IT Situation Analysis - Wal-Mart - Essay Example

inserts his/her full IT Situation Analysis- Wal-Mart Wal-Mart has since long been the center of attention as far as the implementation of information systems in the retailing business is concerned. The company has set high standards in the midst of increasing competition, tightening of regulations and changing customer expectations. This paper examines the use of IT by Wal-Mart in the achievement of competitive advantage along with recommendations for improvement. Wal-Mart was founded by Sam Walton in 1940 when he commenced his career in the retail sector. The retail outlet was named “Walton’s Five and Dime” in the area of Arkansas. The first outlet of Wal-Mart was opened in the same area in 1962 by the name of Wal-Mart discount store. Thereafter, another 12 retail stores under the ownership of Walton’s family were opened (Wal-Mart). However, it was not until 1969 that the Wal-Mart stores chain was founded (Wal-Mart). The strategy on the basis of which Wal-Mart was founded was providing everyday low prices at any place. It was not until 1970 that the first stock was traded with the formation of Wal-Mart as a public limited company (Wal-Mart). Thereafter, the company’s operations expanded and its distribution centers increased leading to increased growth through acquisitions. Competition also increased with retailers such as K-mart, Costco, Dillard's, Dollar Tree, J.C Penny, Sears and Target (NASDAQ). The bargaining power of customers, therefore, increased with the availability of greater substitutes. This increased the need to manage the operations efficiently and effectively which meant the company had to make use of information systems and manage them to sustain their competitive edge. Perhaps the primary reason behind the rapid growth of Wal-Mart is its high responsiveness to customer needs and cost reduction through the integration of information technology and information systems into its supply chain and logistics. This is reflected in Wal-Mart being the first retailer to have adopted the hub-and-spoke system of centralized distribution (Banjo). The hub-and-spoke system revolves around the idea of systems integration with the inflow of products from various places to distribution centers where the orders are consolidated and sent to their respective destinations (Banjo). These enable companies to reduce cycle times, inventory as well as costs of transportation. Wal-Mart has carefully synchronized its business strategy with its MIS strategy. This is in line with literature which suggests that the operational, managerial and strategic needs of corporation must be aligned with the information systems. The model of strategic alignment suggests that the business, IT, Organizational infrastructure and IT infrastructure must be aligned with each other (Venkatraman, Henderson and Oldach). The strategic drivers in the case of Wal-Mart included intense and growing competition, the need to shift to online operations and cutting costs to enhance profits. All these have resulted in Wal-Mart resorting to the use of Management Information Systems in its operations. Although traditionally classified as a brick and mortar company with physical operations only, Wal-Mart can now be categorized as a dot.com corporation as well owing to the foundation of walmart.com. Wal-Mart presents a case of a retailer that has used information technology to achieve and maintain a competitive edge in the market. As mentioned earlier, this is based on the company’s business strategy of offering lowest possible prices (which can come through lowest possible costs). Therefore, cost reduction and responsiveness to customer needs have been at the heart of Wal-Mart’s business strategy. The company has catered to the needs of most of its stakeholders including its vendors, suppliers and customers through the adoption of information systems. Wal-Mart has invested huge sums of money for tracking its inventory across all outlets. The satellite communication system developed in 1983have allowed the company to track the dollar sales and also act as a communication medium between Walton and each of the stores (Chandran). Furthermore, Wal-Mart has adopted Vendor-Managed-Inventory (VMI) by collaborating with its key suppliers including P&G. VMI allows automatic inventory re-ordering whereby P&G’s computers are linked with Wal-Mart’s distribution centers (Chandran). Low-stock inventory is also identified along with fast-moving products so that items can be reordered in real-time without losing potential customers. This is used in conjunction with Continuous Planning, Forecasting and Replenishment (CPFR) whereby product-wise forecasts are determined jointly by Wal-Mart and its key suppliers (Seifert). Furthermore, sophisticated algorithms are also used to enable precise sales forecasts. This is no surprise as research suggests that organizations’ ability to predict demand is improved by 20% owing to the use of Radio Frequency Identification (Michael and McCathie). The use of ‘smart-shelves’ allows Wal-Mart to obtain real-time data on its stock levels which can be then be communicated to its suppliers. Used in conjunction with other information systems are Radio Frequency Identification tags whereby bar code tags and optical readers were attached to the inventory. This allows the inventory to be sent to their respective docks from where it is offloaded onto trucks for delivery. RFID results in a reduction of labor expenses by almost 30% along with reducing the verification costs by almost 90% (Michael and McCathie). High visibility of inventory through line of sight helps eliminate inventory buffer and consequently waste. RFID tags go beyond the basic function of monitoring inventory numbers by monitoring the level of temperature, bacteria and moisture in perishable products as well as supervising any incidents of tampering (Michael and McCathie). The above clearly indicates how Wal-Mart has been able to cut costs and sustain its operations by implementing various management information systems. Although Wal-Mart may be classified as one of the most successful companies when it comes to the implementation of IT, various aspects require rethinking. For once, it is important to note that investment in IT must be sustainable. The hub-and-spoke system, for instance, and the use of VMI and CPFR may as well be replicated by competitors in the long term. The question, therefore, arises as to how Wal-Mart can achieve a truly ‘sustainable’ competitive advantage. It must be noted that although information technology may be replicated, the trust and intangible relationships between Wal-Mart and its suppliers cannot be replicated by competitors. Partnering for or supporting causes is another way of delivering sustainable competitive advantage. One way could be to distribute food supplies to foundations such as “Save the Children” or “Feed the Children”. Also, Wal-Mart could make arrangements with its suppliers for donating one piece for each piece of product purchased. Furthermore, Wal-Mart currently faces issues pertaining to the management of seafood. In the midst of concerns of overexploitation of fish stock, Wal-Mart must engage in socially ethical practices to ensure sustainability of its operations. One way of doing this is to reward suppliers who are engage in ethical practices along with obtaining certification for selling ethical food. Most importantly, however, the company must use its IT to develop sustainable packaging and ensure suppliers comply with latest environmental regulations. To conclude, Wal-Mart must ensure the sustainability of its current IT implementation by focusing on aspects of social responsibility. This may be done by addressing issues such as starvation and overexploitation of natural resources. Furthermore, the company must use its positive relationships with its suppliers and vendors to its advantage by encouraging or even binding them to abide by sustainability regulations. Doing so would not only help counter similar efforts by competitors but also secure the company’s dominance in the market for years to come. Works Cited Banjo, Shelly. "Wal-Mart: A Pro in Physical-Store Retail Logistics." 18 June 2013. Wall Street Journal. Web. 2 September 2013. Chandran, P. Mohan. "Wal-Mart's Supply Chain Management Practices." ICMR (2003): 1-13. Web. Michael, K. and L. McCathie. The Pros and Cons of RFID in Supply chain management. Washington: IEEE Computer Society Washington, 2005. Web. NASDAQ. Wal-Mart Stores, Inc. Competitors. 30 August 2013. Web. 2 September 2013. Seifert, Dirk. Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage. New York: AMACOM, 2003. Web. Venkatraman, N., J.C. Henderson and S. Oldach. "Continuous Strategic Alignment: Exploiting Information Technology Capabilities for Competitive Success." European Management Journal (1993): 139-149. Web. Wal-Mart. History Timeline. 2012. Web. 2 September 2013. Read More