Thesis on "Portfolio Project Operation Management"

Thesis 9 pages (2984 words) Sources: 1+

[EXCERPT] . . . .

Business

Wal-Mart

When Sam Walton was franchising a Ben Franklin's variety store in Newport, Ark., in the late 1940's, he had a simple but significant idea. Walton, like most retailers, was always looking for a deal from his suppliers. Normally when a retailer managed to get a bargain from a wholesaler they would leave their store prices unchanged and pocket the extra money. Walton on the other hand realized he could do better by passing on the savings to his customers and earning his profits through large volume. This approach would be the foundation of Walton's business strategy when he opened Wal-Mart in 1962 (Frank, 2006).

His hunt for low prices came naturally to Walton as he was known for being extremely cheap. Cost-cutting was a fixation in the Wal-Mart culture, and Walton was almost as cheap with his executives as he was with his cashiers. On business trips, everyone flew coach, and hotel rooms were always shared. Even a cup of coffee at the office required a 10-cent contribution to the fund (Frank, 2006).

Walton's employees always seemed to accept this culture. In part, it was thought it was because Walton framed his cheapness as a campaign on behalf of the lowly consumer and as a quest for a better life for all Americans. But mostly it was because he had charisma. Even when Wal-Mart increased in size, Walton made it a point to keep in touch with his employees, or as he termed them, his associates. This often involved flying from store to store for impromptu visits (Frank, 2006).

It was thought that Walton's ability to keep his staff happy relied heavily on knowing when to let penny-pinching take a backseat to other priorities. In 1985, in the middle of heavy anxiety about trade deficits and the loss of American manufacturing jobs, Walton launched a Made in America campaign that committed Wal-Mart to buying American-made. The caveat was that suppliers had to get within 5% of the price of a foreign competitor. Even thought this may have compromised the bottom line in the short-term, Walton understood the long-term benefit of convincing employees and customers that the company had a conscience. Walton also made sure to give his staff a stake in the company. In 1971, Walton introduced a profit-sharing plan that allowed employees to put a certain percentage of their pay checks towards the purchase of subsidized Wal-Mart stock (Frank, 2006).

Wal-Mart's success has been seen as relying not only on charisma and thrift, but on technology as well. By the 1970s, Wal-Mart was using computers to link its stores and warehouses together. Sales data was used to allow Wal-Mart to keep track of specific items and reduce inventory miscalculations. Throughout Walton's career, a focus on innovation of this sort would make Wal-Mart a consistent leader in efficiency over the years (Frank, 2006).

Wal-Mart's supporters often argue that the chain saves lower-income families billions through its low prices. This may well be true, but it's not a virtue that is unique to Wal-Mart. The entire sector of discount retailers does much the same thing. Wal-Mart's critics tend to focus on the company's low wages and paltry benefits, along with its effects on small towns, or its dependence on outsourcing. But these, too, are by and large sins of the entire discount retail sector, not just Wal-mart (Frank, 2006).

During the early eighties, Wal-Mart placed a lot of emphasis on developing and implementing a tight supply chain solution that has hurled them to the top of the retail channel. Wal-Mart's legendary supply chain technology has allowed them to break the three-day barrier that most economists in the eighties felt was clearly unbreakable. Wal-Mart is often able to replenish items on the Wal-Mart shelf in less than three days and not from the central warehouse to the shelf, but from the manufacturer to the shelf. With this quick and reliable 2-day turn around, Wal-Mart is able to maintain lower levels of inventory and still meet high customer demand. Being able to maintain lower inventory levels helps to reduce floor plans and lower carrying costs along with lowering interest expenses and allow for a greater diversity of products on the store shelves (Supply Chain, 2009).

Because Wal-Mart is better able to order inventory on demand, the company is in a better position to meet their customers demand. In the retail world today's fads are often tomorrow's obsolete inventory. Wal-Mart's superior supply chain technology allows the company to better avoid carrying an oversupply of these types of items. Twenty years ago, stores were ordering goods 90 days ahead of arrival. This made the ordering process mostly guess work in trying to determine if a particular item would still be in style by the time it hit the shelves. This was such a big problem that an entire industry rallied to address this problem (Supply Chain, 2009).

In order to fully understand the benefits that Wal-Mart reaps from its' superior supply chain solution, one has to consider the traditional labor and paper approach that is still being used by millions on companies today. Without and automated supply chain, an employee must make a periodic physical inventory count and then take the actual quantities on-hand and compare then to the target quantity levels in the back office in order to determine what to re-order. Then employees fill out purchase orders and phone them into the central warehouse. This all generates expenses for labor costs, paper supplies, and even the long distance phone call. Inefficiencies are a given during every step of this process (Supply Chain, 2009).

The heart of Wal-Mart's efforts to gain market share across a broad range of categories continues to lie with its supply chain management. It has been recognized as a key competitive advantage. Wal-Mart operates an unequaled global network of 146 distribution centers. "Included in that total are 103 domestic distribution centers that service its approximately 2,800 discount stores, supercenters and Neighborhood Markets and 525 Sam's Clubs, and another 43 facilities that service Wal-Mart's 1,300 international units located in nine countries" (Troy, 2003).

Every time they roll out another distribution center they have to realign the network in order to make the system more efficient. The result creates a trickle-down effect that happens when trucks don't have to travel as far to stores to make deliveries. The shorter distances help to reduce lead times for Wal-Mart to serve its stores and for suppliers shipping merchandise to the distribution centers. Shorter lead times mean that less stock has to be kept on hand and if out-of-stock situations do arise they can be resolved quickly because stores receive daily or multiple deliveries everyday (Troy, 2003).

Recently there has been a revolution in the way that goods are produced and delivered. It is being referred to as a logistics revolution. There has been a shift from push production to pull production. It was thought that there was a disjuncture between supply and demand, and retailers are trying to get a much better hold on demand. The push system involves manufacturers deciding what they're going to produce and then trying to get retailers to buy it and sell it. The pull system involves retailers deciding what is selling, collecting information on it and then telling manufacturers what to produce and when to produce it based on what is actually being sold (Is Wal Mart Good for America, 2004).

This has caused there to be a power shift from manufacturers to retailers. The retailers have more and more say over what is being produced, at what price, and at what time. They are playing a key role in dictating exactly what will be produced, when and where. Wal-mart strives to master the process of production, movement of the goods, warehousing of the goods, making sure that it arrives at the right place at the right time. Wal-mart is very good at squeezing the price out of that. So they insist that it be done cheaply, it be done accurately, and that it be done quickly (Is Wal Mart Good for America, 2004).

Wal-Mart's power lies in the fact that they are at the end of the supply chain. This is because they front with the consumer, and the transaction of selling the goods is under their control. This allows them to know what is being sold, and they're able to use that information to tell the producers what needs to be made, when, where. They also know what prices are popular, so they are able to say demand that goods be made at certain prices (Is Wal Mart Good for America, 2004).

Wal-Mart has become one of the world's most admired companies. Since Sam Walton opened the first Wal-Mart in 1962, their culture has rested on three basic beliefs. These beliefs are carried out every day in the way that they serve their customers and in the way that employees treat each other. These beliefs include:

Respect for the Individual -- they believe that… READ MORE

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