Wal-Mart stores case study
1. What are Wal-Mart’s sources of competitive advantage? Wal-Mart has several great sources contributing to the company’s competitive advantage. The first was Walton’s plan for how to grow Wal-Mart, which was composed of two aspects. The first aspect was for the company to focus on locating stores in rural areas and small towns with low populations so that people would shop closer to home without competition from competitors. The second aspect was the plan as to Wal-Mart’s pattern of expansion which was to penetrate other geographic locations by pushing from the inside out. A second source of competitive advantage is the company’s intimate knowledge of the company’s competitors so to copy and build off their best ideas. Another source is Wal-Mart’s merchandising which promised customers could return any merchandise to any store location with no questions asked. Store managers are also able to price merchandise so that it meets local market conditions. The majority of sales were made up of nationally advertised product brands through the company’s brand strategy at first, but private labels such as Equate have become quite popular.
The fourth source is directly linked to store operations and the distribution system with vendors. Stores operate using electronic scanning of Uniform Product Codes as a means to ensure accurate pricing and efficiency by continually communicating with the inventory system. Also, all stores are directly linked to the company satellite system which allows for all data to be immediately analyzed and updated so to improve efficiency. This data includes sales, returns, slow moving merchandise and inventories. With electronic data interchange (EDI), vendors are able to immediately receive orders and communicate with Wal-Mart electronically. The company also implements a two-step hub-and-spoke distribution network which begins with company trucks delivering merchandise to distribution centers to be further sorted for store deliveries. They are able to have a delivery ready in 48 hours from the time of the request thanks to owning 27 distribution centers that ship 80% of Wal-Mart’s purchased items. Another source of competitive advantage comes from the “Yes We Can Sam” suggestion program. Employees are able to make suggestions for improving problems they come across first hand. In 1993 alone, more than 650 associate suggestions were implemented causing a substantial savings. Lastly, the company’s diversification into other segments and international expansion is another source contributing to competitive advantage. In addition to Wal-Mart stores, the company has also opened Sam’s warehouse club chains, supercenters and hypermarkets. With the emerging world economy, the company expanded business into Mexico, South America, and Canada. Wal-Mart operates using a cost-based advantage in that the company provides similar products and services as competitors do, but at a lower price. This is an even further advantage because the store is able to sell its products (off-brands) and make a higher margin due to costs being lower. 2. How sustainable is this advantage? The company’s competitive advantage is sustainable because it is comprised of numerous sources that are built within the company’s structure and apply to all segments the company has entered. While some sources have more competition and lose some advantage, other sources are so effective that the company is able to take a loss here and