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Example research essay topic: B 2 C Wal Mart - 1,283 words

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WAL-MART - A Case Study in Managing Technical Transitions Managing Technical Transitions Prof. Michael Lawless February 24, 2001 Prepared by: Andrew Bender Ann Howell Amy Lavin David Torgerson Founded in 1962 by Sam Walton, Wal-Mart followed an amazing pattern of success and growth, eclipsing all other U. S. department store retailers by the early 1990 's.

In early spring 2001, Wal-Mart enjoyed a huge market capitalization of over $ 230 B, which was down from highs of nearly $ 300 B in early 2000. Over the last year, however, Wal-Mart had suffered a number of failures in its Internet-based operations, as it tried feverishly, along with many other traditionally "bricks-and-mortar" companies, to make a transition to the Internet. As much of the commotion in the markets relative to the Internet subsided due to a slowing economy and a number of high-profile "dot-com" failures, Wal-Mart continued to experiment with it's Internet presence and corporate strategy. In this paper, we discuss Wal-Mart and its technical transition to the Internet. First, we examine the company from a value chain and core competency perspective, to gain insight on what value the company brings to the table, both in its traditional and Internet operations.

We give a synopsis of Wal-Mart's recent and current online philosophies, and then turn to Wal-Mart's strategy as it relates to the transition. Finally, we provide an analysis of Wal-Mart's prospects and recommendations for the future. Sources of Value Wal-Mart had always invested heavily in infrastructure. They were among the first to use point-of-sale Uniform Product Codes (UPC) scanning, and intra-store radio frequency (RF) transmission of product UPC and pricing information between central store inventory systems and personnel with scanners on the store shelves. However, their most valuable infrastructure investments were made at a significantly higher level. A satellite system connecting all stores was initially installed in 1983, and grew into a complex communication network that included all stores, headquarters, and distribution centers, as well suppliers.

This system facilitated a modified just-in-time process of inventory control, a feat virtually unheard of in general merchandise retailing. Put simply, as each store sells an item, a message is automatically sent to the supplier of that item, who then knows to include a replacement in the next shipment (usually that day) to the nearest distribution hub. This degree of connectivity allows rapid response to inventory needs, and reduces dramatically the amount of inventory required. A second area of major investment was in distribution technology.

Wal-Mart established a network of innovative hubs which used "cross-docking" to minimize distribution center inventory and to facilitate the need-based inventory delivery system enabled by the satellite network. In this model, as shipments arrive at the warehouse, merchandise is moved directly to the trucks carrying the outbound shipments to specific stores. In many cases, the same trucks can even be used for inbound and outbound shipments, including those carrying new merchandise to stores and those carrying returned, outdated, or unneeded merchandise from stores, thus minimizing round-trip shipping costs. Wal-Mart operates as an aggregator, distributor, and retailer of consumer goods. Due in part to its size, to the connectivity involved in its operations, and to the zest with which it has traditionally negotiated supplier contracts, Wal-Mart has established itself in a key position in the value chain of its suppliers. It is consumer goods giant Procter & Gamble's largest customer, and holds a significant power position relative to other smaller suppliers.

This position has enabled Wal-Mart to obtain superior price breaks relative to the competition on the products it carries. It's size has obviated the need for separate distributors or wholesalers in the value chain. Coupled with the efficiency of its distribution network and store model, Wal-Mart has achieved a well-entrenched position in the value chain of its customers as well - that of the lowest cost consumer goods retailer. Hence, the value that Wal-Mart provides is two-fold. First, it provides value to its suppliers by operating as a large, relatively stable, nearly omnipresent channel for sales of goods, which provides rapid feedback on unit sales and localized demand.

Secondly, and arguably more importantly, Wal-Mart provides value to customers by offering aggregation of a wide variety of consumer goods in a single location, and selling those goods at the lowest prices. With respect to traditional operations, Wal-Mart continues to enjoy success. Despite the emergence of other bricks-and-mortar competitors such as Target, Wal-Mart's cost position and relationships with suppliers still differentiate it from the competition. It's value proposition continues to be successful, and it remains a darling of Wall Street analysts.

Finally, as the fervor over business-destroying dot-com ventures wanes, Wal-Mart continues to show a high level of durability potential in it's traditional operations. Selected financial information for Wal-Mart is provide in Exhibits 1 - 3. Competencies With an eye toward the online environment, it is useful to examine the competencies that Wal-Mart possesses in its current operations. It has been theorized that companies deliver superior customer value by performing exceptionally well in one or more of three areas, Operational Excellence, Customer Intimacy, and Product Leadership[ 1 ]. Based on the above discussion, it is relatively easy to theorize that Wal-Mart's primary strengths lie in the area of Operational Excellence.

Specifically, Wal-Mart's ability to coordinate a complex information management and distribution network, and to efficiently manage supplier relationships are the cornerstones of its success. What isn't as obvious is how Wal-Mart's competencies translate to an online environment. Clearly this is highly dependent on the type of online strategy Wal-Mart pursues. We will discuss Wal-Mart's online strategy in detail later in this paper. However, it is useful to examine some common areas in which Wal-Mart might excel or face challenges. For many companies, the thrust of an online presence is perceived to lie in the business to consumer (B 2 C) arena.

As shown in the operations of pure play online retailers such as Amazon. com, or clicks-n-mortar companies like Toys 'R Us, one of the keys to success in the realm of B 2 C online retailing is the ability to efficiently fulfill large quantities of small orders. A highly efficient back-end fulfillment system is therefore a key competency that large scale online retailers must master. On the surface, it would seem that Wal-Mart, with its heavy investment in back-end infrastructure, would excel in this area. However, we note that a key difference in Wal-Mart's systems is that they are currently designed to optimize large shipments of varied products to relatively few locations through relatively proprietary transportation networks, not small shipments to a large number of public locations. Could Wal-Mart's systems be expanded or adapted to handle such shipments efficiently?

Perhaps. But, we see it as potentially being a significant challenge. A second broad area of expertise linked to success in the B 2 C arena is a the customer interface: the degree of customer intimacy, community building, and one-to-one marketing. While it can be argued that Wal-Mart has successfully created a "community feel" within its bricks-and-mortar stores, and by virtue of their omnipresence and comprehensive information management systems have garnered superior knowledge of consumer purchasing habits, it would be a stretch to state that Wal-Mart excels at customer intimacy. It is therefore uncertain as to what degree Wal-Mart's rather macroscopic knowledge of relationships with customers is transferable to an online B 2 C environment.

It should be noted that there is one aspect of B 2 C retailing advantage which Wal-Mart clearly exemplifies in its traditional operations: that of beating competitors on price. Wal-Mart's efficiency and relationships with suppliers represent a competency that could potential transfer very well to online operations. The degree to which Wal-Mart's cost, and hence price, advantage can be lever...


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