Value Chain Analysis - Research Paper Example

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Value chain is crucial strategic tool which is widely used in strategic cost management which is again an important part of the management accounting. In today’s competitive world almost all the organizations use value chain for efficient and effective business process. This…
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Value Chain Analysis
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Value Chain Analysis Table of Contents 2 2 3 Value Chain Analysis 4 Wal-Mart 5
Cost Management in Wal Mart 5
Application of Information System 6
Challenges 7
Conclusion 7
References 8

Value chain is crucial strategic tool which is widely used in strategic cost management which is again an important part of the management accounting. In today’s competitive world almost all the organizations use value chain for efficient and effective business process. This paper explains how the retail giant Wal-Mart use value chain for smooth running of their business and this value chain is influenced by the introduction of information system in the cost management process.
Value Chain Analysis
Value chain analysis is one of the most widely used strategic tools that measure the perceived value of the customer. Organizations identify strategic advantages and disadvantages with the help of value chain analysis. Value chain refers to all the value-creating functions required for creating and delivering the goods and services to the target customers. Value chain analysis is an important tool for strategic cost management which is an important part of the management accounting. According to Porter, in value chain cost management methodology first the value chain need to be identified, and then the cost, asset and revenue need to be assigned to the value activities (Hoque, 2005). Value chain analysis involves organizations internal cost analysis, its internal differentiation analysis and vertical linkage analysis. Porters value chain model is represented below.

(Shahid, September 2008)
Wal Mart, one of the largest organizations in the world not only in retail sector but among the entire private as well as public sector organizations. Wal Mart, founded by Sam Walton in 1962, started its operation in 1969; it is one of the largest organizations in terms of number of employees and revenue. There are almost 1.3 million employees working in Wal-Mart. According to estimates, there are 3400 Wal Mart stores in America till 31st January, 2007. Company is one of the most important drivers of US economy. It is further proven by the fact that every week there is almost 120 million people shop in Wal Mart. As far as sales is concerned Wal Mart is far ahead of its three major global competitors namely Carrefour (France), Home Depot (United States), and Metro (Germany).
Cost Management in Wal Mart
Cost management is one of the basic things in management accounting. Strategic cost management results to improved strategic performance and significant transformational change in organizational value chain. Cost management information is crucial for four important management functions, which are 1) strategic management, 2) control in management and operations, 3) planning and decision making and finally 4) development of financial statement (Blocher, 2006).
Wal Mart has maintained its leading position in world retail industry because it has been able to implement its cost management strategies successfully. Wal Mart has taken effective cost management strategies to stay ahead in the business. Company has pioneered the concept of Every Day Low Pricing which is all about selling merchandises at discount prices. Wal Mart, due to successful strategic cost management, has been able to continue to charge low price for a real time. Company, by heavy investment in technology, has been able to successfully reduce the labor, distribution and its supply chain cost. Cost management information is mainly used by the top management (CFO) of the company so that better strategic planning decisions could be made.
Application of Information System
One of the major reasons of Wal Marts high growth rate is huge investment in information technology. It is found from various observations that Wal Mart far ahead of its competitors because of two main factors namely technology and scale. Generally in retail sector, stores of retail chains, as compared to single retail stores, are more inclined to invest in information technology. Wal Mart is technologically more advanced as far as its logistics, inventory control and distribution are concerned. In 1969 a computer was installed in Wal Marts first distribution center. By 1970 a computer network was installed to connect all the Wal Mart stores and distribution centers to its head quarter. Company was one of the early adapters of bar code technology. By 1980 companys all the distribution centers were enabled with bar code readers. All these investments reduce the cost of labor of the company by a great extent. In 1990 Retail Link was first introduced in Wal Mart. This is basically a software which by connect all the Wal Mart stores, suppliers and distribution centers and provide detailed information regarding the inventory. Wal Mart has also installed a technology called Radio Frequency Identification program where every item would have a tag which would be read by the radio signal. This will help in keeping information regarding sales, inventory and shipments. This would reduce the time as well as cost of distribution and logistics (Basker, April 2007). All these above mentioned technological enhancements helped Wal Mart to provide better customer service by creating and delivering more value added services.
Value Chain and Wal-Mart
Wal-Mart, with the implementation of information system early in the organization, improved all the functions in the above mentioned value chain model. It has improved its inbound and outbound logistics by connecting all the centers with computer network. By introducing the bar code technology, Wal Mart reduced the labor cost, and by launching the radio signal technology, company would be able to keep track of all the information regarding sales and inventory. As a result, company would be able to improve major primary activities which include sales and operations, in the value chain.
So finally it can be said that implementation of information technology in Wal Mart has improved the process of cost management of the company. The only problem regarding this implementation was that these technologies were complex. So employees might have faced some problems in the process of training and adaptation. But once they were familiar with the applications, it had proved to be one of the major factors behind companys growth.
Wal Mart has successfully identified all the benefits of cost management and information technology early of its operation. Company has been able to maintain a high growth rate because of successful implementation of information technology in cost management.
Basker, E. April 2007, Wal-Mart’s Advantage, The Causes and Consequences of Wal-Mart’s Growth, Retrieved from:

Blocher, 2006, Cost Management: A Strategic Emphasis, Tata McGraw-Hill
Hoque, 2005, Handbook of cost and management accounting, Spiramus Press Ltd
Shahid, S. September 2008, A Business-Driven Evaluation of Distributed-Computing Models, MSDN Architecture Center, Retrieved from: Read More
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