The Use of Strategic IT within the Retail Sector: The Wal-Mart - Case Study Example

The Use of Strategic IT within the Retail Sector: The Wal-Mart Case Study Contents Executive summary…………………………………………………………………….3 Introduction……………………………………………………………………………4 Strategic IT in Wal-Mart……………………………………………………………….4 Objectives of Strategic IT ……………………………………………………...5 Value Chain of Wal-Mart ……………………………………………………...6 Wal-Mart’s e-SCM ………………………………………………………….…6 IT Collaborations of Wal-Mart ………………………………………………..7 Current Strategic IT practices in Wal-Mart ……………………………………………8 RFID ………………………………………………………………………………….….8 CPFR …………………………………………………………………………..9 Cross Docking ……………………………………………………………..…..9 POS System ………………………………………………………………..….10 Evaluation of the use of Strategic IT in Wal-Mart …………………………………...11 Conclusion ……………………………………………………………………………12 Appendices ………………………………………………………………………..….13 References ………………………………………………………………………..…..16 Executive Summary We talk of Wal-Mart when we talk of retail. And we talk of Wal-Mart when we talk of strategic use of IT in retail. As such, the present discussion is focused upon the capabilities and competencies developed by this leader in retail sector through its visionary IT implementation. The paper commences with an introduction of Wal-Mart and its phenomenal success which is attributed to its tactical IT usage merged with strategies. The paper then progresses to reveal how this IT has been strategically blended with business strategies at Wal-Mart. This section also discusses the IT objectives, contribution of IT to the value chain of Wal-Mart and its IT collaborations. The above section is followed by IT practices currently being observed at Wal-Mart. They provide a glimpse of what techniques are in place and which processes and activities are benefitted by them. Next, an evaluation of this IT usage is done in the sense that how it has added to the success of Wal-Mart. Last but not the least a conclusion follows that summarize the overall discussion. Introduction Globalization and increased competition compelled the policy regulators to think out of the box and devise new and improved means of business with techniques that are hard to imitate. One such centurion innovation was the emergence of retail business. However, the strategists were still not satisfied with the traditional retailing and what emerged as the leader of all retailers is holding the Numero Uno status even today. We are talking of Wal-Mart- the retail giant, which, through its early adoption of cost cutting measures and integrating Information Technology (IT) into its strategic plans, has gained immensely on operational efficiency front and cemented its position in the retail market. Strategic IT in Wal-Mart In its spree to achieve cost efficiency and a cutting edge over the rivals, Wal-Mart has been exemplary in aligning its day-to-day functions and activities with Information Technology to turn them responsive and faster. As evident from Appendix 1, the competitive strategy comprises of either efficiency or responsiveness. However, to cater to the diverse and changing needs and demands of the market and consumers, it is imperative that lag time is reduced between the demand and supply of merchandise. As such, amongst the four drivers of supply chain, namely: Facilities Inventory Transportation, and Information, Wal-Mart has integrated its supply chain strategy with Information Technology with the following two keys: Coordination of functional strategies with the competitive strategy to come up with an overall strategy with IT as the integrator. Restructuring of processes and resources to compliment the functional strategies. Objectives of Strategic IT In its initial days of functioning, Wal-Mart adopted the theory of low pricing and focused on low earning families to capture a large customer base. Strategizing the operations with IT helped in simplifying the activities and processes, thereby providing cost savings. These savings were ultimately passed on to the consumers in the form of “Every Day Low Prices”. Wal-Mart incorporated Information Technology into its organizational and operational objectives, which actually are aligned with its competitive strategy also. Its overall objectives with IT as the driver spread through the following domains and emerge in the form of following goals: Organizational Objectives 24*7 availability of merchandise Lowered distribution cost Reducing the response time for customer Efficiency development Collaboration with partners Operational Objectives Operational objectives are further classified between partners and customers to produce synergistic effects: Customer objectives Making the merchandise of choice, available to the customer, in specifications of size, quality and type. Matching of POS (Point-of-Sale) entry and price tags to avoid errors. Providing facilities to customer in the way that they can get product related information through the use of price tags. Merchandise ready on shelves before customer arrives. Fast replenishment of merchandise. Partner objectives Getting merchandise in right quantity at the right time and at the right price from the partners. Transacting in credit terms with partners. Sharing of information and exchange of forecast related to stocks and purchases in collaboration with partners. Value Chain of Wal-Mart Analyzing the value chain of Wal-Mart, it is pretty much obvious that information technology has contributed a lot to the retail giant in improving its security and achieving economies of scale. In its internal value chain (Appendix 2), Information Technology forms a component of the support system of Wal-Mart. However, even being a support constituent, it spreads along all other dimensions of value chain and binds all other functions to provide combined and optimum results. The External value chain of Wal-Mart (Appendix 3) also clearly depicts how technology savvy the organization has become in order to reap maximum benefits by the use of information. By streamlining its operations and supply chain activities with Information technology, Wal-Mart has been able to eliminate repetitive and costly activities from its operations charter. Wal-Mart’s e-SCM Cunningham (2002) defines e-business as “the transactions, processes and systems that support the act of doing business through electronic networks”. Wal-Mart was the pioneer in merging the concept of supply chain with electronic networks to better its strategic disposition. The long-lived philosophy of providing low priced branded products to middle income groups is a direct result of its incorporation of technology in its major processes. With the use of information technology enabled partnerships with suppliers, Wal-Mart procures products on most competitive rates and the benefit is accrued to the customers, not compromising with the quality even. In addition to this, Wal-Mart keeps itself updated of the latest and relevant information of products, deliveries, stocks and merchandise with the use of its strong and robust Electronic Data Interchange (EDI) system that disseminated real time information, thereby eliminating the middlemen mark-up and commission charges. RFID (Radio Frequency ID) is yet another feather in the cap for Wal-Mart where it reduces errors and omissions due to labor and manual work in code checking. The technique has not only reduced the likelihood of merchandise shrinkage, but also resulted in supply chain cost savings to approximately 7%. IT Collaborations of Wal-Mart Wal-Mart has beaten all kinds of rumors and initiated such rules and customs that were still in their inception stage. RFID which is the brain child of Wal-Mart was imitated after a long time by the competitors. In the meanwhile, Wal-Mart revolutionized the traditions of partnerships between suppliers and vendors (Appendix 4). Wal-Mart is such a promoter of IT that it blended Information Technology and communication techniques in partnerships which came up as collaborations (Collaborative Planning, Forecasting and Replenishment) (Appendix 5). Now suppliers hold a key position in decision making processes and share valuable information much before the actual production process. This provided multiple benefits to the retailer- reduces the bull-whip effect, eliminates the probability of demand-supply mismatch, provides cost advantage and most important of all, improves the forecasting process. Current Strategic IT Practices in Wal-Mart Wal-Mart’s expertise is not limited to one or two IT implementations, rather it percolates down through numerous business functions, each implementation serving a definite purpose and accruing advantage in a unique sense. Some IT techniques fall in operational smoothening while some are executed for managerial ease. In all, Wal-Mart’s strategic use of IT is evident from the following practices: RFID RFID or (Radio Frequency ID) was made known to us only when Wal-Mart’s name got attached to it. Though being a revolutionary technology for both E-commerce and M-commerce, its utility was understood only when Wal-Mart initiated it in its current operations. The RFID technique makes use of radio waves and RFID tags that could be placed on people, objects and even at places and their location, identification and other details can be retrieved through the exchange of information transmitted through these waves. Wal-Mart was forerunner in applying this technology when in the year 2003 it instructed its 100 key suppliers to incorporate RFID tags on their cases and pallets. By January 2006, this number has risen to almost 200 suppliers. Later on, seeing the success of RFID technology and the advantages provided by it, the trend was replicated by Sainsbury, Woolworths and Marks and Spencer. RFID technology has facilitated a lot to the retail sector and in a way, has seized the imagination of retailers. With this technical marvel, Wal-Mart is able to keep track of its merchandise, products and delivery information and even inventory and stock reports in real time. CPFR CPFR or (Collaborative Planning, Forecasting and Replenishment) is a blend of IT and managerial acumen. It is a strategic tool in the hands of Wal-Mart where it maintains strategic partnerships with its key suppliers and involves them in the planning, forecasting and decision making process. In this process, information plays a vital role. Continuous and real time dissemination of information allows the partners to be flexible in their decisions. CPFR prevents the anomalies in forecasting and decision making caused by reduced product life cycle, fluctuating market demands, out of stock situations and increased globalization and competition (Lowson 2002, p. 226). Wal-Mart initiated the trend of CPFR with Proctor & Gamble in the year 2000 to turn its supply chain responsive, operations efficient and planning improved. This technique was also imitated later on by Henkel to manage its promotional activities. Fujitsu Services also collaborated with IntelliQ to prevent the losses due to fraud and irregularities. Cross-Docking Cross Docking technique is at the heart of Wal-Mart’s logistics infrastructure and which accounts for more than 85% of Wal-Mart’s merchandise delivery. Unlike traditional supply chain where lost of contact points exist between the actual supplier and the customer, Wal-Mart again made use of information and its properties to eliminate these points and deliver the goods, directly from supplier to the concerned customer. Cross docking synchronizes the time gap between demand and supply and eliminates the costs involved in huge inventories and warehousing, the essential features of value chain like shipping and consolidation remaining intact. With Cross docking, products can be received from multiple suppliers and shipped directly to the customers with Wal-Mart just sorting the products according to the orders. IT combines the element of certainty and exact demand in Cross docking as the retailer places orders for only the demand volume and receives actual products that can be shipped instantly. There is no place for warehousing or inventory cost. Thus, information combined with technology again turns the entire logistics and transport system fast and responsive. In order to better its logistics function, Wal-Mart has categorized cross docking technique according to the type of merchandise and products to be shipped. A closer look at the following reveals: Opportunistic cross-docking makes use of exact information and ships the exact quantity of products to the customers. Flow-through cross docking is meant for perishable goods like grocery in which a constant inflow and outflow of goods is maintained. POS System There are two ways for retailers for cost savings- one is on-board inventory cutting and the other is urgent and timely availability of inventory to the customers. Wal-Mart opted for second by making optimum use of its IT capabilities and saved further on inventory costs and inventory levels. For managing the inventory, Wal-Mart operates a Point-of-Sale system which records details of sold goods, on-road shipments, stock levels, backup stocks and even inventories. It even has satellite communication systems installed at every distribution center, linked with an automated reordering system from which Wal-Mart sends re-supply orders to its nearest suppliers and distribution centers for replenishment. Evaluation of the use of Strategic IT in Wal-Mart No doubt, whatever IT implementations and processes have been initiated and furthered by Wal-Mart were beyond the imagination of retailers and even other industry strategists. Wal-Mart has made a risk-return trade off and has fared commendably well in this front. The stereotypic definition of supply chain and merging IT capabilities with normal business processes has been changed by Wal-Mart. When organizations were apprehensive of incorporating IT into their strategic processes, Wal-Mart already did it and not only excelled, but also paved the way for further modifications and developments in the technologies and techniques adopted. With the help of these IT collaborations, Wal-Mart has developed a robust e-network where information is the binder of all processes, coupled with technology that eliminates the chances of errors and omissions caused by manual labor. CPFR has enabled Wal-Mart to make a judicious selection of only the key suppliers who could partner well in decision making and future forecasting processes. RFID has prevented the chances of frauds, mismatch between actual and recorded data and faulty deliveries and lead time. Cross-docking has simplified the logistic and transport system of Wal-Mart and eliminated many of the redundant and non-essential processes that often result in extra costs, middlemen mark-up on prices and delayed deliveries. The combined benefits of cross docking are visible to the customers in the form of reasonable prices. POS systems have made easier the way sales were done traditionally and sales records were matched to the product details. Now every thing is accomplished in a jiffy with the use of IT practices. In all, apart from management strategies, a huge factor of behind Wal-Mart’s success is its electronic network and e-strategies and most importantly, careful and planned execution of these strategies amidst internal and external forces of resistance. Conclusion Looking back at the successes, Wal-Mart has undoubtedly made a class for itself by doing unimaginable things, especially in a domain which is often dreaded by others to enter into. Most of the organizations fail to commit to strategic use of IT due to several reasons like culture, hesitance, dearth of skilled labor and employees and many more. However, Wal-Mart has defied every reason that could pull it back. Now the stark truth is world is constantly expanding and so do the globalization and competition. The IT technologies are already imitated and now Wal-Mart has to look forward to newer techniques and innovative practices that could again provide it a giant leap against its rivals. Appendices Appendix 1 Appendix 2 Source: http://s93063416.onlinehome.us/iloveaccounting/614/Crain-and-Abraham-2008.pdf Appendix 3 Source: http://s93063416.onlinehome.us/iloveaccounting/614/Crain-and-Abraham-2008.pdf Appendix 4 Appendix 5 Appendix 6 Source: http://www.emeraldinsight.com/content_images/fig/0890360302002.png References Lowson, R 2002. Strategic Operations Management: the new competitive advantage. New York: Routledge Read More