“Everyday low prices” Operations Management 16

“Everyday low prices”
Operations Management
16: 391
Student: George Muh Nkuo
Student Number: 150529
Professor: Michael Malazdrewicz
Due Date: March 15, 2018
Introduction
Walmart Inc. founded in Rogers, Ark 1962 by Sam Walton, is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores with a revenue of $486 Billion. Its Headquarters is in Arkansas, in the United States and its operating segments include Sam’s Club, Walmart US, and Walmart International. Walmart is one of the largest companies in the world and has achieved leadership in the retail industry due to its efficient operation management. It has positioned itself as an indomitable price leader in offering a variety of affordable products. Sam’s goals were that of great value and great customer service and he believed in three guiding principles, which are customer value and service, a partnership with its associates and community involvement. Walmart operates as a chain of discount department stores, grocery stores, and warehouse stores. Their official purpose is making a difference in the lives of their customers, by keeping the cost of living low and helping them save money and live better. It deals with products ranging from furniture’s, clothes, groceries, books, movies, electronics, jewelry, baby products and much more. They have over 2 million workers operating in about 11,695 stores worldwide.

In 1969, Walmart became incorporated and began trading stock as a public trading company in 1970. The year 2000, marks the time Walmart entered the new millennium with an objective to offer customers a seamless shopping experience, online, instore or on a mobile device and this is how they finally launched the Walmart.com site enabling people to make purchases online and pick up in store.
Walmart’s main purpose or focus later expanded as it was no longer just about making life better for customers but protecting the environment. They came up with several environmental measures to increase energy efficiency, by reducing energy use in stores, reducing greenhouse gas emissions and using only renewable energy. To make up for low-profit margins, they sell higher volumes in lots of big stores. Walmart lowers its costs by dealing directly with manufacturers, investing in technology and logistics, and increasing worker productivity while keeping labor costs low.

Walmart reported $119 billion in sales in the second quarter of 2015, of which Walmart US represented 62%, International 26% and Sam’s Club 12%. Majority of the sales are generated through its stores throughout the globe. Walmart also generates sales through its website, however, less than 3% of sales are generated online. Walmart has become the world’s largest retailer and to date they keep coming up with new surprises, evolving to compete in the digital space. Based on the strength of the market competition, Walmart is continuously improving their operative strategies to keep them ahead of their competition, meanwhile acquiring assets such as Jet.com, Shoebuy, Moosejaw, Modcloth, Bonobos and the delivery startup Parcel. Walmart has a vision statement which is to become the worldwide leader in the retailing and they have developed a great operation strategy to get them achieve this goal.
Operation Management Initiative.

Operations Management is about the transformation of production and operational inputs into outputs that when distributed, meet the needs of customers. Walmart has a reputation for caring for its customers, employees and for the prospective public. It uses operation management as a beneficial tool to continuously improve its competitiveness and differentiate itself from its main competitors such as Alibaba Group Holding Limited, Amazon.com, Inc., Costco Wholesale Corporation, Dollar General Corporation, Dollar Tree, Inc., Kohl’s Corporation, Macy’s, Inc., Sears Holdings Corporation, Target Corporation and many other retailers or wholesale companies. Walmart has established itself as the market leader by using strategies such as offering merchandise at lower prices using efficient logistics, Walmart improves its buying power, the scale of operations, and minimizes costs for the company.

Walmart’s core operational strategy is overall low-cost leadership. It attracts a broad segment of customers by supplying a variety of lowest-cost general merchandise. Walmart achieves a cost advantage by controlling its cost drivers and relentlessly wringing cost efficiencies out of its supply chain. Walmart developed a plan to ensure that the company would maintain its leadership position in the industry. Walmart’s strategic goal is to provide quality merchandise at low cost to consumers following their operation strategy, which is the “Everyday Low price” strategy achieved through its Supply Chain Management practices, enhancing their ability to focus on customer needs and cost reduction.
Walmart’s operational strategy also focusses on efficient logistics requiring technology and inventory management systems to help reduce costs. Its essence of successful discount retailing is cutting the price of an item as much as possible, lowering the markup, and earn a profit on the increased volume of sales. They encourage ferocious competition against all other stores in its customer base till they can dominate their competitors. Walmart’s strategy has Traditionally always been low-cost, high volume strategy. This aims at customer satisfaction through low prices and relatively good customer service.
The Design of Goods and Services is the strategic characterization of products. Walmart has its own brands of goods, such as Great Value, and Sam’s Choice. They focus on maximum efficiency of its retail service personnel and emphasize on minimal production costs, especially for the Great Value brand. Their goods are designed in such a way that they are easy to mass-produce.

Walmart’s concept of every day low prices promises customers a variety of high-quality products at the lowest possible price, placing them on a better advantage than its competitors. Thus, providing quality products such as their Great Value brand and quality performance of employees, especially sales personnel.
They also put emphasis on strengthening their relationships with suppliers with strong brand names who are dominant in their category, have full product lines, and can bring in new and better products to retail shelves. They spend reasonable time meeting with vendors, understanding their cost structure and learning how they could cut down costs to capture win-win relationships for both parties.
Walmart’s domestic expansion strategy is “backward expansion,” where they open stores in small towns surrounding a targeted metropolitan and saturates each area before moving into new territory. With regards to International expansion, it involves a combination of new store construction and acquisition. Also, they intend to customize their stores to match the taste and preferences of local buyers in foreign markets.

Walmart uses consumer behavior analysis and corporate standards for the layout design of its stores. Merchandise displays, store color schemes, and promotions are based on this behavioral analysis of shoppers. Walmart’s warehouses have adequate space allocation for the company’s trucks, suppliers’ trucks, and goods. With efficiency, cost-effectiveness, and cost-minimization, they maintain a dominant position in the geographic area and forcing smaller retailers out of business.

Walmart’s location strategy is aimed at maximizing market reach. Materials and goods are made available to the company’s target consumers through strategic warehouse locations
Another strategy is by offering high volumes of standardized products, offering basic products and limiting customization of service to save production costs. Whereas, other expenses are kept low by paying low wages, locating facilities in cheap rent areas, outsourcing, saving production costs, increasing asset capacity utilization and minimizing costs of distribution, R&D, and advertising.

Walmart has a great supply chain system which helps enhance their operations strategy. Their supply chain is comprehensively integrated with advanced information technology and bargaining power over suppliers. Their tremendous bargaining power enables them to acquire large quantity products at low prices. Their distribution centers are set up depending on product categories which manage shipping cost and time while its inventory system speeds up the checkout time and recording transactions. They use supply chains management principles such as reduction in lead time, faster inventory turnover, accurate forecasting of inventory levels, increased warehouse space, reduction in safety stock and better working capital utilization to stay competitive and this has resulted to an increased efficiency in operations and improved customer service.
Walmart’s inventory management involves the vendor-managed inventory model and just-in-time cross-docking. Their suppliers have access to their inventory data and are responsible for generating purchase orders using EDI.
Walmart also has its own transportation system, which helps in shipping goods from the warehouse to the store. Thus, transportation costs are low, which allows Walmart to restock their stores faster than their competitors.
The use of the supply chain system has made that Walmart gain control over the schedule of the reception of products, which leads to an accurate flow of product among stores. This has enabled them to develop a system of refilling the stores twice per week, while other competitors work at a rate of twice per month.
Technology has also helped to improve their supply chain to better understand and manage its operations. They have invested in satellite systems linking all operating units with the company’s headquarters to radio frequency technology able to optimize inventory management by revealing the exact locations of all inventory in the supply chain while reducing working capital investments and associating costs. Its high-tech technology lab and network levels help forecast demand accurately, track inventory levels, create efficiency in transportation and manage customer and supplier relationship.
A major operational feature that was adopted by Walmart is its cross-docking inventory system. Cross-docking is the process of moving material from the receiving dock to the shipping dock, bypassing storage. This reduces inventory carrying costs, transportation costs, and costs associated with order fulfillment and material handling. Walmart’s system of cross-docking has helped to reduce inventory storage cost and enhance delivery speed, increasing inventory turnover. The supply chain which Walmart uses has greatly impacted its inventory management positively. Its implementation of Radio Frequency Identification enables operations teams and suppliers know when a shipment arrives, and this is important to determine when to order additional stock or to figure out if a store has over ordered.
Walmart has also set up a Collaborative Forecasting and Replenishment software to help provide more reliable medium-term forecasts by using the Internet. This has been of benefit to them in increasing sales and reducing inventory costs. They share proprietary knowledge and processes with their suppliers to improve quality and eliminate unnecessary cost in the supply chain.
Walmart’s uses a high asset turnover approach, that is selling products very quickly having a very high volume of output. This approach means that fixed costs are spread over a larger number of units of the product, resulting in a lower final unit cost. They are willing to take advantage of economies of scale and experience curve effects.

The reason behind Walmart’s operation strategy is to achieve their goals. Walmart is known for its low consumer prices and cutting costs wherever they were imperative to their success. Thus, they embraced technology and innovated their supply chain, so that they could track inventory and seamlessly restock shelves while passing on savings to their customers. Companies were not in the business of collaborating and sharing information with third parties. Walmart really transformed the retail industry as its cooperative approach of sharing information between stores, distributions centers and suppliers which proved to be highly efficient and advantageous. Improving collaboration helped them accurately forecast and manage inventory, saving them time and money. They also reduce costs by working directly with manufacturers which cut out the opportunity for confusion and human error. Their operation management strategy has provided them with various competitive advantages including lower product cost, reduced inventory and low carrying cost, improved in-store variety selection and competitive pricing for its customers. This has helped them to become a leading force in the competitive market.
One of the biggest challenges Walmart faced was establishing their supply chain to meet with their Lower prices strategy. Sharing their information with suppliers was a huge risk and challenge due to the market competition. However, the risk was worth taking. Walmart never had the technology and facilities they have available right now. So, it was difficult to establish a fast and reliable supply chain that is as efficient as the one they are currently using today.
In its aim of cost savings, has been disrespectful to its employees and so it has been involved in cases of labor-related lawsuits. The firm is criticized for poor conditions, unpaid overtime work, paying low wages and female discrimination. Thus, they lose many employees and spend a great amount of money to hire and train new staff very often.
They also suffered negative publicity which tarnished their reputation as they were criticized for bribery practices and poor work conditions.
Walmart also faced a challenge in their expansion strategy in store sizes and to grow revenues and increase market share. Being a multinational company, Walmart faces the challenges that come with globalization. An expansion is a huge challenge due to the aspect of different cultures, trading policies, government policies, entrance to new market etc. This is costly and demands an understanding of the new market, research on customer behavior and developing new strategies that will work. When they expand internationally, they have found local suppliers which are often difficult, because of the different market they are targeting. Culture can influence Walmart’s operation in different ways, especially in the beginning, such as language barriers, pricing difficulties, and culture collisions. Understanding the is crucial.
Also, with the advance in technology, customers’ behavior changes from store shopping to online shopping. Giving its competitors like Amazon a competitive advantage. Thus, Walmart must develop new strategies to be ahead of this competition and still provide exceptional in-store experience to customers as promised
It was also difficult for Walmart to have an efficient system of replenishing their stock fast and effectively because they had a poor system of inventory in which suppliers were not aware of what customers need in time and quantity, so sometimes they oversupplied and other times undersupplied products creating inventory levels and shrinkage. This was costly.
They also faced challenges in providing an accurate forecast of customer needs or preference, due to that fact that Walmart’s customer shopping habits are continuously changing, and the challenge becomes greater. Also, customers always want new products, making Innovation a very important aspect of staying competitive in the market.

Indications that Walmart has been successful.

Walmart is the largest retail company in the world. With a Market Capital of $261 Billion, a revenue of $485 Billion and a Profit Margin of $13 Billion, and more than 11.000 stores. It also exercises great buyer power on suppliers to reduce prices and its size allows the company to benefit from economies of scale, which in time conduce to a lower price of products for the final consumer.

They sell a greater variety of products than any of their competitors. Both, brand products and own label products, that are even cheaper.

They are the developer of many technological and innovative advances, such as the barcode. They have recently launched an app called Scan & Go with which users can scan and bag merchandise and pay at a self-checkout kiosk after presenting the data from their phones. Walmart saves money due to its extensive information systems that track orders, inventory levels, sales and many other related data in real time.
They have an effective management of supply chain and logistics, which leads to cost savings that are paramount for the competitive.

Walmart excels excellently in cost leadership which is one of its strengths. They have a reputation as the lower cost option for consumers. They sell products at very low prices than competitors.

Their success can be measured from the fact that they are a huge retailer company that has been globally known in their market, supplies, and customers as the leading company offering Lowest prices and most efficient supply chain.

The Sustainability of Walmart’s competitive advantage.

Competitive advantage exists when a company consistently performs better than other companies in the same industry. It is thought to be stronger when it lasts for a longer period. Walmart’s supply chain management strategy has provided it with several sustainable competitive advantages, including lower product costs, reduced inventory carrying costs, improved in-store variety and selection, and highly competitive pricing for the consumer. Walmart’s competitive strategy relies on cost leadership and it is dominant in every sector where it does business. Their success is being measured in terms of sales and maintaining a stronger position over their competitors. Their strategy is to low prices, outsell their competitors and keep expanding.
Its distribution system is efficiently set up and extremely difficult for its competitors to imitate such a system which links sales and inventory information all around the world. Competitors can only go as far as matching cost but matching its EDLP is a difficult task.

Also, their buying power with suppliers provides a competitive advantage over their competitor.
Walmart’s relationship with suppliers continuously grows strong and firm over time which demonstrations loyalty, commitment and seriousness in their operations. They also integrate suppliers via IT which improves supply chain and lower distribution cost.

Walmart’s investment in technology and innovative systems provide them with continuous advancement and constant upgrades to meet with the constant change in technology. This has been advantageous with the creation of barcodes, electronic data exchange, RFID, a point of sale scanning and apps to easy customer shopping.

Walmart’s active collection and usage of customer purchase behavior data become very useful for suppliers in an accurate forecast of demand and this helps improve customer satisfaction, reduction in inventory and shrinkage and helps match supply and demand.

Walmart’s distribution center and cross-docking strategy is another competitive advantage to them. Where products leaving directly from supplier to customer with no handling or storage time.

Walmart’s Logistics is another competitive advantage where they can transport their products and deliver at minimal cost compared to other competitors.
Walmart’s tradition of training their employees to provide the best customer experience to shopper can be considered as one of their sustainable competitive advantages. Today they are introducing new technologies for associates to provide better service to customers. There is continuous improvement and their stores respond more quickly to changing demand.
Walmart’s Competitive Environment.

Although Walmart’s primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure. Recently they have been in a tense competition with Amazon in the e-commerce market. They are constantly experiencing growth and change. Their top competitors are both nationally and internationally. Competition is extensive in various aspects such as pricing, location, store size, layout and environment, merchandise mix, technology and innovation, and overall image. Walmart offers lower prices, better variety, and selection, and good quality and these meet the needs of consumers which is an important aspect in the competitive field.

Walmart competes intensively with Costco in the warehouse segment, which has fewer warehouses but greater sales and revenues. Costco customers also shop at Costco more frequently than Sam’s Club customers and, on average, spend more each visit as well. However, Costco’s dominance may be the result of its better innovation as it offers luxury items and was the first to sell fresh meat and produce and gasoline.
Walmart is also in competition with large supermarket retailers. Production capacity in the grocery industry is quite populated and Walmart poses a serious threat to many supermarket retailers, both large and small. Kroger, Albertson’s, and Safeway are all finding it very difficult to compete with Walmart’s low prices.

Walmart plans to open fewer stores than it has in at least 25 years and focus on deepening its cost-cutting efforts, in an attempting to free up cash for e-commerce and store improvements in an increasingly competitive retail environment. This strategy is central to Walmart’s plan to fend off Amazon.com Inc.
How Successful is Walmart?
Despite the intense competition in the industry, Walmart still manages to stay on top due to its strategies and quick response to the Five Forces in its environment. Walmart has succeeded to maintain its leadership position in the retail industry making it the biggest retailer in the world. Although the competition intense in the retail industry they stand strong with a great market share and brand recognition to their customers as a retail store with the lowest price offers. Now examining the five forces,” Porter’s Model”
The large number and variety of retail firms exert a strong force of competition towards Walmart in the retail industry environment. However, Walmart continuously upholds aggressive strategies and keeps its growth pace to remain competitive making it the industry leader.
Walmart faces the intensity of the bargaining power of consumers, being of the Large population. However, their purchases being small, and customers being individuals make the bargaining power of consumers weak enough not to their influence Walmart.

With the Aspect of bargaining power of suppliers, there are many suppliers in the retail industry competing. Thus, creating a high availability of which provides an advantage for Walmart.

The threat of substitutes can affect retail firms. However, Walmart offers a wide variety of goods and some services that have a few or no substitutes and for those that have substitutes, the substitutes are more expensive than the low-cost goods offered by Walmart.

Walmart also faces the threat of new entry of retail firms into the market, doing business at low cost but it becomes costly to develop a new entrant’s brand in a market with a variety of already known and strong brands. These factors help explain why Walmart is still on the list of top retailers and is placed in the very first position.

What can be done as a to close the gap?
Walmart has several competitive strengths that must be turned into sustainable competitive advantages and weaknesses and threats that must be addressed to maintain its leadership in the retail industry. As a competitor with knowledge of Walmart’s operation strategy, what can be done to meet up with the gap created by Walmart in the retail industry is set up a flow of aggressive strategies to basically shadow Walmart.
First, with its intense competition with Amazon, Walmart should think of investing in R&D and innovation to explore other market segments such as audio and movies just like Amazon but with the cost leadership strategy that may reflect their mission and provide a competitive advantage.
Walmart should continuously project a community friendly, environmentally concerned, and outstanding employer image. A portion of its profits should be returned to the community by sponsoring charity events, scholarships, community clean-up, and encourage a welcoming attitude.

Walmart should also keep an unbiased and non-conflicting relationship with suppliers, at all levels locally, nationally and internationally from whom customers trust and feel confident about, suppliers who have the potentials to always make the availability of products at low cost and high quality while monitoring the company’s inventory. This will help lower cost at every level.
Wal-Mart should use strategic alliances, joint ventures, or acquisitions of foreign companies to enter foreign markets. it should transfer its competencies and capabilities from country to country and then gradually build profit sanctuaries in several countries as it continues its global expansion.
Walmart should build a better work environment and policies for its employees. It is worth noting that employees are assets to the company and provide value. Thus, it is important to treat them fairly and avoid scandals that would tarnish their reputation. Feedback from these employees makes attract workers from other retail stores to want to come.
Its expansion strategy is very reasonable however they moved on focusing in the urban areas. It will be quite smart to have smaller stores in the rural areas and larger stores in the Urban areas and at this rate, you don’t risk losing sales at any level and remain competitive.
Walmart’s Everyday Low Prices strategy is quite a difficult one to beat, however, Walmart should keep exploiting different strategies to keep providing lower prices to its customers and build customer loyalty.

References

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