Use of Information System Solutions in Wal-Mart Inc.

Abstract

The aim of this paper is to analyze the management information systems within Wal-Mart. It also attempts to discuss methods and technologies that impact its organizational functions and then showcase how they addressed a business challenge, opportunity or problem through IS a solution. The first part of this report introduces Wal-Mart’s mission, strategy, and its history.

Introduction

A company that started as a small business with just one discount store and a good idea of selling more for less, has metamorphosed over the years into the US largest employer and the biggest retailer in the globe. Each week, nearly 270 million customers and members visit their more than 11,700 stores under 65 banners in 28 countries (including the United States, Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, and the UK) and e-commerce websites.

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For the sixth year in a row and the 14th time, in total, Wal-Mart has secured the No. 1 spot on the Fortune 500 list. With the financial year 2018 revenue rounding off at $500.3 billion, Wal-Mart employs close to 2.3 million associates globally. Wal-Mart was successful in the US market because it connects itself symbolically to the major characteristics of American life. As a matter of approach, Wal-Mart chains are assumed to focus on sales and margins in the short run. Indeed its everyday Low Pricing format has catapulted it into the leading grocery chain in the U.S and internationally that was very successful.

Literature Review

Others have done extensive research on Wal-Mart in the past and have taken a different approach and tried to explain the Causes and Consequences of Wal-Mart’s growth putting into consideration the Economics Perspectives. Wrote on the Development of a theory of retailer response to manufacturers’ everyday low-cost programs, this report is focused mainly on low-cost effects. Power, D. WAL-MART: TECHNOLOGY PAYBACK IS IMPERATIVE. Tries to analyze technology and Wal-Mart push for updated IS setup. Another body of work was done by. Titled “Wal-Mart to Pour $2 Billion into E-Commerce over Next Two Years.”, where critical analyses of the investment into the information systems and output for a given period were researched

Background of Wal-Mart

Brief History

In 1950, Sam Walton (founder of Wal-Mart) opened Walton’s 5&10 in Bentonville, Arkansas. Inspired by the early success of his dime store, and driven by the greater need to bring opportunity and value to his customers, Sam opened the first Wal-Mart in 1962 in Rogers, Arkansas, and faced stiff competition from Kmart and target.

Sam Walton’s guiding philosophy for his stores was to offer consumers a wide selection of goods at a discounted price, with the strategy of locating stores in small towns where residents had few options for retail shopping. Wal-Mart was incorporated in 1969, and already has some retail outlets running at that time.

The expansion was rapid in the ’70s with 276 stores in 11 states and by the ’80s annual sales grew from $1 billion in 1980 to $26 Billion in 1989. In 1994 it acquired 122 Woolco Stores in Canada and by 2002 made acquisitions in Germany, Brazil, and South Korea to become the world’s largest company in revenue terms. The Germany and South Korea ventures closed with heavy losses but UK, South America, and China operations are still booming.

Mission Statement, Vision, Goals, & Purpose Mission Statement:

Wal-Mart’s corporate mission is “to save people money so they can live better.” which can be translated as the company’s slogan, “Save money. Live better.”

The corporate vision is to “Be the destination for customers to save money, no matter how they want to shop.” This vision was officially articulated in the company’s 2017 investment community meeting. Previously the vision statement was “To be the best retailer in the hearts and minds of consumers and employees.”

Primary Activities Table

Inbound Logistics Operations Outbound Logistics Marketing and Sales Service

  • VMI system (Vendor Managed Inventory) continuous replenishment
  • EDI (Electronic data interchange)

3 business segments:

  1. Wal-Mart Stores
  2. Wal-Mart International
  3. SAM’S Club – Hub & Spoke distribution system.
  • CROSS DOCKING: logistics technique to make delivery more efficient – Word of Mouth communication.
  • focuses on everyday low prices
  • sales are on a self-service, cash and carry basis – accepting returned goods
  • satisfaction guarantee
  • opening hours (24/7)

Business Model and Organizational structure

Wal-Mart has a management philosophy which is effective communication with company partners, commitment to the business, to control of company expenses. Their leadership structure is consists of an executive management team led by the President, and CEO of Wal-Mart (Doug McMillan), and a board of directors chaired by Gregory Penner.

The transformational and transactional style of management is mainly used at Wal-Mart, while their organizational structure is made up of two parts, which are hierarchical and functional. The vertical line of command and authority is the Hierarchy where every other employee, apart from the CEO, has a superior. The middle managers implement and pass instruction/commands from the top levels of management down to the rank-and-file employees in their stores. Function-based organization feature is characterized by a group of employees fulfilling certain functions, for example, marketing, information technology, and human resource management.

Wal-Mart’s Business Model

A business model shows the logical basis of how an organization delivers, captures, and creates value. The analysis of Wal-Mart’s Business Model will follow Osterwalder and Pigneur’s Nine Building Blocks.

Value proposition

This is to offer Everyday Low Price (EDLP). This proposition implies that the customers do not need to wait for sales to have the best deal possible.

Distribution channel

Wal-Mart communicates with and reaches its customer segments with its distribution channels mainly through mass media and other ways which have a low cost, such as the internet.

Customer relationships & Customer segment

With a customer relationship established based on self-service, totally automated and aimed towards co-creation of some products once it is possible.

Key activities

The key activities which are needed to run Wal-Mart’s business model are: Purchasing goods, their delivery, and Total cost control.

Key resources

This is classified into 3 categories, the physical resources (stores and logistics), its human resources (experienced managers and store managers) and finally the company culture. Wal-Mart culture is based on the restless effort at constant self-improvement, discipline, and loyalty.

Key partnership

This is a strong buyer-supplier relationship in which suppliers were considered as close partners of Wal-Mart. They also are part of the value chain of each other and Wal-Mart also creates economies of scale that optimize its cost structure.

Revenue stream

Retail sales, such as music downloading with fixed menu pricing are products of customer segments which generate revenue streams. Wal-Mart also drives revenue from selling its own brand.

Cost structure

A cost-driven model since it is focused on minimizing costs wherever it is possible and it is characterized by economies of scale.

Challenges to Business Model and Is Solutions

Challenges Faced By Wal-Mart

There are a lot of problems facing Wal-Mart businesses as the world is fast growing through globalization and the internet. First is their inability to compete with others for the workforce due to their low salary structure, which makes them lose workers to their competitors. According to the Wal-Mart, US CEO Greg Foran in 2015 several issues are facing the company which includes many stores lacking cleanliness and tidiness, Stores aren’t restocking shelves fast enough, Store layout and design compromising customer convenience and space in some cases, Digital services need to be integrated with physical stores (For example, Wal-Mart wants to expand its service allowing customers to order groceries online for in-store pickup and delivery), Prices aren’t always as low as competitors. ‘While we have pockets of leadership [on price], in more competitive markets, our gain is too small,’ Foran said.

But for the sake of this paper emphasis will be made on the technological challenges that needed information system solutions. One of the major issues is procurement; Wal-Mart deals directly with manufacturers, bypassing all intermediaries (MANUFACTURER – WALMART – CUSTOMERS). Many customers complained of empty shelves, unavailability of enough staff on the ground thereby citation poor customer service, many items which were about to expire still in bulk stock, and lags in logistics/delivery. All these challenges which I have categorized as lagging or poor supplier and customer relationships (the focus is to use IS a solution to solve Wal-Mart customer and supplier relations). In the wake of this internet age and the need to do things quickly it became a problem for companies to catch up with the trends and also due to their managerial set up there is always a bridge in communication between top management and staff low in the hierarchy due to the presence of many layers of mangers the information has to go through, thereby slowing down output. For example in a situation where the stockkeeper notices low stock for a particular product, there are different managers that information will need to go through before it gets to the purchase/ procurement department and this is a major lag which needs the attention of a proper setup information system.

Another factor affecting the relationship with suppliers is that due to the size of the company there are so many suppliers (Most of their manufacturers are china based) to deal with so it is very difficult to co-ordinate all their inventory activities to monitor stock.

Technology-Based Solutions

In order to maintain their spot at the top of the global retailer’s list, Wal-Mart continually seeks to improve the technology used to ensure they maintain a competitive advantage. Technology development is a key factor of the company; in the wake of rising challenges, the need for a proper setup IS became eminent. First was the introduction of senior managers with a background outside retailing (IT), benchmarking of competitors’ successful IS measures, then the use of cutting edge technology to maintain Communication activities and improved IT/online shopping carts to ease pressure on the already under staffed store locations and reach out to a larger target market.

Addressing the Challenges Using IS Solutions

The David Glass Technology Center in Bentonville, Arkansas has Approx. 3000 societies working in the Information Systems Department. With an IS Department that is very hierarchal; including a Senior Business Analyst, Business Analyst, Senior Manager, Manager, and levels below them.

Type of data:

The Datacenter of Wal-Mart called the Jane data center has a capacity of 460 terabytes of data. It deals with Model Calculations data that calculate operating profits, sales, and distribution miles per any given year for any given configuration of Wal-Mart stores.

Type of information:

Due to the challenges and the need for technology for dealing with sales and production tracking,

  • The Company now mandates its suppliers to provide microchips that will service radio frequency identification (RFID), to greatly enhance the systems already created by bar codes. With these, they can instant information on which products are selling and which products are not well-received. This knowledge will is a key factor when deciding which products to purchase from its suppliers.
  • Introduction of Electronic Data Interchange (EDI): Wal-Mart integrates EDI for automated processes such as invoicing, order supply form submission, stocks, sales, and ledgers in communicating with suppliers.
  • Vendor Managed Inventory (VMI) system – alias Wal-Mart Retail Link; a portal through which manufacturers can monitor their product inventory themselves remotely

The following IS solutions mentioned above with a host of others were used to solve the problem of inventory management (a lag in supplier and consumer relations), eliminating issues of empty shelves, and almost expired products. The benefits were operating efficiencies, inventory turnover, standardized space, and layout in stores and warehouses, warehouses were automatically replenished to optimal levels through continuous cooperation with their suppliers as a result of already established improved communications.

Earlier Shareholder’s shared concerns about the about US$4 billion investment into a retail link system in 1991 and other upgrades over the years including advanced satellite communication systems, Massively parallel processor computer systems(MPP), and disaster recovery planning systems but the output made the sums spent on these systems worth it. These IS solutions are not favorable to just suppliers and buyers alone but managers, employees and partners all enjoy a well-structured work environment thanks to the information system.

Recommendations

From the way Wal-Mart handled the challenges of inventory management to curtail the lapses between them, Suppliers, and customers, managers in other organizations can learn:

  • How to Leverage in-store analytics and warehouse and inventory management systems to understand and optimize every one of their inventory locations.
  • Using Application Programming Interface to drive complex inventory and shipping processes and also better manage costs by expanding carrier selection, tracking, and integrating with critical systems
  • Use of EDI to automate purchase orders, streamline communication with manufacturers and trading partners, and create a common business language you can use to quickly integrate any new partner.

Conclusions

The most successful organizational development at Wal-Mart would be a change in the leadership and labor task force structure. Once the organizational structure is developed and changed, Wal-Mart will no doubt surpass its competitors even in the e-commerce business segment, a sector which Wal-Mart has failed to dominate considering how much they’ve invested in IS solutions over the years. A Proper Set up IS surely gives an edge to an organization but there are other things that could jeopardize its effect just like the Organizational structure in the case of Wal-Mart.

It is a known fact that applications are being developed and used to support the manager responsible for making and implementing decisions and not to replace him. In other words, tools like decision support systems are now being used by people in a growing number of organizations to improve their managerial effectiveness and it is an area Wal-Mart is working on continuously.

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07 July 2022

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