Wal-Mart Harvard Case Solution & Analysis

Wal-Mart

As Neuhausen, what is your analysis of Wal-Mart’s supply chain?  Are the company’s supply chain capabilities still a source of competitive advantage?

Wal-Mart’s supply chain is a collective effort formed via effective customer relationship management, strategic relationships with partners and integrated technology. This integrated supply chain has been formed over years and has been a source of competitive edge for the giant discount retailer.

Looking back at the trends during the initial days of Wal-Mart’s entry into the retail business, the supply chain was less complex with Wal-Mart buying directly from manufacturers while the introduction of sales offices in the US and other countries increased the complexity of the supply chain.  Evaluating the current supply chain, it can be seen that a rather complex model is being followed where Wal-Mart makes use of Global Merchandizing centers for bulk purchasing for optimal cost savings. While the merchandize includes branded products, 20% of the sales are generated through private label products as well. These private label products also pass through the integrated supply chain since Wal-Mart’s suppliers produce these private label products for further strengthening their relationship with the giant retailer.

The supply chain still enjoys a competitive edge not only because of the strategic relationships that the company has managed to build over years but mostly because of Wal-Mart’s store monitoring and use of information technology for effective communication of information across its stores. The headquarters in Bentonville is linked directly to individual stores via satellite broadcast such that each store is monitored and real time sales data is reviewed via the company’s network. The competitive edge is enhanced by the information system’s ability to capture real time inventory levels in stores and with the supplier network being integrated to the levels of in-store inventory, Wal-Mart manages to have an efficient supply chain network.

While this type of integrated supply chain network and the effective management of operations can be adopted by competitors in the giant discount retail industry, the fact that Wal-Mart enjoys a first mover’s advantage in this industry indicates that the company has managed to gain the trust of its suppliers over years.

Wal-Mart enjoys a high bargaining power with its suppliers not only because of its first-mover’s advantage but also because of the dependency that the giant retailer has created. By offering sales volume and prominence in the retail industry, Wal-Mart makes these suppliers cut prices, produce exclusive items for Wal-Mart and pay for extra advertising support. This indicates that the retailer’s supply chain management is effective enough for suppliers to continue their dependency on the retailer despite opting for a low bargaining power in the retail industry.

The supply chain offers additional benefits in the form of just in-time delivery of merchandise to stores, in addition to consistency in inventory levels. The fact that inventory levels of competitors go through fluctuations while Wal-Mart continues to enjoy an effective management of inventory levels and supplier relationships suggests that the retailer’s strategy is still a source of competitive edge,.

Moreover, Wal-Mart still has a non-unionized labor force which means that the retailer does not allow external influences to affect its supply chain management that complements its low cost strategy.

How is Wal-Mart doing?  How does it compare to its competitors?

The overall performance of Wal-Mart has been shown in appendix 1 in the form of a quantitative analysis from 2002 to 2011. As per the given data it can be seen that the company has had a positive trend in sales revenue over years whereas the cost of goods sold have also increased simultaneously. The trend in gross profit margin over the period shows consistency in cost management suggesting that the firm has not been affected negatively by rising costs of goods sold. The positive trend in net income has not brought a rise in net profit margins owing to a rise in operating expenses. The company has maintained its efficiency levels as evident by the consistent trend in ‘Return on Assets’. Recent years from 2009 onwards have shown a rising trend in gross profit margin, net profit margin and efficiency levels suggesting that Wal-Mart’s current strategy is working to its advantage.

Wal-Mart’s comparison with its competitors has been done using the data from 2011. In terms of sales revenue, Wal-Mart has the greatest sales turnover as compared to its current competitors in the global discount retail market. However, it should be noted that when it comes down to management of cost of goods sold,  competitors like Dollar Tree, Dollar General, Target, Safeway, Big Lots, Fred’s Inc. , Sears and Walgreen have managed to have better gross profits margins as compared to Wal-Mart recently. This could indicate that these competitors have lower costs of goods sold per unit. Wal-Mart has the greatest level of net profit margin in the industry with better margins as compared to competitors like Costco, Safeway, Kroger Co, Amazon .com, Fred’s Inc., CVS , Sears and Carrefour. Giant retail firms like Tesco plc, Walgreen and Target have equivalent net profit margins to Wal-Mart suggesting that the company is doing just well as its direct competitors in generating margins. Competitors like...............

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