Wal-Mart Competitive Advantage - Case Study Example

Wal-Mart: E-Business Strategy Case Studies Question Wal-Mart Competitive Advantage Rivalry among the Existing Competitors The objective of the Wal-Mart is to offer products at relatively low retail price, commit to customer services, maintain innovative, superior technology and establish loyalty with its partners and suppliers. The Wal-Mart major War-Mart competitors are Kmart, Target, Costco, etc. (Brea-Solis et al. 8). The Wal-Mart competitors have not been able to compete with Wal-Mart effectively in terms of offering low prices to the consumers. Wal-Mart sells its products at a relatively lower price than its close competitors such as Kmart and Target. Since Wal-Mart has its distribution centres located in suburban areas where the rental expenses are low the major competitors have their stores located in urban areas where the cost of housing facilities is extremely high. Furthermore, Wal-Mart has numerous distribution stores concentrated in most parts of the globe which enables them to purchase the suppliers at a relatively reduced cost (Porter 85). Therefore, Wal-Mart is better positioned than its rivals in terms of offering products at relatively low price every day. Also, Wal-Mart has well established communication system and strong relationship with its suppliers that enable them to improve the product quality every time and maintain the price of their products low (Brea-Solis et al. 11). In order to maintain the prices low, the company makes fewer promotions that result to reduction in the advertising expenses. On average, the advertising cost of the Wal-Mart is 1.5% of the total sales while those of their direct competitors’ stands at about 2.1% of the sales (Brea-Solis et al. 7). It has established successful relationship with vendors; it is the customer oriented, has efficient communication channels, value employees, has well established and efficient operation management. All these factors help Wal-Mart to maintain smooth operation and maintain low price strategy. Maintaining superior quality and low prices of its products low help Wal-Mart to survive the rivalry of the other competitor firms such as Kmart and Target (Porter 85). Suppliers bargaining power Wal-Mart suppliers are manufacturers of consumer goods including food and durable goods. Wal-Mart has “enormous bargaining power over its suppliers” that has been attributed to close a relationship the company maintains with its suppliers (Schermerhorn 211). As a result, the Wal-Mart imposes the terms of payment with its suppliers. Also, it enhances the sharing of all information between Wal-Mart and suppliers about the purchasing of raw materials. Furthermore, Wal-Mart dictates to their suppliers on what they can share information with, how they can design their products and the components to use in manufacturing the products. Having power over its suppliers gives Wal-Mart a competitive advantage in the market over its rivals because they can enjoy lower prices and have the products designed to suit the specific needs of their customers at the expense of rival companies (Porter 82). Therefore, the retail market is favourable to Wal-Mart because of weak bargaining power of the suppliers. Another competitive advantage of Wal-Mart is the strong relationship it has established with its suppliers that have resulted to efficient purchasing. Wal-Mart has good negotiating power with the vendors and has established partnership with suppliers such as P&G. It has established vendor managed inventory systems that have reduced cost of inventory. In addition, the company has efficient electronic information sharing culture with its customers and suppliers that has led to efficient communication with vendors and other stakeholders. These strategies have resulted to reduced cost of operation (Porter 82). Threat of Entry The Wal-Mart products are highly differentiated and diversified. Customers associate with the brand name of the Wal-Mart thus making it hard for customers to switch to the products of new entrants. In addition, the cordial relationship Wal-Mart has established with its suppliers puts limits to the new entrants because the Wal-Mart controls the products designed by the suppliers to suit the specific needs of the consumers. Wal-Mart has unique distribution channel of its products due to the high concentration of its stores in various parts of the globe. This gives the company a competitive advantage over a new entrant because Wal-Mart can purchase and distribute merchandise in bulk resulting to low cost of transportation (Brea-Solis et al. 14). Furthermore, the company deals with a combination of products that enables the company to enjoy large clients of diversified products and large economies of scale. The cost of establishing world-wide chains of stores gives Wal-Mart an upper hand in the retail market because the new entrants cannot easily raise the huge capital required to establish stores across the globe and enjoy economies of scale. Therefore, the industry is unattractive for average retailers because of intensive internal rivalry and low customer switching cost (Porter 80). Bargaining Power of Buyers The retail market of consumer goods is liberal due to low consumer switching cost and a huge number of competitors. Retailers do not have any power over its consumers apart from providing low-priced and high-quality products to price biased consumers (Porter 83). The Wal-Mart consumers are attracted by low prices and can easily purchase the products of other retailers without incurring any additional cost. Lack of actual product differentiation in the retail market and availability of the substitutes products gives the customers power over retailers (Brea-Solis et al. 23). Therefore, Wal-Mart has to continue retailing the consumer products at low price and maintain high quality in order to retain the customers. However, Wal-Mart uses efficient communication network powered by satellite network that enables the company to control the stock inventory. This reduces the inventory cost and ensures consumers always get what the products they want (Schermerhorn 276). The use automated system enable the company to control the price of its products and increase efficiency of service to customers (Schermerhorn 237). Efficient performance and low cost of goods create Wal-Mart customer loyalty at the expense rivals. Threats of Substitute Products or Services Wal-Mart is one of the leading departmental stores. Wal-Mart deals with diversified assortments which they offer at “everyday low prices.” They deal with discount stores and discount and grocery stores. Their main competitors include Gap, Limited, Sears, Target, Dillard, J.C. Penney, Kroger, Safeway, Costco, etc. With many retailers of similar commodities, consumers can easily switch to other retailers offering substitute products due to low cost of switching sellers (Richard Ivey School of Business Foundation 10). However, Wal-Mart retails diversified products thus giving them an advantage over their rivals. Since Wal-Mart has variety of customers for various commodities customers can switch from one product to another without switching the company. The company has well established brand name that differentiates its products from those of rivals. In addition, the low pricing strategy and customer oriented culture of Wal-Mart differentiates Wal-Mart from other competitors (Porter 84). Question 2: Sustainability of those competitive Advantages In order to maintain a low-cost leadership strategy Wal-Mart maintain the cost of land rent and low and engages in fewer promotion activities. As a discount retailer, Wal-Mart must retain its prices low and ensure the high quality of its products in order to appeal to its consumers. However, the low pricing strategies are not sustainable and can adversely affect the company’s performance (Porter 80). For example, the rival companies can engage in a massive promotion that can increase the sales and reduce the proportion of promotion to total sales. Also, Wal-Mart does not have control over the rent expenses which keep appreciating anyhow. Furthermore, other retailers can utilize a similar strategy and manage to maintain the prices of it products low (Richard Ivey School of Business Foundation 11). However, the culture of sharing information through exchange of numbers, use of informal means and electronic information sharing system is also sustainable. The establishment of Uniform Product Codes (UPC) and satellite system in Wal-Mart to improve communication with the customers and suppliers leading to increased productivity and low operation cost is sustainable (Porter 87). Furthermore, the culture of Wal-Mart that values customers by focusing on improving their satisfaction and creation of customer loyalty is sustainable and can continue strengthening the company’s performance in retail business (Richard Ivey School of Business Foundation 13). How do Wal-Mart Manage and integrate its supply chain? Wal-Mart has efficient supply chain system that relies on bulk purchasing of supplies in order to reduce the cost through economies of scale. It has established international purchasing stores that coordinate with local stores to ensure increased efficiency in the procurement process (Richard Ivey School of Business Foundation 6). Wal-Mart procures their merchandise through supplier’s branded products and private label merchandise. Since the company offer huge discounts for their private label merchandise they are able to attract more customers through their private label merchandise than the supplier’s branded merchandise (Lee and Whang 7) Wal-Mart uses “Hub-and-spoken distribution network” with owned warehouses and cross-docking that increases productivity and reduces cost of operation. This organization accomplishes it supply chain activities through Remix and Radio Frequency Integration Device (RFID) initiatives (Richard Ivey School of Business Foundation 8).The supply chain manager determines the products to be sold and determines the vendor to supply the merchandise. The supply chain involves forecasting the demand and managing inventory to avoid overstocking and ensure they meet customer demand (Lee and Whang 14). Question 3: Whats the objective of Wal-Marts RFID) initiative? The focus of using DFID in Wal-Mart was to improve the ability to track inventory in order to increase in-stock flow in the stores. It would achieve the goal by improving visibility of stock being move through distribution centres and stores (Richard Ivey School of Business Foundation 9). To What Extent Has This Technology Been Adopted By Supply Chain Partners? It was established that in most stores the percentage of misplaced stock (25%) was higher than out-of-stock inventory (8%). Also, the installation of DFID was quite high compared to cost saving through improving flow of inventory. Therefore, the adoption of DFID technology was slow because it yielded low returns (Richard Ivey School of Business Foundation 9) Evaluate how this implementation could help Wal-Mart achieve its 2006 corporate objective The use of DFID in Wal-Mart could increase inventory tracking to enable the company improves supply chain. It would help in determining the stores with a high rate of out-of-stock products and make quick replenishment. In addition, the organization could be able to identify store with excess stock and redistribute to stores with low stock inventory in order to maintain low inventory growth and increase sales through quick replenishment of stock in all stores (Richard Ivey School of Business Foundation.10). Works Cited Brea-Solís, H., Casadesus-Masanell, R. & Grifell-Tatje, E. (Nov. 6, 2012). Business Model Evaluation: Quantifying Walmart’s Sources of Advantage Working Paper 13-039: 1-48. http://www.hbs.edu/faculty/Publication%20Files/13-039%20Nov%202012_612ce7e2-7f81-4eea-9126-3c0964f2be2f.pdf Harrison, Jeffrey & John, Caron. “Foundations in Strategic Management.” (USA: Cengage Learning, 2009): 88-208. Lee, Hau. L. And Whang, Seungjin., “Supply Chain Integration Over The Internet In Supply Chain Management: Models Applications And Research Directions. 2002: 1-18. Porter, Michael, E. “The Five Competitive Forces That Shape Strategy.” (Harvard Business Review, 2008): 78-94. Richard Ivey School of Business Foundation. “Supply Chain Management at Wal-Mart.” (Ivey Publishing, 2006):1-15 Schermerhorn,,John. R. “Management.” (USA: John Wiley & Sons, 2010): 209-656. Read More