Global Operations of Wal-Mart, Costco and Aldi Corporations - Case Study Example

Executive Summary The retail chain business has grown rapidly over the years, globally. With such huge opportunities and the people demanding multiple buying under one roof has promoted the big business houses like Wal-Mart, Costco Wholesale and Aldi Corporations to move into the international markets and sell products. In this project we study the business reasoning for working globally and understanding their corporate strategy, organisational structure and supply chain structure. It brings forward the advantages it has over others with the application of proper business framework in these directions. Table of Contents Sl. No. Pg. No. 01. Introduction 03 02. Reasons for Global Operations 03 03. Corporate Strategy 04 04. Organisational Design 06 05. Supply Chain Structure 07 06. Conclusion 09 07. References 10 Introduction Wal-Mart, Costco and Aldi Corporations are the giant names in the retail market industry where some policies, which other small businesses follows are known by the name of such big houses. The way of purchasing and procuring of goods is carried out on a very huge scale and this adds to their success to sell products at relatively low prices. The process applied by these companies to run their business globally has made them a renowned name worldwide. It also highlights how they have incorporated such a strong supply chain structure in the buying and selling of goods. In this project much focus is concentrated upon how they apply the business framework in such a successful manner to run on high profits and huge coverage. Reasons for Global Operations Growth is the ultimate aim of all profit earning corporations. The structure of growth can be economically or globally. The retail market industry is a huge operative market which has buyers from all class of the society. A drive for more revenue has forced large corporations to establish business in the international market with a huge coverage and availability. Same is the case for Wal-Mart Corporation which focuses on the four basic strategies of: Becoming a truly global company. Solving business challenges. Leading on social issues. Keeping their culture strong. Wal-Mart had developed a successful business structure in the United States. The company needed to grow to survive in this competitive market. The opportunity was only available in the international arena. Also European chain retailers had strong market share in South America so the company had to look to foreign markets for making up the domestic gap. The revenue generated from the international business would help the corporation achieve high growth rate (Jobber, 2004). Costco Wholesale Corporation is the largest warehouse club chain and the third largest retailer in the US and the sixth largest in the world. Also Aldi is one of the largest discounters in the world market. The management of Costco looked forward towards international markets as they considered the overseas market to have huge potentials. The company saw much more growth opportunity in the alien soils. Costco being a US based company had the advantage with the factor that many countries across the globe love the feel and smell of American products, through international stores. Aldi Corporation worked with the motto of best quality at the lowest possible prices. Its devotional cost cutting had made it a big name in the European countries. So it looked forward for strong market response and revenues from international markets. Also its low line of products and high quality food stores with little fixtures and fittings would add to the same cost cutting process in the overseas countries. Corporate Strategy A good result of a firm is always the effect of a proper and effective strategy. So planning the corporate strategy and carrying it out efficiently is of great importance for any business. Wal-Mart basically followed the traditional strategy for managing its business. It essentially emphasised on low costs and high volume strategy. It aims at satisfaction of customers through relative low price and good customer service. Wal-Mart developed cost structures that allowed it to offer low everyday prices (Thompson and Martin, 2010). The system of cross docking has helped the company to route the products from the suppliers or manufacturers to its warehouses. This helps reduce the cost significantly and the savings are transferred to the customers in the way of low prices. The corporate strategy of Wal-Mart follows some set guidelines: Dominance in retail market. Expansion in US and international market. Creation of positive brand and company reorganisation. Branching into new sectors of retail. The simple but effective strategy of providing bulk goods at lower prices has been a basic strategy for Costco Wholesale. The cornerstone of its strategy was low prices, limited selections and a treasure hunt shopping environment. It offers large discounts to its customers, on some products and in return charges annual membership fees from them. Business customers tend to have gained the maximum through this effective bulk discount strategy employed by Costco. With the effective application of this corporate strategy the company has gained in increasing its customer base to a larger number. It also follows the policy of selling a limited number of items and aims for high end customers. It offers its workers better pay and the spending on advertisement is negligible. Aldi’s business model was based on simplicity and efficiency. It guaranteed top quality at incredibly low prices. Its product strategy was based on carrying a limited variety of fast moving products. It also follows the policy of large purchases to reduce the cost of purchasing. It is more focussed to a limited line of products and also does not emphasise brand image. It rather produces products under its own name and reduces the cost involvements like advertisings and big branding. Its outlets are supplied by regional distribution centres to reduce cost of transporting goods, and also in a way support local industries. It follows a strategy of keeping low labour costs by employing los staff numbers as they have a low number of products, but in huge quantity. Organisational Design Organisation structure is something done by any organisation to arrange people and jobs so that a set execution plan can be carried out to meet the set goals of the company. It is basically a hierarchical framework within an organisation. Wal-Mart was opened with the thought of a new type of store that the Americans looked forward for. Wal-Mart was constructed into three product divisional structure. The design is quiet similar to any business framework having the Senior President on the top with the cashiers, stockers and sales associates at the lowest levels. The three vertical divisional structures are: Above store managers comprising the senior and regional vice presidents and the market managers. Second level is the in-store managers like the general manager, co-managers and the assistant managers. Finally are the in-store hourly workers like the support managers, customer and merchandising supervisors and the cashiers and sales associates. Every employee is answerable to the other having a higher post. Also the problems and solutions are well communicated amongst themselves and to the seniors and lower levels. Costco Wholesale also has a centralised hierarchal organisation with the CEO at the top and the sales executives at the lowest ranks. The organisational design is also reflected in the warehouses which are structurally designed to help small to medium sized business to reduce costs. Other than the accountability and the communication amongst all the sections this corporation also has a membership card policy as a part of the business ascertaining a fixed number of customers thus helping the senior management to work on the process of increasing such customers (Boyle, 2006). Aldi has a very simple organisational structure as compared to the other giant business retailers. It has a decentralised, smaller operating units with clearly defined areas of responsibility. This structural formation has helped in promoting faster resolutions and reduces reports. The structure is also a hierarchical one with one department answerable to its senior department, like of the other retail chain outlets. It also has a vice president on the top followed by the directors of warehousing, operations, purchases and administration. Then fall the junior managers or the district managers. Then are the store management teams with respective work divisions and lastly the store employees who are engaged with the day to day works like storing, stocking and selling operations at the counters. Supply Chain Structure An effective supply chain structure is a very essential aspect of a multi store retail chain business. Without proper supply chain structure and its management the stores can either run out or be in surplus for a particular item with respect to the other. Also improper allocation to different stores could easily hamper the sales figure and hence the profitability. Wal-Mart is a big name which cannot be left behind while discussing supply chain management. The management is globally known better as ‘The Wal-Mart Way.’ It follows a few steps as a process as discussed under: i. Pricing and procurement policy: This Company is a tough negotiator on price with its vendors as they always looks towards availing lowest prices. They basically preferred regional vendors and suppliers. The procurement of the goods it kept in high volume helping in keeping the prices low. ii. Integration through product knowledge sharing: Wal-Mart excelled in the process by involving suppliers in the procurement process. It focussed more on sharing the knowledge with the suppliers to eliminate the wastage cost from the supply chain. iii. Supply Chain partnerships: Wal-Mart invited their major suppliers to develop profitable supply chain partnerships which had a direct effect on the cost of goods. iv. Distribution strategy: The merchandisings for the stores are shipped directly from the suppliers to the stores. A very few number of products are shipped through their distribution centres. It also followed the barcode technology and the hand-held computer systems to control any unfailing flow of products. v. Logistics management: A fast and rapid transportation system added to the supply chain management of Wal-Mart. It has a huge number of trucks which are dedicated towards the replenishment of the stores twice a week. The drivers are maintained as per a system and a code of conduct ensures safe delivery. vi. Cross docking: This involves eliminating the distribution centres by direct delivery of goods after picking and sorting from the suppliers, to the customers. vii. Inventory management: The stores managed their own stocks which helped reduce the inventory. Costco adapted a supplier code of conduct system and has very well succeeded in its supply chain management. All vendors, suppliers and subcontractors are required to meet the code to keep in the business to continue with the corporation. It also like Wal-Mart follows a huge purchasing system and procures its goods directly to the stores where possible. Also the line of products being lesser in number, comparatively, it has a larger purchasing quantity for individual products. With the application of information technology and a proper logistics management the company has won over a good share of business in the market (Colle, 2003). Aldi Corporation has a strong supply chain management and this helps it ensure that the goods reach at the right location at the right time during a customer’s buying cycle. At the point of sale the customers can have an access to the desired products with the right amount of stock at the right locations for making it convenient. In the production cycle, the suppliers and manufacturers synchronise the production and shipment according to the demand signal from the retailers. The back room of the store is stocked with the least amount of inventory to help solve a big issue of space for a retail supply chain. Moreover it also follows the same policy of pricing and procurement like Wal-Mart and Costco to avail goods at huge quantity and direct shipment to counters, from the suppliers where ever possible. It is a little different from others as it does not focus on brands and markets the goods on its own brand name. This requires a maximum of items to be brought under a common warehouse and then shipping it to the respective stores. Conclusion Wal-Mart, Costco and Aldi have become big brands in the retail industry market in the basis of the low rates and buying convenience which they have offered to their customers. Their operations are carried out by a hierarchy of officials and employees who are accountable to their respective and senior departments. They carry business in bulk number to ensure that they offer the lowest possible prices and reap the best profits. Their organisational structure and the supply management are has led them toward a big coverage of market share in the retail business sector. This project brings the operations and all the supply and procurement of goods. References Boyle, M. (2006). “Why Costco Is So Damn Addictive,” Fortune, p. 130. Colle, A. (2003). International expansion and strategies of discount grocery retailers. International Journal of Retail and Distribution Management. Vol 31 (1). Jobber, D. (2004). Principles and Practices of Marketing, 4th ed. McGraw-Hill Companies: New York. Thompson, J.L. and Martin F. (2010). Strategic Management: awareness and change. Sixth Edition, South Western, Cengage Learning. “Switching channels: Global Powers of Retailing 2012.” Deloitte. 2012. http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/ Documents/Consumer%20Business/dtt_CBT_GPRetailing2012.pdf, accessed 1.26.12. Steven Greenhouse, “How Costco Became the Anti-Wal-Mart,” New York Times, July 17, 2005, www.wakeupwalmart.com/news (Accessed November 28, 2006). “US: Wal-Mart Denies Workers Basic Rights.” Human Rights Watch. 30 April 2007. http://www.hrw.org/news/2007/04/30/us-wal-martdenies-workers-basic-rights accessed 1.26.12. Read More