Wal-Mart Stores in 2003 (HBS Case 9-704-430) Strategy Management PGDM Case Study

1. Group - 2

2. RESOURCES
AND
CAPABILITIES
ANALYSIS
PORTER’S
GENERIC
STRATEGY
PORTER’S FIVE
FORCES
ANALYSIS
PORTER’S
VALUE CHAIN
COMPETITIVE
ADVANTAGES
ANALYSIS
SWOT ANALYSISINTRODUCTION

3. Introduction
 Wal-Mart store is the second largest discount retailers and largest company (fortune ranked 2003) .
 Wal-Mart HQ in Bentonville (US)
 SamWalton , the founder ofWal-Mart and open the firstWal-Mart in Rogers,Arkansas,1962
 Products:-
 Discount stores
 Super center
 Neighborhood markets.
 Largest private employer in the world.
 No. of stores (2003)
 Discount stores( 1568)
 Supercenters(1258)
 Neighborhood markets(49)
 SAM’s Clubs(525)
 International(1288)

4. DISCOUNT STORES ,SUPERCENTER MARKET AND NEIGHBORHOOD MARKET
 Discount stores:- discount department stores.
 Supercenter market:- a full line grocery store and specialty departments.
 Neighborhood market:-shop for daily necessary goods.
MAJOR PLAYERS
 Wal-Mart
 K-mart
 Target

5. Case Synopsis
Wal-Mart has four parts to their corporate strategy-
- Dominance in the retail market
- Expansion in the U.S and international markets
- Creation of positive brand & Company recognition
- Branch out into new sectors of Retail

6. Wal-Mart’s Supply Chain Management
They started the practice of digitally sharing sales data with
major suppliers, allowing the company to supply the product at
shortest delivery times.
Pricing strategy
Bulk purchasing allows Wal-Mart to negotiate large discounts
with suppliers, achieve economies of scale.

7. Inventory Management
Warehouse are automatically replenished to optimal levels
through continuous cooperation with suppliers.
Labor Relations
Low salary Payer
Trade union membership is discouraged

8. Why Wal-Mart So Successful ?
 Low prices ,low expense
 Cut out the middle man and worked directly with manufactures.
 Supply chain management.
 Partnerships with suppliers.
 Locations(small town and rural areas)
 Variety of retail layout.
 Leader in a general IT- Driven transformation of retailing.
 The private satellite network.

9. STRENGTH
Cost Advantages.
Low Prices
Customer Oriented
Strong Supply Chain
WEAKNESS
Ignore store decoration
High employee turnover
OPPORTUNITY
New location and store type
Overseas Market
Online Sales
THREAT
Competitors Innovations
Intense Price Competition
SWOT

10. Q. What is the basis for Wal-Mart’s Cost
advantage?

11. High Volume
•At the end of Fiscal year 2003
world mart operated 4,688
stores.
•Each center serves 150 stores
within a 150 mile radius
•43 Distribution centers
internationally.
•84 distribution centers in
United States.
Cost control
•Cut out the middle man
• Inventory Turnover
• High store volume
•Management techniques
•Exclusion of unions
Wal-Mart has essentially had a low-cost, high volume strategy.

12. Porter’sValue Chain

13. Firm Infrastructure:
•High store volume
•No regional HQ
•IT support systems for managerial
decisions.
Human Resource Management:
•Lower wages than competitors
•Less people employed/store
•Higher sales volume / employee
•“Associates”
Support Activities

14. Technology Development:
•Benchmark of competitors successful
measure
•IT
Electronic Data Interchange (EDI) to
communicate with the supplier.
Procurement:
•High bargaining power with suppliers
•Long period for Account Payables
Support Activities

15. Inbound Logistics
•Disintermediation
•High bargain power
Operations
•They uniquely operate each store
•Better in-store execution than competitors
Marketing & Sales
•Unbeatable prices
Outbound Logistics
•Wal-Mart Distribution Centers
•Distribution costs 2-3% compared with 4-5%
of competitors
•Inventory Turns (7.6 compared with 6.1 –5.4
from competitors)
Services
•People Greeter
Primary Activities

16. Q. Has Wal-Mart been able to sustain its
competitive advantage and superior
performance over the years covered in
the case?

17. Yes, We think that Wal-Mart has been able to sustain its competitive advantage and superior performance.
And we divide it into five distinct competitive advantage-
-Distribution capabilities
-Partnership relationship with suppliers
-Advanced data-mining
-Workforce culture
-EDLP
• Distribution capabilities:
Efficient distribution; e.g. cross-docking, predominance of Walmart’s own distribution centers, and “inside-
out” location strategy.
- Cost savings from lower inventory levels ;Cost-savings can translate into lower prices and more customer
satisfaction
• Partnership relationship with suppliers: Wal-Mart integrates suppliers via IT and treats them well in terms
of pricing; they are more partners than “value takers” .
- Improves supply chain and lowers distribution costs

18. •Advanced data-mining: Active collection and usage of customer purchase behavior info
-Useful data for suppliers
- Improves customer satisfaction through more accurate forecasting of demand
- Lower costs through reduced inventory and shrinkage
- Improved matching of supply and demand creates superior sales/ sq ft
•Workforce culture: Customer-oriented workforce motivated through generous monetary participation and
belief inWal-Mart culture.
- Good customer service is not compromised by self-service and low cost structure, thereby improving
customer loyalty
- Stores can respond more quickly/ flexibly to changing demand
- Continuous improvement mindset
• EDLP: Maintenance of “every day low prices.
-Improves customer satisfaction through low prices
-Matches volume-driven strategy
- Drives down costs through less advertising
- Steady prices improve stability of supply chain

20. Q. How can Wal-Mart continue to
sustain its superior performance ?

21. Porter’s Five Forces Analysis

22. Industry Rivalry:
High
• The switching
cost was very low.
• Very high fixed
cost.
• Exit Barriers were
very high.
Bargaining Power
of Suppliers: Low
• There were a
number of
suppliersWal-
Mart had.
• Wal-Mart
purchased huge
quantities of
products from its
suppliers.
Bargaining Power
of Buyers: Low
• Most of the
buyers were
individual
customer, they
didn’t have
negotiation
power again such
a large company
• Customers
always made
small purchases
• Very large
customer base
Threat of New
Entrants: Low
• High capital
investment
• Distribution
channel was very
hard to build
• There was no
product
differentiation
Threat of
Substitutes: High
• There was a lot of
competition
among quality
and price.
• Substitutes
performed the
similar function

23. Porter’s Generic Strategy

24. COST LEADERSHIP
• Allows to achieve a large scale and an efficient supply
chain.
• Has its own low-cost brands, like GreatValue.
• A unique cost structure that allowsWalmart to
establish the lowest price and achieve competitive
advantage.
• Present in many different industries and market with
efficient distribution channel. (Economies of Scale)
• Very different strategy to imitate by offering a broad
quantity of products at low price as cost incurred to
quite low.

25. Resources and Capabilities Analysis

26. S1 - Assess the
main resources
and capabilities
that affect the
company and its
industry.
S2 - Use this 2/2
Matrix to show
the key strengths
and weakness of
the company.

27. Conclusion
 As a result of Wal-Mart's ever growing size and variety of services they offer, their public affairs department is going to
become more and more important.
 Wal-Mart need to address the public relation issues they are experiencing now as well they can expect in the future.
 Wal-Mart would greatly benefit in taking the lead and increasing the wages for their associates, enhancing the benefits
and providing better healthcare for them as well.
 In order for Wal-Mart to stay at the top of their game and follow the company strategy and achieve their key policy
goals, they need to deal better with their stakeholders and make sure they guard their reputation well.