Walmart Company Analysis (Circa 2003)

Overview

The largest retailer in the world has become too big to succeed further using current methods. The largest civilian employer is indeed “the target of special scrutiny” and must proactively address its U.S. reputation issues with customers and the broader public. The rate of growth in the rate of growth has plateaued domestically for sales and net income and requires Wal-Mart to refine its approach in order to achieve further growth. Past momentum and mere inertia will not propel the vast weight of this huge company much further.

Analysis and Directly Related Recommendations

The three key principles of capability-based competition identify several key areas for improvement to be championed directly by the CEO:

• The foundation of company strategy consists of business processes. Currently, Wal-Mart operates 84 distribution centers (DC) with total company inventory turning 7.6 times/year. On average, product is gathering dust and creating costs for 48 days prior to sale. A reduction of one turn per year would free up $2 billion in working capital. Each DC costs approximately $70 million and holds inventory for about 48 hours. These processes could be further improved by developing even more efficient logistical capabilities -

Replace DC’s with direct vendor shipments to stores
Move beyond “cross-docking” to use direct shipments from suppliers to stores powered by new RFID technology. This will delete two days from the current 48 day inventory turn cycle and save approximately $571 million per yr. in working capital plus the cost of DC’s eliminated.

Use advanced data-mining IT to predict future sales
Better analysis of store sales data will permit better prediction of future sales and better product mix decisions. There are major cost-benefit tradeoffs between local stores offering customers “more variety” versus product mix idealization obtained from more centralization. Wal-Mart would earn about $275 million for deleting one day of product gathering dust on a shelf. Speed in selling translates into less working capital.

• Business processes must become “strategic capabilities that consistently provide superior value to the customer.” Sams Club, once a dominant player, has been “surpassed by Costco.” And shopping at Sams “is not something they [customers] brag about.” Wal-mart suffers from “poor public impressions” of the company. But as management theorists Stalk, Evans and Shulman argued: “A capability is strategic only when it begins and ends with the customer.” Thus -

Wal-Mart must listen to its customers and rebuild its tarnished reputation
Earn trust by treating its workers better, improving product quality, safety and reliability and reducing costly and embarrassing recalls. Clearly, trusting a company and its products requires a “relentless focus on satisfying customer needs.” The incapability described by CEO Scott must be remedied: “We haven’t figured out a way to judge whether our store managers are treating people appropriately.”

• Improvements to Wal-Mart’s capabilities require “strategic investments” in appropriate infrastructure that binds the company together. Currently, the company’s IT and logistical systems perform superbly all the way up to the store shelf, and resume functioning at the checkout counter. Between the shelf and the checkout is a gap waiting to be filled by a new customer-oriented capability created by a new investment in infrastructure. Thus -

Wake up the Wal-Mart sales floor with new IT and better use of customer service
Make customer service mobile, highly visible, and close in space and time to customers on the brink of a Decision-To-Buy. Use IT to prove and guarantee to customers that Wal-Mart is always the low price leader. This new capability will improve sales yields and customer satisfaction.

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