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- Agenda
“CPFR has blurred the lines between Wal-Mart and the Supplier:
You’re both working to the same end: To sell as much product as
possible without either of us having too much inventory”.
500
400
Dollars ($)
Kmart
300
Target
200
Wal-Mart
100
0
2000 2001 2002
Year
1995:
- Wal-Mart’s Market Share: 27%
- Productivity advantage widened to 48%
1995-99:
- Competitors reacted by adopting Wal-Mart’s innovations
- Managed to increase their productivity by 28%
- Wal-Mart raised the bar further by increasing its own efficiency
by another 20%
Source: “Retail: The Wal-Mart Effect”, The McKinsey Quarterly, 2002, No. 1
Dr. Lakshmi Mohan 17
Wal-Mart Changed Retailing Economics
For Example:
Cross-training of employees allows them to function
effectively in more than one department at a time.
Better training of cashiers and monitoring of utilization
can increase productivity rates at checkout counters by
10% to 20%.
4. Empowering of Front-Lines
… Wal-Mart gives them information at their finger-tips and the freedom to act.
“If someone asks me how we manage a $100 billion company, I tell them a store
at a time, and we constantly challenge that unit to make it the best.”
5. Keeping Track of Competitors’ Prices
“Later that afternoon, she leaves the store for an hour to compare prices at
nearby Kmart and Target stores. She is reimbursed mileage. If a competitor’s
prices are the same or lower than Wal-Mart’s, she consults with her supervisor
about cutting her own prices up to 5 %.”
6. Management will not tolerate “shrinkage”
Loss, theft and damage of inventory is capped at around 1%
Other retailers settle for 3% - 5%
An Example: Cross-Docking
Pre-assembled orders for individual stores from a
supplier’s truck go seamlessly from an unloading dock at
Wal-Mart’s Distribution Center directly into a truck bound
for stores …
Get goods into stores without even unpacking them
– let alone allowing them to sit in storage !
“Until we reached a billion dollars, a lot of suppliers just
ignored us way out here in the Arkansas Outback.
Now, of course, we’re too big too ignore.”
Dr. Lakshmi Mohan 33
Vendor-Financed Inventory !
Buyers are told: “You’re not negotiating for Wal-Mart. You are
negotiating for your customer. And your customer deserves the
best price you can get. Don’t ever feel sorry for a vendor. He knows
what he can sell for, and we want his bottom price.”
Vendors are told to quote the best price:
“If they told me it’s a dollar, I would say, ‘Fine, I’ll consider it, but
I’m going to go to your competitor, and if he says 90 cents, he’s
going to get the business. So make sure a dollar is your best price.’
If that’s being hard-nosed then we ought to be as hard-nosed as we
can be. You have to be fair and upfront and honest, but you have to
drive your bargain because you’re dealing for millions and millions
of customers who expect the best price they can get. If you buy that
thing for $1.25, you’ve just bought somebody else’s inefficiency.”
Dr. Lakshmi Mohan 36
A Telling Example of Wal-Mart’s Growth
- Went Past Toys “R” Us by 1998
1. Use of IT
2. Cost Control
3. Partnership with Suppliers
4. Partnership with Employees
How did a Small-town Merchant get these Innovative Ideas?
Now I would love to tell you that this partnership was all part of my
master plan from the beginning, that as a young man I had same
sort of vision of a great retailer company in which all the
employees would be awarded a stake in the business That I saw
them having the opportunity to participate in many of the
decisions that would determine the profitability of that business.
… I would love to tell you all that, but unfortunately none of it
would be true!
In the beginning, I was so chintzy I really didn’t pay my employees
well. The managers were fine, but we really didn’t do much for the
clerks except pay them an hourly wage, and I guess that wage was
as little as we could get by with at the time.
Impact of Lawsuits
“Sam Walton believed that there were only two types of employees he wouldn’t
give a second chance to – those who abused people and those who stole” …
… We have 1.5 million employees, including every kind of person known to
man – racists, sexists, etc. If someone made a negative racial comment in the
past, instead of dealing with it severely, we might have transferred him.
… In today’s world, he has to go.
… “The number of people not doing the right thing is a small %. But it is unfair
when that number is seen as representative of a wider institutional pattern.”
Source: Wall Street Journal, Oct 6, 2004
Dr. Lakshmi Mohan 75
Response to Charges of Discrimination
After years of fighting unionization efforts at its stores in the U.S., Wal-
Mart decided to allow unions in China after years of pressure from the
All China Federation of Trade Unions
Unionization is required under Chinese law.
“Wal-Mart Supports China’s Efforts to Build a Harmonious Society.”
– Company Announcement
Will collaborate with the All China Federation because the two groups had the
“mutual aim” to establish grassroots unions
Unions in China do not have the history of bargaining power that unions in
Europe and the U.S. have
“The function of Chinese unions is to urge workers to participate in the work,
care about their welfare, and to organize recreational activities for them.”
Statement from the All China Federation:
“If Wal-Mart union members are subjected to unfair treatment at work, unions
at the national, provincial, city and district level will strive all out to protect
employees’ legitimate rights.”
Dr. Lakshmi Mohan 81
To Boost Sales, Wal-Mart Drops
One-Size-Fits-All Approach
… Few doubt that Wal-Mart has both the patience and the
resources to stay on top.