Implementation of IT at Wal-Marts - Term Paper Example

Implementation of IT at Wal-Mart’s Information technology, globalization and internationalization have changed the way people think, react and take decisions. Increase in the use of information technology contributes extensively to nearly all of the corporate service activities. Different functions require increasing amount of information and capitalization of knowledge. Every aspect of management today requires information on which to build the organization but mere information is not power. The right dissemination and application of information is power. It helps in enhancing the decision making process, enhances the operations, helps in overall growth of the company. Information technology is applied in different aspects of business which includes Inventory management system, sales force administration, human resource management system, customer relationship management, and finance and accounts. Wal-Mart the brain-child of Sam Walton started in 1962 as a family-owned discount store with an innovative business strategy. Incredibly efficient and focused on the principle of low-prices, Wal-Mart transformed the retail industry. Wal-Mart has 3,400 stores in the US and is largest employer in US second only to the Federal Government (Nester, 2006). It is sheer size, growth and profitability of Wal-Mart that it is in a position to define corporate trends and dictate and perfect the nature of discount stores. Wal-Mart has four large scale retail formats; Wal-Mart Stores, SAM’s Club, Wal-Mart Supercenters and Neighbourhood Markets. The challenges in the supply chain management include new solutions for a more efficient handling of lean material flows, efficient customization of products and logistics services and information sharing across company limits. Wal-Mart’s growth is associated with its efficiency in managing the supply chain. It was their innovative computerized logistics and distribution system strengthened by globalization forces that can be attributed to their success (Irwin & Clark, 2006). Wal-Mart has been pioneers in applying the information technology (IT) to support decision making and promote efficiency. Wal-Mart was the first to use computers for inventory control, and in 1997, they initiated electronic data interchange (EDI) with their vendors. The next year they introduced barcode scanning for point-of-sale and inventory control. In 1990 they invested in a fully integrated private satellite network which provided data transmission for inventory, credit card authorization and enhanced EDI. In 2005 the introduced the RFID technology that uses radio waves to identify objects. Their computer system receives 8.4 million updates every minute on the sales and this data is used by the merchants to understand the customers’ wants and adjust their supplies accordingly. They have integrated the entire value chain and their web of information system extends beyond the walls of any one store. Thus it is evident that Wal-Mart has integrated IT in each of the function areas to leverage competitive advantage. While it is not possible to understand all their IT functions, this case study proposes to investigate how Wal-Mart has effectively used IT in enhancing its services and remaining competitive. It is assumed that despite all claims, Wal-Mart lags behind in the application of IT in the retail sector. Data from academic journals and recent news items will be considered for conducting the research. 2. No company can operate without the external forces affecting it. Competition in every industry drives the organizations to enhance services and incorporate technology to leverage advantage over competitors. Retail shopping has changed the traditional shopping customs by introducing a western shopping culture through product variety and modern store formats. Retailing grocery is an intensely competitive, low-margin and high volume industry which has evolved over the years and is now dominated by chains utilizing the latest technology. Hence Wal-Mart is competing with rivals like Target, Meijers and Sears in the US, with Tesco, Ahold and Carrefour in the international market in this sector. Intellectual capital is the most important wealth creator. Knowledge differs from tangible assets and intellectual capital demonstrates a sustainable effect on company’s earnings. Wal-Mart’s computerized supply chain is evidence (Karp, 2003). To maximize benefits from information systems, the company must align the system with its key decision. This can help the company improve its decisions and fight competition. The retail environment in which Wal-Mart is operating is highly competitive and volatile. It is fast losing grounds in the US market for various reasons and is now concentrating in opening stores overseas. One of the markets that it is concentrating is China. P.E.S.T analysis (Appendix A) Political The political influences in this industry are of great concern as most retailers are trying to open overseas as the domestic markets are either saturated or there is heavy competition. European Customs and Regulations hamper expansion plans (Bysani, 2003). Even in the overseas market they face barriers like FDI restrictions in several countries. China has of late allowed FDI to flow in this sector while India is still conservative. Economic Wal-Mart has helped to hold down inflation in US. Wal-Mart is responsible for about 12% of the economy’s productivity gains in the second half of the 1990s (Fishman, 2003). As a globalizing force, Wal-Mart exerts influence on the regional, local and national economy. It has restructured the American workforce and consumer behavior (Lavallee & Boyer, 2006). Globally, the spending power of the people in the developing economies has under gone change. The consumer behavior in China and India has particularly been very encouraging. Exchange rates keep fluctuating which affects global sourcing and pricing policies on a daily basis (Bysani, 2003). Social Its low price policy helps millions to buy more from their meager pay checks. They can even indulge in minor luxuries (Bianchi & Swinney, 2004). This makes the entire economy more efficient and productive. In the micro level this translates into low prices with better product. This is the scene in the US but globally it will still take time to grow and people are looking for discount items. In developing economies the retailers would have to do push selling and aggressive marketing (Bysani, 2003). Language and custom barriers affect spending and visit to retail stores in many countries. Technology Wal-Mart is known for its efficiency and fore-sightedness in keeping itself well informed through the adoption of information technology. The advanced technology and the satellite system have helped in the expansion of Wal-Mart. While all the retailers in the industry have adopted technology, Wal-Mart has been pioneers. Nevertheless, the competitors have moved ahead in several ways and a SWOT analysis would bring to light the position of Wal-Mart (Appendix B). Strength Wal-Mart has been ahead of competitors in technology and even today aims to emulate Amazon’s online global expansion to augment its global e-commerce technology platform. Currently through its websites it achieves sales of about $2bn a year and is the most visited site after Amazon (Birchali, 2008). They have a customer focused approach and with the use of technology they can alter their products to suit the customer needs. It is now recruiting software architects and engineers and would employ data mining and customer analysis to be deployed in different markets. Weakness Even though Wal-Mart introduced the RFID technology, only 3% of its 20,000 suppliers are using the technology (WSJ, 2007). It is lagging behind in ecommerce and trails behind 12 competitors in online sales. It has not been able to respond to new challenges in the IT because of its obsession with RFID technology. Opportunities It has the resources and access to innovative technology. It has an advantage in the speed at which it delivers goods to the customer. These innovative devices can help them to keep track of up-to-the-minute inventory at stores. They also have a customer-focused approach and can use these to gain competitive advantage. The developing markets can be used to employ technology which has not yet saturated these markets. Threats Tesco has taken a similar approach in international expansion (Birchali). They have heavily deployed e-commerce technology to enhance customer experience. Competitors like Target and Best Buy have built equally efficient systems based on the technology. In the mature markets Wal-Mart faces stiff competition. 3. Wal-Mart is employing technology in every business function. Wal-Mart was struggling to increase its sales in mass-market discount stores (Forsyth, Galante & Guild, 2006). Market research could not identify the reason or the problem. The managers then integrated point-of-sale date with an online survey on shopping behavior in stores and general customer interests. This revealed that a large number of people who purchased TV from Wal-Mart were interested in watching sports. This information was effectively used by the organization and they immediately introduced features which sports-minded people enjoy - picture-in-picture capabilities, digital connections, and plenty of audiovisual ports. This demonstrates the customer focused approach of Wal-Mart and they utilize technology towards this end. Wal-Mart has also applied the Radio Frequency Identification (RFID) technology. RFID tags when attached to the product, tool, and material handling equipment would give the manufacturers demand signals from the customers and the market. Small electronic tags transmit data via a radio signal to RFID readers and related hardware and software infrastructure. When the information on the tags passes by a reader, the movement is captured and managed by the infrastructure. Without any human interaction, the organizations can link the physical world to the digital world. Wal-Mart has adopted this technology and it is estimated that they could save $8.35 billion annually (AME, 2005). It helps the company to track what shipments are arriving at the store and what sales are leaving the door. It knows what inventory it has in each store and without RFID they are unable to find out what is in the back room and what is in the front. This technology helped them to reduce thefts of their products, apart from obtaining proof-of-delivery, inventory reduction, and promotional performance. Since sales and in-stock information is transmitted between Wal-Mart and their suppliers in seconds, they even conduct their negotiations based on a shared understanding. They provide all the information from their point-of-sale system to all their suppliers. By giving the suppliers the information of what has been sold in which store at what time of the day, they are empowering the supplier to adjust their manufacturing accordingly (Collins, 1997). These suppliers then inform the Wal-Mart store manager to adjust the product mix. Wal-Mart has doubled its international capital expenditure on IT and corporate to $200m from $100m last year (Birchali, 2008). Wal-Mart also conducted a thorough evaluation of its financial system to determine what was needed to support its $350 billion business (Aligned Strategy, 2007). It has now decided to implement SAP globally in phases with the first phase expected to be completed in 2010. They are planning to have a new global e-commerce unit at their international division that will oversee the creation of a platform to sell groceries, general merchandise and digital products. At the same time their stores would be linked up with the call centers (Birchali). Their database can store up to 24 Terabytes of information all of which can be accessed through their intranet (Reesman, 2002). All the stores have access to this information and they can adjust their buying trends. The probability/impact grid is a key tool for risk assessment. This would help to determine the risks that Wal-Mart is confronted with in the face of competition. There is high probability that Wal-Mart would invest in IT in the near future but the impact probability is low (Appendix C). Since they have invested earlier also extensively in RFID technology, but the results have been poor. In fact there are mixed reports on its usage and returns from the use of RFID. At the same time, competition is fierce and it is expected that they would also invest in upgrading the IT systems. E-commerce and online sales is becoming very popular in mature markets and retailers are using different schemes to attract the customers. Wal-Mart’s strategy is to tag as many items as possible and to involve as many suppliers as possible. Despite that, since 2005 they have been able to involve 100 suppliers tagging products and less than 1000 items were tagged (Songini, 2006). Without any extensive process change they have seen return on investment. Out-of-stock items that are RFID-tagged are replenished three times faster than before and those items that have to be manually replenished have been reduced by 10%. Sensor tags have been added to perishable items like fruits. This helps them to know for instance how long a carte of banana has been in transit and by when it should be sold. With such time sensitive goods, it is essential to have collaboration with partners. 4. Wal-Mart has been trying to develop an integrated IT system for all its functions. Although they were pioneers initially, they now lag behind in many areas. They had integrated IT into all their business functions like tracking goods, vendor relations and even in trying to understand and respond to the customer needs. They have incorporated RFID, SAP and POS for various functions. All these should help them to gain competitive advantage and handle the external environment. Technology has not been utilized for maximizing benefit in overseas market. They have used the POS to study the consumer behavior in China which is quite different from the western countries. While RFID has great potential, it has not been extended to all the vendors nor are all the items tagged even two years after implementing this technology. They have derived some benefit but it is limited and as reports suggest, only 3% of their vendors are linked to this technology. The vendors are supposed to be empowered through this technology to adjust the product mix by observing the buying trends but most vendors do not use this technology. They have not been able to develop a powerful online system where others like Tesco have moved ahead. Even though they claim that they get maximum visitors to their website, next to Amazon, they have not been able to derive benefit from this. This implies that their websites are not user-friendly or goods cannot be freely ordered online. They have not been able to respond to the challenges posed by the external environment. As far as venturing into the overseas markets are concerned, they have not yet allowed online sales in developing countries. For their internal efficiency they have employed SAP to enable financial controls, but all their controlling efforts are towards controlling costs and maximizing profits while squeezing the vendors. They do have great expansion and investment plans in the IT as others are moving ahead. They have a powerful database storage capacity and through intranet, all their stores are linked but since all vendors do not use the RFID technology and since not all of their items are tagged, intranet does not serve any purpose. Though they have been employing technology before any other retailer started using it, they have their systems in place, they have strengths like being able to track the shipments and minute-to-minute sales figures at hand, they can also deliver goods at a pace three times faster than competitors, despite all these advantages, they have not been able derive the benefit from an effective IT system. References: Aligned Strategy (2007), Walmart Selects SAP Financials to Enable IT Strategy, 02 Feb 2008 AME (2005), How RFID can help optimize supply chain management, 02 Feb 2008 Angeles, R., (2005), RFID technologies: supply-chain applications And implementation issues, Information Systems Management Winter 2 0 0 5 02 Feb 2008 Bianchi, D., & Swinney, D., (2004), Wal-Mart: A Destructive Force for Chicago Communities and Companies, Center for Labor and Community Birchali, J., (2008), Wal-Mart in global online push, Financial Times, 02 Feb 2008 Bysani, V. K., (2003), Analysis and Evaluation of Wal-Marts Global / Transnational Strategy, 03 Feb 2008 Chappell, G., Durdan, D., Gilbert, G., Ginsburg, L., Smith. J., & Tobolski, J., (2003), Auto-ID on Delivery: The Value of Auto-ID Technology in the Retail Supply Chain, 02 Feb 2008 Collins, R., (1997), ECR – breaking china in the US supermarket industry, Supply Chain Management, Volume 2 · Number 3 · 1997 · 92–98 Fishman, C. (2003), The Wal-Mart You Dont Know, 02 Feb 2008 Forsyth, J. E. Galante, N. & Guild, T. (2006), Capitalizing on customer insights, The McKinsey Quarterly, 02 Feb 2008 Irwin, E. G., & Clark, J., (2006), The Local Costs and Benefi ts of Wal-Mart, 02 Feb 2008 Lavallee, T. M. & Boyer, M. A. (2006), Globalization and Local Governance: Implications from Wal- Mart’s Expansion, International Studies Perspectives (2006) 7, 254–266 Nester, M. (2006), Strengths, Weaknesses, Opportunities, and Threats of Wal-Mart in the United States, 02 Feb 2008 Karp, T. (2003), Is intellectual capitalism the future wealth of organisations? Foresight Vol. 5, No. 4 2003 , pp. 20-27 Reesman, C., (2002), WAL-MART AND ITS USES OF INFORMATION TECHNOLOGY TO STAY AHEAD IN THE NEW INFORMATION AGE, 02 Feb 2008 Songini, M., (2007), Wal-Mart details its RFID journey, 02 Feb 2008 WSJ (2006), How Tech is Killing Wal-Mart, 02 Feb 2008 Appendix A P.E.S.T. Analysis Political influences European Customs and Regulations FDI restrictions in developing economies Economic influences Exchange rates fluctuations Erratic consumer spending Social Influences Language and custom barriers Aggressive marketing and push selling Technological influences Advanced technology very strong influence in growth Appendix B Strengths, Weaknesses, Threats Opportunities in the use of IT Strengths Use of POS, data mining Most visited site after Amazon Sale of $2bn annually Employing software engineers for application of data mining Opportunities Plans of investment in IT Developing markets like India and China Innovative devices to track inventory and consumer wants. Weaknesses RFID technology being used by only 3% of its 20,000 suppliers Has 13th position in online sales Lagging behind in IT challenges Threats Tesco Target Best Buy E-commerce application by competitors Appendix C Probability/impact grid Probability/Impact Low Impact High Impact High Probability Extensive investment in IT But the result is poor as competition is aggressive and more advanced Investment in SAP – if it is not handled or applied effectively, it could jeopardize the entire financial system. Low Probability Online sales – if the system is operated carefully, it is bound to fetch results but the impact would be low and hence can be done at a fast pace. Lagging behind in implementation of the IS/IT systems and hence unable to gain competitive advantage. Read More