Strategic Management: Walgreens Internal Analysis - Essay Example

Value Chain Analysis on Walgreens Co INTRODUCTION Walgreen is America’s largest drugstorechain with overt 5,460 outlets in operation across 47 states in USA and Puerto Rico. With over 4.7 million customers patronizing the outlets on a daily basis nearly 30% of its stores are open on 24 hours basis. Filling over a million prescriptions daily and offering its customers a host of other support services, Walgreen operations are vast and complex.. The company generates over US$ 47 billion revenue per annum and holds close to 15% of the market share of retail prescription sales in United States. With its target of operating 7,000 stores by year 2010, Walgreen needs to manage its internal processes effectively and efficiently to maintain competitiveness and profitability. Assessing its operations to identify key business processes and areas of value addition allows companies to manage costs strategically. The concept of Value Chain Analysis presents a powerful management tool for identifying key areas of value addition and cost incurring with a business operation and by analysing Walgreens Value Chain, the report aims to establish areas of organisational strengths and weaknesses which would facilitate the strategic decision making process. 2. INTERNAL ANALYSIS An internal analysis of an organisation entails the assessment of its key business processes, the core competencies, organisational strengths and capabilities as well as weaknesses in alignment of business opportunities, which the organisation is perusing for its long terms success. Analysis tools such as Organisational Capability Analysis or OCP analysis, Value Chain analysis and SWOT analysis are few common tools available in conducting an internal analysis for a business. Value Chain analysis presents a strategic view of all company functions and activities, which are performed in carrying out its business and facilitates a comprehensive internal assessment in terms of not only the activity or function itself but also the manner in which they are interlinked in pursuing company objectives. 3. THE VALUE CHAIN ANALYSIS “The Value Chain Analysis identifies separate activities, function and business processes that are performed in designing, producing, marketing, delivering and supporting product or a service” ( Porter 1985). The chain of interlinked activities, which comes together to finally meet a customer need in the form of a product or a service includes raw material sourcing, logistics, production, sales & marketing as well as other support services. AT each stage, the business objective is to create and add value and generate a component of the final profit so that the value generated at each point is greater than the cost incurred in performing that particular activity. By analysing a company’s value chain, the cost components being incurred at each stage as well as the capital being tied up to each function is highlighted, allowing strategic decisions to be made in terms of cost management. It also allows the company to identify its strengths and weaknesses at each stage of the operation (Thompson & Strickland 2003). This facilitates a company to identify the key areas, which needs its focus in terms of competency building and weaknesses against which contingency planning has to be in place. It also identifies areas of strengths, which can be highlighted in its positioning strategies. 4. INBOUND LOGISTICS: One of the primary activities of a company lies in its Inbound logistics and ancillary functions associated with it. This is also one of the key cost components of a business operation and will need to be streamlines and operate effectively to ensure the smooth flow of operations down the rest of the value chain. Inbound logistics is closely associated with another key function, which the purchases and procurements and some companies tend to combine the procurement and inbound logistics under one unit for the value chain analysis. However, assessing the activities which comes directly under the inbound logistics will focus upon activities such as receiving goods, raw-materials and other supplies from vendors, quality inspections, storing, and inventory management (Thomson & Strickland 2003). In retailing industries, such as supermarket and chain stores, the inbound logistics becomes one of the most crucial area of activity in the value chain as a large number of products are involved. When the retail network is widely dispersed, the inbound logistic function becomes even more complicated as several geographical areas are to be covered and separate storage locations needs to be operated to cater to the network of outlets. Walgreens with its 5,460 outlets and a huge product lineup operate over 16 large facilities termed as distribution centers, which are dedicated to the management of inbound and outbound logistic function of the company. The company is renowned for its huge investments in their distribution centers, which are over 700,000 square feet in average size. These centers are geared to cater up to 450 outlets within a specified geographical radius and employ over 500 persons in the management of the logistic functions (Walgreens to build 2003). 4.1 Inbound Logistics Strengths The most significant strengths of the Inbound logistic area of Walgreens value chain lies in the state of the art distribution centers which the company operates in strategic locations to facilitate effective receiving, storage and dissemination of goods. Currently the company operates over 15 such locations dedicated to manage the inbound and outbound activities of the company. With over US$ 175 million investment in each such facility, the company aims to streamline its logistic function to add value and minimize costs which results in mismanaged inventory control and logistic activities. This strength is further enhanced by the team of highly qualified logistic personnel employed by the company. Standardized and clear instruction information play a key role in ensuring correct and timely deliveries to the correct locations and with Walgreens vast product lines which are sensitive to weather conditions and needs fragile handling, having an effective Routing Guide becomes a clear strength. “Successful implementation of a routing guide feeds off constant communication among vendors, carriers, and consignees. This information sharing is even more critical today given the tenuous economy, safety and security concerns, and the ongoing challenge to drive down transportation costs” (O’Reilly 2004). As per Tom Stedman, the director of corporate transport, Walgreens, “We use our routing guide to standardize instructions to vendors. It is becoming more important in todays economy to measure vendor compliance and make sure they are shipping products correctly We want our vendors to ship on time, in the right quantities, with the right carriers and we are constantly working on improving this. ” Another key strength of the company lies in the use of Information Technology to support its inbound logistic function. Walgreens has successfully developed a web portal, which allows its vendors to “downloadable routing guides and bill of lading forms, account and billing information, links to core carriers, as well as real-time weather monitoring information” (O’Reilly 2004). All these strengths together facilitates low cost inbound logistics through on-time goods receipts; low levels of product damages; lower carrier costs; unclogged supply chains with few or no bottlenecks as well as enhanced vendor buyer relationships which are key success factors for any business. 4.2 Inbound Logistic Weaknesses In terms of weaknesses in Walgreens inbound logistics activities, one of the key weaknesses lies in the huge capital tied up to this segment of the value chain. With its huge investments in the distribution centers in terms of property costs, equipment and modern technology, Walgreen needs to ensure that the benefits received through such a large and modern facility does not get offset by the cost of capital. 5. OPERATIONS: Operations segment of a company value chain includes all activities associated with converting inputs in to final product form which may involve production, assembly, packing, equipment maintenance, facilities and operations such as retailing (Thomson & Strickland 2003). In addition to operating over 5,460 outlets, which offer retailing services of pharmaceutical products, beauty and health care products as well as a host of other miscellaneous items, Walgreens operations include three other key areas. These operations include the mail service pharmacy, specialty pharmacy and home care services (Walgreens 2006). Walgreens operations have built a reputation for convenient and reliable service and its operational strategies are focused on achieving maximizing the quality of customer service and care provided throughout its operations. 5.1 Operations Strengths Over 30% of Walgreens outlets are open on a 24 hour basis and all outlets are open for 17 hours. The outlets are located strategically at intersections making it easily assesible. The Walgreens mail service pharmacy combined with Walgreen.com website offer convienience of onlien prescription filing and refiling and home delivery. Enhancing the service quality and reliability, Walgreens facilitates its diverse base of customers with the choice of conversing in one of 13 languages through its networked internal communication system. It also prints prescription instrcutions in different languages to suit customer needs and use large font sizes when customers are site impared. Walgreens is the largest private user of satellite transmission data in the world, second only to the U. S. Government and this networked system operates intelligent systems and decision support systems which facilitate streamlined operations. For example, an intergrated system analyse the workload of each pharmasist and divert and reallocate work load to outlets in surrounding areas so that prescriptiosn are evenly distributed so as to ensure quality of the pharmasist’s services. The company strengths also inclue its energy saving initiative which has kicked stared with the installation of solar roofing parenls in over 100 outlets as a test run. These solar panels are generating up to 20% of the energy requioremnets of tehse outlets and translates in to cost savings as well as environmental protection. 5.2 Operations Weaknesses Some of the key weaknesses in Walgreens operations lies the continued operation of some of the aging stores. As the company’s history dates back over 100 years, its explainable why some of the Walgreen outlets are ageing but its necessary to relocate to more suitable locations in line with current standards of outlets and demographic patterns. Another weakness in Walgreens operations can be identified in the inadequate staffing in most stores. Operating on self-service basis the outlets station their service personnel only at the prescription counter. However service encounters can suffer due to such staff inadequacy and a bad experience usually cost the company a customer for a lifetime. Garry North a disappointed customer of Walgreens refers to this weakness as follows: “Walgreens, like Wal-Mart, Sam’s Club, Costco, and other low-price warehousing operations, is governed by this rule for customers: "Find it yourself." There are lots of things to buy but very few sales people on the floor to show you where to look. In the case of the Walgreens I walked into, there was only one: the manager.(North 2005) . The company also suffers from a “very tall internal corporate structure” ( Strategic Management d.n.), which sometimes slows down the decision-making process as well as speed of reacting to the market. Walgreens in effect prides itself on the slow, traditional and stodgy manner in which it operates, especially in strategic management aspects (Walgreens Annual Report 2005) but in today’s global business world of intense competition such tall corporate hierarchies may prove a cost than an asset. 6. OUTBOUND LOGISTICS: Outbound logistics segment of the Value Chain represent all activities that are associated with the physical distribution of goods to the buyers or retail centers. These may include order processing, order picking and packing, loading, shipping and delivery vehicle operations, dealings with carriers and distribution companies etc. (Thomson & Strickland 2003). Walgreens outbound logistics is equally complicated as its inbound logistics function and with a network of outlets over 5,460 and a large base of mail order customers this is a crucial element of the value chain. As the company’s products such as drugs, beauty care items and make up are fragile and lose quality if not stores and handled in prescribed manners, the outbound logistics function of the company becomes even more challenging. 6.1 Outbound Logistics Strengths The key strength of the company in outbound logistics is the availability of strategically located large and well-equipped distribution centers. The new generation distribution centers, which the company is investing in are expected to increase productivity by as much as 20% (Walgreen Annual Report 2006). This strength was discussed in detail under the strengths of inbound logistics as well and as the centers cater to both inbound and outbound logistics, this remains one of the most important aspects of the company’s strengths which nor doubt has contributed to driving down costs. The mail service pharmacy is another key strength in Walgreens operations where the prescriptions being filed online is shipped within 24 hours to its registered service users. The company also utilize modern IT facilities for managing its outbound logistics functions and “utilize the services of decision support software to address logistics and supply chain problems. These software helps minimize total system costs by determining the optimal number, locations and capacities of warehouses” (Little Known Software Company..2000) Measures as such can realize up to 15% cost savings on standard supply chain costs. 6.2 Outbound Logistics Weaknesses Weaknesses of the outbound logistics activities include the high costs associated with the management of the large distribution centers and possible shortcomings in managing the stores conditions to suit the product requirements. For example the distribution centers needs to be kept within certain temperatures and during summer some distribution centers, which are located in the South comes under searing heat which damages the quality of the goods. Even the loading process can be susceptible to such climatic conditions and loading bays require to be protected from changing weather conditions to ensure product quality. For example, in recent times, the company has equipped the loading and receiving docks of three distribution centers down South with cantilevered shades to safe guard against hot summer heat (Cooke 2004). 7. MARKETING AND SALES: Marketing & Sales element of the Value chain represents activities related to sales force effort, advertising and promotional activities, sponsorships and public relations, market research and planning as well as dealer and distribution support (Thompson & Strickland 2003). Walgreens has maintained a successful track record of growing its sales over the past couple of decades and its sales and marketing activities have continued to grow in terms of sales personnel effort at the outlets as well as direct sales being carried out by the Walgreens Home Care providers. Annual sales per outlet in average recorded US$ 8.5 million in year 2006. The marketing activities of the company includes media advertising, marketing through its website, sponsorships and public relations activities. 7.1 Sales & Marketing Strengths One of the biggest strengths within the sales and marketing operations is the Walgreen Brand name, which is over a century old and carries high goodwill and brand recognition. Company enjoys high profile recognition in the global business arena as best company in Food & Drugs industry and ranks 45th in the Fortune 500 listing (Walgreens Annual Report 2006). The company sponsors large scale projects such as cancer research and also operates promotional drives such as Walgreens Wellness tour which offers free medical checkups from its branded mobile vehicle, which tours the states for 12 month period. Walgreens focus on offering over one third of the employee positions in its new distribution centers to disabled and mentally handicapped persons is seen as one of the most challenging public relations and social service actions undertaken by any company. With its strong financial status, the company spends comprehensively on its media advertising activities as well as retail merchandise support. The Walgreens.com is also one of the most effective marketing tools of the company. 7.2 Sales & Marketing Weaknesses The weaknesses in Sales & Marketing activities may be identified in the slow sales in certain locations as well as the generation of over 60% of sales through prescription sales, which is carrying low sales margins (Walgreens Annual Report 2006). The new introductions such as ink cartridge refills and photo print services are expected to counter such low margins generated by the prescription drug transactions. In terms of marketing weaknesses, Walgreens is sometimes seen as being focused on moving some non-drug items in large volumes through “as seen on TV” advertising which may be short terms oriented in terms of brand building and positioning. 8. SERVICES Service element of the value chain represents activities associated with assisting customers, after sales services, handling buyer inquiries and complaints as well as other support services (Thompson & Strickland 2003). Walgreen provides a host of support services to its customers as value addition and services. These activities includes specialty pharmacy services, home care services, and being a pharmacy benefits manager. 8.1 Service Strengths Considering the service strengths of the company, one key strength lies in the vast information on health care, medical plans, drugs and treatment etc provided free through the Wlalgreen.com website. This information supplement the company’s efforts in providing counseling and advice to customers in terms of choosing medical plans as well as treatment. Its home care services provided to customers with terminal and chronic illnesses facilitate treatment to be received from the comfort of own homes by professional therapists and practitioners. Printing prescriptions in a choice of thirteen different languages as well as using large font sizes to aid sight-impaired customers are small but significant activities adding value at service level. Online prescription filing facilities, mail delivery services for registered Walgreen customers offer convenience. All these service strengths together add value to the overall customer experience whether they shop at one of Walgreens outlets in person or opt to use online modes and mail delivery services. 8.2 Service Weaknesses One of the weaknesses, which can be identified in Walgreen service areas, can be identified in limited reach, which the online information portal may cater to. Not all senior citizens are computer literate and thus this mode of free information sharing should be duplicated in a mode such as a newsletter, which can be made freely available to its customers. The registration process for mail delivery services should also be made available in not only through online mode but through standard manual documentations. Another weakness in service aspects is the limited reach of the Home Care services, which is restricted currently to few states. The company should consider expanding this service to all states in which Walgreen outlets are currently represented. 9. CONCLUSION In conclusion it can be noted that Value Chain Analysis provides a powerful tool for managers to identify the key areas of business activities and processes and then assess each area for its strengths and weaknesses. This exercise would allow a company to identify the areas, which needs to be improved, and what competencies are to be built. It would also allow a company to understand its key strengths, which can be highlighted in its positioning messages. Having applied the Value Chain Analysis on Walgreens operations, its key activities have been identified. Considering the strength and weaknesses analysis under each component of the value chain, it is clear that the company has a clear competitive advantage with its strengths in logistic management as well as operations. The weaknesses identified would provide valuable insight on what improvements are to be made at Walgreens. 10. REFERENCES Cooke, J. “Walgreens beats the summer heat.” Logistics Management. September 1, 2004. 27, December 2006. http://www.logisticsmgmt.com/article/CA451732.html?stt=001&pubdate=09%2F01%2F200 “Walgreens to Build New Distribution Center in Windsor, Conn.” Walgreens.com. 27, December 2006. http://www.walgreens.com/about/press/othernews/011706.jsp O’Reilly, J. “Routing Guides: Inside the Matrix” December 2004. Inbound Logistics. 27, December 2006. http://www.inboundlogistics.com/articles/features/1102_feature02.shtml “Little Known Software Company Creating a Unique Niche in the Supply Chain Management Industry.”2000. 27, December 2006. http://spatialnews.geocomm.com/dailynews/2000/jan/20/logic.html Porter, M. Competitive Advantage. New York : Free Press. 1985 “Strategic Management” 26, December. 2006. http://www.unlv.edu/Faculty/phelan/samplePaper.pdf "Walgreens." Wikipedia, The Free Encyclopedia. 27 Dec 2006, 00:33 UTC. Wikimedia Foundation, Inc. 28 Dec 2006 http://en.wikipedia.org/w/index.php?title=Walgreens&oldid=96641515. Thomson, A. A. Jr. & Strickland, A. J. Strategic Management Concepts and Cases. 13th ed. New York: McGraw-Hill Publishing Company Ltd. 2003. Walgreens Annual Report. 2006. Walgreens.com 28,December 2006 http://investor.walgreens.com Read More