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OPERATIONS AND CASH MANAGEMENT AT WAL-MART Introduction Effective cash management techniques are crucial to the success of any business. Figuring out how to deal with cash inflows and outflows, how and when to pay account payables and collect account receivables, and when and how to invest profits to make a company stronger are just a few areas that any company concerns itself with on daily basis. Although some people believe that cash management refers to working with paper money only, cash management also assumes such duties are managing supplier and buyer relationships in terms of getting the best deals with suppliers to deliver the lowest value to consumer. In addition, cash management deals with inventory purchases, production expenses, and company investments. Overall, being effective at cash management will not only generate more profits for the company, it will also allow the company to establish itself as a productive, effective, and well-organized enterprise that is determined to satisfy consumer needs, while not sacrificing its welfare. Wal-Mart Profile Wal-Mart Stores, Inc.
operates numerous retail stores around the world, which are organized in three segments: Wal-Mart Stores, SAMS CLUB, and Wal-Mart International. The Wal-Mart stores segment consists of three segments itself: Discount Stores, Super Centers, and Neighborhood Markets; all three segments operate in United States. The SAMS CLUB segment operates just like COSTCO in Canada, consisting of membership warehouse clubs. To become a member of such club, a consumer pays an annual fee, which allows shopping at the club discount prices. As of January 31, 2004, Wal-Mart operates 1, 478 Discount Stores, 1, 471 Super Centers, 538 SAMS CLUBS, and 64 Neighborhood Markets in the United States alone. In addition, the international segment operates in eight foreign countries, including Puerto Rico.
The international segment operates under a different format and includes retail stores and restaurants, including Discount Stores, Super Centers, and SAMS CLUBS that operate outside United States. Furthermore, Wal-Mart Inc. owns an unconsolidated 37. 8 % minority interest in The Sexy Ltd. , a major retailer in Japan. Wal-Mart utilizes its cash management procedure by investing in the company, introducing new services, and negotiating the lowest supply prices with suppliers to deliver the best quality at the lowest price to its consumers. Wal-Mart utilizes information technology to achieve competitive advantage, decrease buyers purchasing power, and decrease supplier power. As more units are produced, production costs decrease, while market prices remain the same.
Wal-Mart gains competitive advantage by producing large quantities, keeping prices reasonably low, and thereby decreasing purchasing power of consumers. In addition, Wal-Mart tries to keep supplier power low to ensure stable prices for input materials used in production of units of output. Wal-Marts superior utilization of information technology generates competitive advantage for the company and posses sufficient barriers to enter for industry competitors. Michael Porters five forces analysis suggests that there should be as few industry competitors as possible in order for a company to operate successfully and generate significant profits. Wal-Mart follows this advice by operating in a just-in-time mode to ever-changing customer demand. Wal-Marts information technology provides a solid base for explicit management and employee commitment.
As a result, Wal-Marts utilization of successful cash management allows the company to employ additional resources such as IT in order to generate more sales, which will bring more cash in, as well as establish lowest prices with suppliers. Due to highly positive customer response, Wal-Mart has decided to take initiative and expand its case-ready fresh meat product line to all Super centres and Neighborhood market. Although it may seem that Wal-Mart is simply going an extra mile for its customers, there is much more to this strategy than just customer loyalty. Wal-Mart is highly aware of a threat of new entrants, and, as a result, does everything possible to keep that number to the minimum. Wal-Mart is showing an effective way of keeping unnecessary entrants out by adding more and more services it offers to its loyal customers.
Once again, the effective cash management technique is allowing Wal-Mart to invest in market share security that will allow Wal-Mart to remain the largest retail company. Once there is fresh meat offered by Wal-Mart, well-known and well-established companies offering low prices, other companies will unlikely enter the competition for Wal-Marts monopoly. Furthermore, Wal-Mart will not only minimize the number of new entrants, but will also further decrease buyers purchasing power by applying this strategy. As already mentioned, Wal-Mart is notorious for low prices; by introducing and expanding a fresh meat department, Wal-Mart will beat competitors prices and attract more customers by offering them more for their money. In addition to savings, case-ready meat will provide Wal-Mart customers with enhanced quality control, leak-proof packaging, better overall appearance, and better tracking of the product [ web Although Wal-Mart offers low prices, it still generates large amounts of profit due to the fact that input prices are low, and generated profits are carefully managed and operated, allowing the company to invest back into the enterprise as well as maintain price level to attract new customers and maintain loyal ones. Professor Gary Hamilton of the University of Washington suggests that Wal-Mart has been "driving a massive restructuring of production worldwide; moving jobs from the U.
S. and Europe to Asia. They do it by setting price points and forcing suppliers to meet their targets. Only lowest-cost labor can meet their targets, and that means producing in Asia. "[ web to 30 percent of suppliers in the economy today produce their outputs for Wal-Mart, which represents the buying power of more than 100 million customers who shop in is Wal-Marts 3, 500 stores every week.
In late 1980 s and early 1990 s, Wal-Mart was slowly increasing its dependence on Asian imports, while publicizing its Buy American campaign by Sam Walton. According to Jay Movies, chief U. S. accountant for PREL, from 1989 to 2002, Asian imports have helped Wal-Mart generate its profit margins that were six times higher on Asian imports than they were on American-made goods. Ray Bracy, Wal-Mart Vice President for Federal & International Public Affairs, confirmed that Wal-Mart expanded its outsourcing even further in 2002, when it took over the buying operation from PREL and set up its own manufacturing plant in Shenzhen, China. Now, Wal-Mart services its consumers by getting imported goods for the lowest prices.
Economists even credit Wal-Mart with lowering the U. S. rate of inflation by lowering costs and increasing productivity, while increasing bottom-line profits for the company. Such approach is allowing Wal-Mart to keep its prices low, thereby, attracting more customers, and generating more profit. As a result, once profit is generated, it is reinvested into production costs to generate greater profits, and the cycle goes on. Last, but not least, to reduce industry competitiveness, Wal-Mart decreases its dependence on well-known American brands and develops its own in-house brands.
Mr. Bracy confirms that by developing its own brands, Wal-Mart not only gains supply chain efficiency by working directly with suppliers, but also increases profits significantly. Wal-Mart decreases supplier power by giving the Chinese manufacturers specifications for the American market; in return, Chinese suppliers learn how to export to the U. S. market through large retailers like Wal-Mart.
Such alliance is almost like a retail match made in heaven. In addition, Wal-Mart increases buyer power even further by offering consumers in-house brands that are the same quality as the American-made brands, but are significantly cheaper. Such approach works in three dimensions by decreasing industry competitiveness and supplier power, as well as decreasing buyer power. Conclusion: Wal-Mart Inc.
is one of U. S. largest retail giants, which offers consumers reasonable quality for low prices. By effectively implementing cash management strategies, Wal-Mart is able to keep its prices low, while making the company stronger, more successful, and widely known throughout the world. BIBLIOGRAPHY: Is Wal-Mart Good for America, Hedrick Smith, Who Calls the Shots in the Global Economy, web WalMart. com, Information about the Company, web
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