Boone 220). The Retailink is an EDI system that suppliers are required to have if they are to operate and work with Wal-Marts system and structure. The Retailink enables the suppliers to get information about live updates of stock levels and purchasing trends. They also have access to the matching engine which enables them to identify re-order levels and danger limits so that they can make changes as and where the need arises. This enables the suppliers to react just in time to ensure that goods are delivered right when they are needed. The Wal-Mart B2B system also has room for messaging. This messaging layer enables Wal-Mart to communicate and exchange information on special issues and matters to enable them to co-operate and operate as required each time there is a need for that. Also, there is a payment system that is linked to Wal-Marts B2B system. This allows Wal-Mart to continue to pay money to suppliers as and when they are due. Aside the systems that links the B2B system of Wal-Mart with its supplier, there is a B2B Management Service platform that collates information about the overall trends in B2B transactions. Information from the Management Service Platform is collated and integrated into Wal-Marts Executive Support System (ESS). This enables information from the trends and activities in the B2B systems to be linked with the tactical and the strategic level of Wal-Marts management. This will enable them to make decisions about the operations and activities of Wal-Mart. This supports in the management and decision making system of the company. Westerman (119) states the the Wal-Mart data warehousing is a very sensitive part of their B2B system. This system is maintained in a continuous process and there is a linear growth increase in the capacity as data grows. There is the regular fragmentation of the central warehouse system regularly to ensure that the system does not get slow (Westerman 119). There is the massively parallel processing (MPP) system of the computers. This enables Wal-Mart to collate and centralize information from each and every unit of Wal-Mart around the world. This enables the supermarkets around the world to contribute their information and needs to a centralized system. This enables the further distribution of information to the relevant units of the B2B system for information and co-ordinate to be undertaken. Benefits of the Wal-Mart B2B There are several benefits that the B2B system brings to Wal-Mart in its operations. These benefits are mainly in the form of competitive advantage and other reputation enhancers that enables them to gain market share and hold on to it. First of all, the B2B system gives Wal-Mart a 3% cost advantage over its competitors (Geoffrey 225). This is because it is less expensive to maintain the B2B system and also, the system enables Wal-Mart to maintain a continuous trade cycle which ensures that there is always a cost efficient system of trade at Wal-Mart. Secondly the B2B system used by Wal-Mart enables them to source for inventory from over 4,000 different suppliers (Geoffrey 225). This is because the B2B system offers a convenient and easy way through which many suppliers can sign up to become suppliers for Wal-Mart. This allows Wal-Mart to access a wider diversity of suppliers than it would have normally done if it was using the traditional ordering system. The wider variety helps in the promotion of quality through effective competition amongst suppliers. Also, the B2B system provides information that can be easily and conveniently accessed by employees, management and suppliers of Wal-Mart at any given point in time. This is because they system is linked with these important groups of stakeholders. It can therefore be inferred that the Wal-Mart B2B system is a tool for the co-ordination of activities by the various stakeholders of the company and enables them to take take good decisions that brings good results to the company as a whole. Additionally, the B2B system gives Wal-Mart real time information about trends, buying patterns and habits of consumers that can be used to support in decision making. This information can be accessed readily and it is accurate and free of the numerous errors that would have occurred if a manual system was in place. Generally, the Wal-Mart B2B system is an efficient means of ordering goods. This is because it is faster and more convenient (Jennings 297) The accuracy and the saving of time that the Wal-Mart B2B system brings ensures that Wal-Mart remains more productive and more efficient in its operations as a supermarket in America and beyond. Also, the Wal-Mart B2B system is a very simple one that enables a lot of suppliers to do business with Wal-Mart at the lowest costs possible. In the past, such transactions were only conducted with larger suppliers because the smaller suppliers could not meet up to the standards required by such large retailers. However, the B2B system enables smaller suppliers to open up trading links with Wal-Mart through the B2B system. Wal-Marts B2B system ensures the creation and maintenance of a paperless system due to the legal advantage. The normal trend is that Wal-Mart forms single contracts with the suppliers and as they supply online, they will not need to sign and re-sign other contracts which can have so many implications. Thus the B2B system has an inherent legal advantage that reduces conflicts and also supports a speedy contract system. Drawbacks of the Wal-Mart B2B system The main drawback for the B2B system is the requirement for compatibility. Wal-Mart requires all of its suppliers to switch over to a system that is compatible with the Wal-Mart Retailink. This is quite an expensive fixed element because paying for the new system requires a substantial flow of capital to set up an account. Secondly, there are some transmission issues that can really affect Wal-Mart seriously. If there is a break down in the IT system due to cyberterrorism or a general fault, there will be a major disaster in the operations of Wal-Mart and this is likely to affect productivity negatively. Conclusion Wal-Marts B2B system is an important tool for the co-ordination of business activities with its suppliers and it incorporates the efforts of the management and staff members to ensure that the best results are attained. The B2B system employs a complex IT system and structure that supports it. The B2B system has the benefit of increasing competitive advantage, cutting down cost and also providing improved services. The downside of the B2B system is that it is quite expensive for suppliers and due to the high reliance placed on it, there is a risk of the business facing so much loses if there is a fault with the B2B system. Works Cited Geoffrey, James. How to Say it: Business to Business Selling: Power Words and Strategies for Effective B2B Sales. 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