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Wal-Mart’s Cost Leadership Strategy
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Wal-Mart’s Cost Leadership
Strategy
By : Group 2
Wal-Mart – July 2, 1962 by Sam Walton at Rogers, Arkansas US
First discount store
Core philosophy - cost leadership – offer better value for money
Strategy : focus on stores at small towns : ELDP - the pricing strategy : Cost leadership Strategy : Massive expansion strategy : Global sourcing strategy
Growth through :
Heavy IT investments Surplus reinvestments Increasing no. of stores Consistent Cost cutting measures Public issue Economies of scale Sam’s Clubs Scanners Satellite communication system Hyper mart – food retailing (Super centers) Neighborhood markets n Super centers combo ‘Store of the community’ program
Over the years
• Discount stores :1573 to 1568
• Sam’s Clubs : 148 to 1258
• Super Centers : 3 to 525
• Neighborhood markets: 0 to 49
• Revenue - $244.5 billion
• Awards
2002 : ‘Ron Brown’ award for corporate leadership by President
2002 & 2003 : #1 in Fortune 500 list of world’s largest
companies
“If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.
Save Money. Live better
To help people save money so they can live better
Vision:
Mission
Tagline
SWOT OF
WAL-MART
1.Scale of operations
2.Funding ability
3.Competence in information systems
4.Wide range of products
5.International operations
Strengths
1. Labour related lawsuits
2. High employee turnover
3. Little differentiation
4. Negative publicity
Weaknesses
1. Retail market growth in developing countries
2. Rising acceptance of own label products
3. Trend toward healthy eating
4. Online shopping growth
1. Increasing competition from brick and mortar and online competitors
2. Increasing resistance from local communities
3. Political issues in developing countries
Opportunities
Threats
Porter's Generic Strategy
Cost Leadership
Differentiation
Cost Focus Differentiation Focus
Source of Competitive Advantage
ScopeN
arro
w
Boa
rd
Cost Differentiation
Sources of low cost leadership
Economies of Scale
Experience Curve
Capacity Utilization
Process Design
Economies of Scale
Quantity Mark Up
Experience Curve
Discount store – Sam’s Club – Super Centres – Neighbourhood Markets
Importance of IT system (POS, SCS & Automated conveyor system)
Impact of Experimentation
Distribution Process Design
Hub & Spoke Model
Location
Rural
From rural to cities
Connectivity from distribution centres to retail store
Stores are 300 Miles (482 KM) away from distribution centres
158 Distribution centres for 11000 retail stores, in 27 countries
3 things are important in retailing “Location, Location & Location”
Integration
They focused on backward integration rather than forward integration
They learned how manufactures are performing
Focused more on “EDLP”
Obtained bargaining power through backward integration
Gained ability to replacement with in 2 Days (Forward integration)
Porter’s Value Chain
General administrationHuman resource management
Technology development
Procurement
Inbound logistics
Operations Outbound logistics
Marketing and sales
Service
Primary ActivitiesInbound Logistics Operations Outbound Logistics Marketing and sales Service
-VMI system
(Vendor managed
inventory)
continuous
replenishment
-EDI (Electronic
Data Interchange
3 business segments:
a)WalMart stores- Super centers- Discount centers- Neighborhood
markets
b) SAM’S Club
c)WalMart international
-Hub and spoke distribution system.
- CROSS DOCKING: logistic technique to make the distribution process more efficient
- Word of mouth communication.
-focuses on everyday low prices
“Save money, live better”
-Sales are on a self-service, cash-and-carry basis.
-accepting returned goods
-Satisfaction guarantee
- Opening hours(24/7)
Firms infrasctructure: close connection between headquarter and local stores.
Human resources: - Based on Interaction practices between company and employees-Low pay but other benefits (health care plans, retirement plans, or promotion opportunities)-2.2 million associates globally. -Every time we open a supercenter, we provide roughly 300 jobs -Women57% of our U.S. workforce, 27% of corporate officers, and 20% of our Board of directors.
Techonology development: It is the key factor of the company. It constitutes a competitive advantage against competitors.- Computer-based technology POS (Point of sales) system Satellite System
Procurement:-Wal-Mart deals directly with manufacturers, by passing all intermediaries. - EDI : Electronic data interchange MANUFACTURER – WALMART - CUSTOMERS
Thank You.