How does Wal-Mart Keep their competitive advantage Essay
How does Wal-Mart Keep their competitive advantage
Founded in 1962 by Sam Walton, Wal-Mart has grown to be the largest discount retail chain in the world. Wal-Mart currently has over 6,500 thousand stores in 14 different countries, 1.8 million plus associates and nets sales this last quarter of over 85 billion dollars, an increase of 8.3 percent (walmart.com). The only other corporation larger than Wal-Mart to date is Exxon Mobile. So how does Wal-Mart keep their competitive advantage and sustain their position in discount retailing?Historically Wal-Mart main competitive advantage has been their low price of brand name goods. Though their most important competitive advantage, it is not their only one. Wal-Mart’s competitive advantage is based off of many key strategic choices, not just their low prices.
Their strategic choice of location has given Wal-Mart a first mover advantage. By Wal-Mart strategically placing their stores within the proximity of their distribution centers, Wal-Mart is able to keep their in-house inventory at a minimal. Their distribution network is based on the hub-and spoke concept, which places stores no more than a day’s drive from its distribution centers and replaces goods within 24 hours (refrigeratedtrans.com). Their distribution centers carry more than 85 percent of all merchandise sold by Wal-Mart. With over 3,000 tractors and 12,000 trailers, Wal-Mart has one of the largest private fleets in the country with an on-time delivery record of 99.5 percent, which Mauldin believes is not good enough, that anything less the 100% is unacceptable (refrigeratedtrans.com).
Not only has Wal-Mart’s strategic placement of their stores and distribution centers given them a competitive advantage, their strategic operations and inventory management has played a vital role in their success. Wal-Mart’s in-store inventory is kept at a minimum, allowing them to achieve maximum efficiency of their store floor space. Inventory is tracked by UPC scanners allowing Wal-Mart to better communicate with vendors via satellite when supplies need to be replenished. This strategy helps Wal-Mart lower inventory cost, which allows them the ability to meet the demands of local consumers, and the ability to avoid overstocking. Thus in return giving them a higher operational efficiency and keeping their prices significantly lower that other discount retail stores.
According to A.T. Kearney, Wal-Mart’s three-biggest sources of cost advantage are low corporate overheads, the efficiencies of its supply chain and above all, it’s low labor cost. However, I believe their biggest source of cost advantage is their corporate culture. Not only is this their biggest source, it is also the one source that will help Wal-Mart sustain their position in the future.
Wal-Mart’s corporate culture dates back to the beginning when Sam Walton founded Wal-Mart in 1962 with a vision to keep prices as low as possible. He also emphasized frugality, customer service, an open book policy, building loyalty among associates, suppliers and customers (Wilbert, 2007). He built Wal-Mart from leading by example, and instilling in his people and his business a belief system that is still currently in place today (walmart.com).
Sam Walton had three basic beliefs and 10 rules for building a business that he believed to be the secret of their success. His three basic beliefs were respect the individual; service to the customer; and strive for excellence. He believed that applying these beliefs would make an associate a better person, which in return would make a better organization. All great beliefs and are still followed today (walmart.com).
However it is the 10 basic principals where I believe gave Wal-Mart the competitive advantage and defines their culture. These basic principals are:•The customer is always right•We are a merchandise-driven company•Our people make the difference•We communicate with our associates•We maintain a strong work ethic•Associates are partners•Our leaders are also servants•Associates are empowered•We have integrity in all we do•We control our expensesThese basic principal are the driving force of Wal-Mart. Sam Walton knew that in order to be successful that the associates held the key. That an unhappy associate could project their feelings to the customer and a business could not succeed by attracting one-time customers (walmart.com). Walton also knew that in order to develop a successful corporate culture, both management and employees had to work together, with the sole purpose of serving the customer. Wal-Mart has followed this culture for the past 45 years.
Wal-Mart’s cost-leadership, culture, operations, geographic location, distribution system and organization strategy has all played a vital role in Wal-Mart’s success and will continue to play a vital role in their future. Though some more important than others, without each one Wal-Mart could not duplicate their competitive advantage. Wal-Mart is an organization that shows a strong culture. Associates as well as outsiders can observe many elements of the culture within Wal-Mart. Every aspect of the culture has been instilled in each associate of this company and has helped make Wal-Mart successful and will continue to help them be successful (Berg, 2001). Wal-Mart is a large corporation which stands for the small town community values, that operates with the efficiency of a major corporation.
Berg (2001, July 2). Wal-Mart and Organizational Culture. Retrieved on May 26, 2007 from http://academic.emporia.edu/smithwil/001smmg443/eja/ardmg443ej.htmBernstein, J. and Bivens, J. (2006, June 15). The Wal-Mart Debate. A False Choice between Price and Wages. Economic Policy Institute. Issue Brief #223Corporate Culture Provides Wal-Mart Competitive Advantage. 2002, July 1. Refrigerated Transporters. Retrieved on May 26, 2007 from http://refrigeratedtrans.com/mag/transportation_corporate_culture_provides/Wal-Mart Home Page. Retrieved on May 26, 2007 from http://walmart.comWilbert, C (2006). How Wal-Mart Works. How Stuff Works. Retrieved May 26, 2007 from http://money.howstuffworks.com/wal-mart.htm