Essay About Walmarts Competitive Advantage And Result Of Several Key Strategic Choices

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WalMarts competitive advantage is a result of several key strategic choices. First, WalMarts choice
of geographic location in rural/small town locations that were not being served by competitors
allowed it to establish itself as the sole discount retailer in these areas. As Sam Walton describes “the
key strategy was to put good-sized stores into little one-horse towns which everybody else was
ignoring. If we offered prices as good or better than stores in cities that were four hours by car,
people could shop at home.” This key strategic choice of location was completely different from
what competitors had done and gave WalMart a first mover advantage in markets that had not
previously been served by discount retailers. A second key strategic feature is WalMarts inventory
management strategy. From the onset, WalMart has been a leader in implementing new and cost
effective methods to manage inventory. Merchandise is tailored to local market demand via “traiting”
where a products movements are indexed over a thousand store and market traits. In addition, store
managers are given local control over which items to display based on customer preferences and how
to allocate shelf space based on local demand. Therefore, each store is fine-tuned to best meet local
needs rather than follow a general corporate policy. In addition, WalMarts pricing strategy allows
more local control again based on geographic demand. Store managers can price to meet local
demand, to maximize sales volume and inventory turnover and to minimize expenses. Pricing varies
by geography and by proximity to competitors. This flexible pricing policy allows WalMart to
achieve maximal strategic pricing, whereby it remains most price competitive in regions with higher
concentration of competitors yet avoids pricing too low in areas where it is the sole discount retailer.
Another key to WalMarts competitive advantage is its operations strategy. WalMarts operations
activities fit well together to achieve maximal efficiency and lower costs. By having multiple
distribution centers, WalMart is able to lower a stores square footage that is devoted to inventory to
10% versus 25% for competitors. This allows higher efficient use of store floor space for displaying
more goods and generating greater sales volume. Shelf labeling, as opposed to individual product
labeling, minimizes handling of goods thereby keeping costs lower. Inventory is tracked
electronically at the point of sale by UPC scanners and hand held bar code scanners. This
information is communicated to the stores computerized inventory system, allowing for maximal
efficiency in inventory tracking and repletion. WalMart implemented electronic scanning in all its
stores two years ahead of competitors such as Kmart. Automated inventory management lowers
inventory costs, allows seamless replacement of goods and better meets local demand. Information
regarding sales data is collected and analyzed via satellite network. The ability to do so avoids
overstocking and deep discounting. Early on, WalMart committed resources towards sophisticated
automated technology systems such as electronic scanning and satellite systems in order to achieve
higher operational efficiency and keep costs significantly lower than its competitors.
WalMarts hub and spoke distribution network is another key strategic piece behind its operations.
Merchandise brought in by truck to a distribution center is sorted for delivery within 24-48 hours.
Logistics management by way of cross docking allows seamless “just in time” inventory delivery and
minimizes the cost of inventory sitting idly in distribution centers. WalMarts inbound logistics costs
are 3.7% of discount store sales versus 4.8% for competitors. In addition, distribution centers are
highly automated and run 24 hours a day. WalMart ships more of its purchases (80%) from its own
distribution centers than competitors such as Kmart (50%), allowing for better control over inventory
and less reliability on the efficiency of suppliers operations to manage its inventory. Its automated
inventory tracking system at the point of sale allows WalMart to immediately communicate inventory
data to suppliers distribution centers and headquarters, thereby minimizing lag time in inventory
repletion.
Another key part of WalMarts competitive advantage is its vendor relations. WalMart has made
specific supplier choices along the way that are geared towards minimizing costs and maximizing
efficiency. For example, WalMart eliminated manufacturers representatives at cost savings of 3-4%
and calls its suppliers collect. Buying is centralized at headquarters which keeps purchasing costs
down. WalMart has avoided supplier power by not allowing any single supplier to have more than
2.4% of its purchases. Therefore, WalMart is better able to control its negotiation position with its
suppliers. WalMarts electronic data