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Currently, Wal-Mart is the world’s largest retailer and has remained in this position for some years (Forbes, 2016). The company was ranked position one in 2016 in the Global Fortune 500 list with 482,180 million dollar revenues (Global 500, 2017). Since its establishment in 1962 up to now, the company runs more than 10,000 sales branches in 27 states. Even though the accomplishment of the retail lies on several factors, the main factor leading to its overriding position in the industry is in its supply chain (Natto, 2014). Precisely, Wal-Mart is fruitful with its lucrative, speed, and incorporated supply chain. Besides, the company’s retail and supply chain management approaches have as well turned out to be competitive advantages that accelerate its growth (Nguyen, 2017). This paper focuses on understanding supply chain management in Wal-Mart’s business strategy.
Above-the-line versus below-the-line
Above the line (ATL) promotion is where companies use mass media to endorse their products and reach out to the target consumers. These comprise radio advertising, conformist media, print, television, and internet. On the other hand, below the line (BTL) advertising is a type of advertising that includes sales promotions, and direct mail promotional campaigns which are handled directly by the organization itself. Wal-Mart uses its supply chain management system to back both below the line and above the line promotions. For instance, Wal-Mart works with television suppliers who supplies the company with the needed televisions. Wal-Mart, then uses its supply chain to transfer the televisions to its stores cheaply (Abbaterusso, 2010). The company afterwards advertises the televisions at a lower price by minimizing the costs through its supply chain. In return, customers increase and sales increase. On the other hand, below the line initiatives in Wal-Mart works the same way, but are focused on a specific group of customers. For instance, the company acquires a bulk of products such as Lysol wipes and delivers them to its stores. When the company lowers the price of the wipes, it advertises directly to its previous customers of the wipes through an email blast. Wal-Mart is able to lower prices and maintain profit of the wipes as it takes advantage of economies of scale when procuring and lessen the cost incurred by improving its supply chain (Chiles and Dau, 2005).
Porter’s Five Forces Model
Wal-Mart uses its supply chain management to:
- Reduce buyer power as a supplier by using its low pricing strategy. Individual buyers therefore exert little or no impact on the brand. It is very challenging for individual buyers make very huge purchases since Wal-Mart sells at low prices and this attracts many customers to the brand.
- Reduce supplier power as a buyer by buying in bulk. Wal-Mart holds a significant large market share as the largest retailer. By buying in bulk, the company gets a significant buyer power which reduces the buying power of other suppliers in the industry
- Reduce the threat of substitute products or services by selling a wide range of products including their substitutes.
- Reduce the threat of new entrants by having a distribution system and market share that makes the firm the largest and leading retailer in the industry
A value chain is a set of activities that a company conducts to deliver valuable products and services (Porter, 1985). Within Wal-Mart, supply chain management is a combined value chain of both primary value process and support value process because the company has adopted all primary activities and support activities of a value chain. This includes inbound logistics, operations, outbound logistics, and marketing and sales (primary activities) and infrastructure, technology, human resource management, and procurement (support activities) (Abbaterusso, 2010). For instance, by perfecting its supply chain technology and infrastructure, Wal-Mart is able to keep its prices low.
- Abbaterusso J. (2010). Supply chain management at Wal-Mart. Ivey Business School, The University of Western Ontario, London, Ontario.
- Chiles C.R & Dau M.T. (2005). An analysis of current supply chain best practices in the retail industry with case studies of Wal-Mart and Amazon.com. Massachusetts Institute of Technology, Master. MA.
- Forbes (2016): The world’s largest retailers 2016: Wal-Mart dominates but Amazon is catching up. http://www.forbes.com/sites/laurengensler/2016/05/27/global-2000-worlds-largest-retailers/#110913629a9e
- Global 500 (2017): http://fortune.com/global500/
- Natto, H. (2014). Wal-Mart supply chain management. International Journal of Scientific & Engineering Research. 5(1), 1023-1026.
- Nguyen, T (2017). Wal-Mart’s successfully integrated supply chain and the necessity of establishing the Triple-A supply chain in the 21st century. Journal of Economics and Management 29(3), 102-117
- Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York.: Simon and Schuster.