De La Salle University Ramon V.

del Rosario College of Business

In Partial Fulfillment of the Course Requirement for Strategic Planning/ Marketing Strategy

MMC502M / 1800 2115 / Wednesday

Wal-Mart Stores Inc.

Submitted by: Ma. Melissa Bigcas Martin Allen Claudio Anna Clariza Tumesa

Submitted to: Ms. Regina C. Dy

February 26 , 2014

BACKGROUND:

Wal-Mart Stores, Inc., branded as Walmart, is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores. The company is the world's second largest public corporation, according to the Fortune Global 500 list in 2013, the biggest private employer in the world with over two million employees, and is the largest retailer in the world. Walmart remains a family-owned business, as the company is controlled by the Walton family, who own over 50 percent of Walmart. It is also one of the world's most valuable companies. The company was founded by Sam Walton in 1962, incorporated on October 31, 1969, and publicly traded on the New York Stock Exchange in 1972. It is headquartered in Bentonville, Arkansas. Walmart is also the largest grocery retailer in the United States. In 2009, it generated 51 percent of its US$258 billion sales in the U.S. from grocery business. It also owns and operates the Sam's Club retail warehouses in North America. I. STATEMENT OF THE PROBLEM How can Wal-Marts new executive vice-president of logistics, Johnnie C. Dobbs, ensure that Wal-Marts supply chain will remain a key competitive advantage for his firm? II. OBJECTIVES: To further improve on Wal-Mart's efficient integration of suppliers, manufacturing, warehousing, and distribution to stores. To find new ways to manage Wal-Mart's supply chain process that can be implemented at the start of the new financial year

III. AREAS OF CONSIDERATIONS

Having an outstanding logistics and operative supply chain management strategy are necessary in creating a successful industry. This includes purchasing, operations,

distribution and integration of the goods. By using this effective strategy, the company may lead to a lower product cost and it can also provide a highly competitive pricing for its consumers.

Wal-mart have developed and utilized the suitable supply chain strategy to its business, thus, making them as one of big and powerful retailer in the world. From the beginning of time until now, they guarantee to provide customers with the goods they wanted when and where they wanted them with a reasonable price. They offered low prices of goods and retain a persistent level of replenishing their inventory initiated by point-ofsale purchases that is best to its industry.

In this study, the group would be taking the perspective of Mr. Johnnie C. Dobbs, Walmarts Executive Vice-President for Logistics. Mr. Dobbs responsibility is to ensure that the companys logistics management is operating well. He has to manage on how the way resources are acquired, stored and moved to the locations where they are necessary.

In relation to the problem that was previously stated, the group would like to propose strategies that would allow the company, especially Mr. Dobbs team to sustain and maximize their competitive advantage. The action for the strategy that will be implemented was based on the assumption that Wal-mart has a significant influence over its suppliers, such as its size, market share and brand image. Actions are wished to be fulfilled the same time of the year when Wal-mart experienced low profit.

IV. THEORETICAL FRAMEWORK

A. SWOT Analysis

Upon examining the case study of Wal-mart, the group listed the strengths, weaknesses, opportunities and threats that could help in determining on how to improve

the supply chain and distribution of the company. Also, this can be very useful to understand the aspects that need to be developed, changed or improved.

Internal Factors

STRENGTHS:

S1: Global presence. Aside from having 3,900 stores within the United States, Wal-mart is also operating 2,600 stores in 13 countries including Argentina, Brazil, Canada, Costa Rica, Mexico, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Puerto Rico and the United Kingdom. They also have a joint venture in China and hold a stake in a Japanese leading store.

S1: Wal-mart is a big retailer. Wal-mart became the largest retailer in the world. The company can exercise strong buyer power on suppliers to reduce the prices due to its large scale operation. It can achieve higher economies of balance than competitors because of its size. Likewise, Wal-mart is serving more than 138 million customers each week.

S2: Good relationship to its suppliers. Although Wal-mart implements strict regulations to its suppliers, Wal-mart established a good business relationship to its suppliers as well as to its merchandisers.

S3: Wal-mart provides a wide assortment of merchandises Wal-mart offers a wide range of products. It sells groceries, electronics, entertainment, health and wellness, apparel and housewares which offers both branded and own label goods.

S4: Offers affordable prices and worthy services to customer.

Aside from providing convenience to its customers by being a one-stop shop, Wal-mart offers low prices as well. They offer eight to 27% lower than their competitors. The company implemented the EDLP or everyday low prices policy. Unlike the high-low discounting environment, EDLP displays products at a steady price and not discounted on a regular basis.

S5: Invested in technology to better manage the business. Wal-mart integrated its information technology system in order to track products and provide real-time data on manufacturing, distribution and inventory levels . The company has Retail Link, which allowed its suppliers to access sales data in real-time. They have a Vendor-Managed Inventory (VMI) program which required suppliers to manage their inventory levels at distribution centers. They also utilized Remix which aided them to reduce the percentage of out-of-stock items and RFID or the RadioFrequency Identification which transfers data stored on tags on a product or other item facilitating identification and tracking. Moreover, highly automated distribution centers were implemented and Wal-Mart was able to considerably cut the costs of shipping and delivery time.

S6: Significant logistics and distribution system The main competitive advantage of Wal-mart is how they provide a remarkable logistics and distribution system to its business. Wal-mart was able to ship merchandise from any of their numerous distribution centers in order to provide the cheapest and most efficient route. They even have their own distribution centers for their online orders too.

WEAKNESSES

W1: Weak in adjusting for foreign consumer practices and cultures. They lost acquisition in Germany which they lost billions and they also pulled-out South Korea which made them sell their 16 stores in the country. Wal-mart needs to improve their foreign relations and consider the environment in different countries outside the U.S.

External Factors

OPPORTUNITIES

O1: Untapped Asian countries Aside from having customers in most part of Europe, Wal-mart may tap Asian countries to increase their market share globally.

O2: Emergence of Technology Technology has always been an opportunity to many businesses. It allows the companies the chance to be advanced in delivering efficiency to its consumers. By adjusting the internal and external system of Wal-mart, the company could improve their supply chain management as well the other business processes.

THREATS

T1: Increasing competition. The foremost threat to the Wal-Mart is the competitors. By 2006, the management techniques and innovation of Wal-mart is being copied by other retailers. They may promote more different ways to overcome the company by improving and focusing on the areas in which Wal-mart is weak.

T2: Consumer preferences. For some items, consumers might think that a low priced product is equivalent to a low quality product. Moreover, consumers preferences changes depending on the economys status.

Porters Five Forces

Aside from identifying the internal and external factors of Wal-mart, the group also considered to use Michael Porters five forces Model. This model will be useful to thoroughly understand the companys current competitive position and how it is gaining or losing its profit. Exhibit 1: Michael Porters five forces model

Threat of new entrants to a market (Medium) Wal-Mart is outstanding in purchasing, distribution, brand name and is has enough capital to purchase merchandise and hire/train employees. Competitors as well as the potential ones would have a hard time to compete equally. Bargaining power of suppliers (Low) Wal-mart consist a big market share, therefore the company offers a great deal of business for many manufacturers, suppliers and wholesalers. This also allows Wal-mart to have a great power over them.

Bargaining power of buyers (Medium) Since the competition is strong between other retailers, stores will offer products that appeal to a large audience. The buyer power for customers is moderate. Threat of substitute products (High) The online market is considered to be an area where consumers will look for substiutes. Customers may easily find items on online stores with just a click of a button by using their credit or debit cards. Building and strengthening the online store of Wal-mart may hinder customers to move to other retailers and shops. Competitive rivalry (Low) Wal-Mart makes up for about a quarter of the global revenue. Rivalry remains less because Wal-mart always finds a way to diversify.

V. ALTERNATIVE COURSES OF ACTION

1. Building upon existing framework in order to sustain competitive advantage on whole supply chain By making effective use of computers in all its company's operations, Wal-Mart was successful in providing uninterrupted service to its customers, suppliers, stockholders and trading partners. Information systems that helped Wal-Mart achieve it's efficient integration of suppliers, manufacturing, warehousing and distribution to stores are the following: A. Electronic scanning of uniform product code (UPC) at POS

This ensures accurate pricing, improve efficiency, reduce shrinkage and lastly, improve communications among different departments. B. Satellite system

Satellite system is a way where data is collected and analyzed, observing merchandise flow, overstock, discount. These also have video transmissions, credit card authorizations, and inventory control C. Electronic data interchange (EDI)

- Collaborative Planning, Forecasting and Replenishment - Shipping applications

2. Take advantage of recent technology and implement RFID for its supply chain process not only in US but to all its stores worldwide With the use of RFID instead of bar codes would reduce its supply chain management costs and enhance efficiency. RFID would reduce the instances of stock-outs at the stores. Although RFID has it benefits, analysts felt that it would impose a heavy burden on its suppliers. To make themselves RFID compliant, the suppliers needed to incur an estimated $20 Million. Of this, an estimated 50% would be spent on integrating the system and making modifications in the supply chain software.

3. Wal-Mart must better utilize its political capitol and learn from the experience of local retailers when attempting to expand overseas. The stores must be willing to bend their uniformity and consider the reaction of the local culture. They have begun to adopt this posture in their dealings with Japan and the deal with Seiyu, a Japanese retailer. However, some of their other ventures thus far have not run as smoothly. In Canada, for example, stores in the province of Quebec had some initial cultural difficulties. The over patriotic style of Wal-Mart does not work well with the culture in Quebec, which shuns over patriotism. The company learned quickly to tone down its use of patriotism in Quebec. Another mistake the company made in Quebec was to publish its circular in the English language, to a mostly French speaking population. This illustrates the larger point, that Wal-Mart has much to learn about the various cultures it is dropping its superstores into.

Germany, England, and stores in South America have all not performed up to speed, and in fact Wal-Mart has had to close stores in all these locations because it was not ready to meet the needs of its new clientele. The world is not yet-ready for full-on, US ready to meet the needs of its new clientele. The world is not yet-ready for full-on, US Wal-Mart style retail, especially in the current anti-American climate in Europe. Wal-Mart

must consult with business leaders in the various countries they are growing into, and find out the best way to attract business and not upset the local populace. Wal-Mart experienced problems in Germany, where they attempted to drop all their prices below their competitors. This is against the law in Germany, where price-fixing by the government is commonplace. Wal-Mart eventually circumvented the law, but this did not make people in Germany happy. Wal-Mart needs to work better with governments, not against them, to adjust to the various markets and achieve success overseas.

VI. RECOMMENDATION

Wal-Mart strongly believed

and constantly emphasized

on strengthening its

relationships with its customers, suppliers and employees. The company was very vigilant and sensed the smallest of changes in store layouts and merchandising techniques to improve performance and value for customers. The company made efforts to capitalize on every cost saving opportunity. The savings on cost were always passed on to the consumers, thereby adding value at every stage and process. Technology plays a key role in Walmarts supply chain, serving as the foundation of their supply chain. Walmart has the largest information technology infrastructure of any private company in the world. Its state-of-the-art technology and network design allow Walmart to accurately forecast demand, track and predict inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics. The benefits of an efficient supply chain management system included reduction in lead time, faster inventory turnover, accurate forecasting of inventory levels, increased warehouse space, reduction in safety stock and better working capital utilization. It also helped reduce the dependency on the distribution center management personnel resulting in minimization of training costs and errors. The stock-out of goods and the subsequent loss arising out of it was completely eliminated. Wal-Marts supply chain management practices resulted in increased efficiency in operations and better customer service. It eliminated old stocks and maintained quality

of goods. With this being said, we recommend for Wal-Mart to fully implement the use of RFID in its supply chain process.

VII. ACTION PLAN Implementation of RFID to all Wal-Marts stores would entail so much work and expenses. Planning the implementation would be very critical. Now that the financial year has already started, the target date for 100% penetration rate of RFID to all stores would be by 2015. This would give Wal-Marts suppliers, consumers and employees time to work with this new technology. The firm could end up on a positive note with more satisfied customers and optimal inventory costs and better dollar profits. The RFID story is far from being over. While item level EPC tagging is possible, technical, cost, and privacy issues will defer its adoption to sometime in the future. Nonetheless, with the successful completion of the initial phase of RFID implementation by 138 Wal-Mart suppliers, the technology is on its way. Wal-Marts motive for the forceful adoption of RFID in its supply chain is to allow the retail giant to catapult to a zero or negative cash-to-cash cycle which would give it an enormous competitive advantage over its competition and entrench its ability to continue offering Every Day Low Prices. Future research directions suggested by this argument include evaluation of feasibility of RFID through point-of-sale, empirical study of the relationship between RFID and the cash-to-cash cycle, and understanding the benefits and drawbacks to suppliers by participation in the program described.