Section 3 – Question 5 – Case studyCASE STUDY:WalmartFrom its humble beginnings in Bentonville, Arkansas, Walmart has grown to be the world’s largest corporation in terms of revenue. As measured by the Fortune 500 before the 2006 oil price rise, it surpassed such corporate giants as General Motors and Exxon Mobil, the only two other companies to hold this position. On top of that, Fortune named Walmart as the “most admired†company in 2003, the first time the top Fortune 500 company has also had that honour. Reasons for this admiration? Walmart’s constant efforts to lower prices for consumers actually influences the U.S. economy by keeping inflation at low levels and forcing productivity up. Famed investor Warren Buffett calculated that Walmart contributes $10 billion a year to the U.S. economy.Founded in 1962 by Sam Walton, a large part of Walmart’s move to the top of the Fortune 500 ranking resulted from its aggressive use of information systems and technology. Unlike many of its competitors, Walmart always considered information technology as a competitive advantage rather than an expense. Walmart was one of the first companies to use POS terminals and bar codes at check-outs.Other retailers also eventually used this same technology, but Walmart applied it innovatively. For example, rather than hoarding or selling the data that bar codes and POS systems generated, Walmart shared it freely with its suppliers, such as Procter & Gamble, as a way of improving its incoming logistics. The suppliers thus obtained the data necessary to replenish Walmart’s products without waiting for the retailer to order them. This process resulted in an average savings of 20 cents per shipping case for both Walmart and the supplier.In 1991, Walmart took this sharing process one step further. It formalized sharing with an information system named Retail Link, which enables suppliers to look up sales and prices of their products in any Walmart store. This information helps the supplier plan its production and distribution to Walmart, leading to better and cheaper products. Over 40,000 suppliers now use Retail Link. Walmart is also pushing a web-based version of EDI as a way to provide suppliers with even more information and data.Another important part of Walmart’s philosophy of sharing information was the introduction in 1995 of collaborative forecasting and replenishment (CFAR). With CFAR, vendors can access Walmart data from their home offices and adjust for causal factors themselves. Walmart does not collaborate with vendors over public exchanges, but instead works with them through Internet connections to its retail link system.This commitment to the use of IT is most obvious in Walmart’s supply chain; that is, the flow of products from its suppliers to its shelves. As one observer put it, “Grocers always invest in new stores. Walmart invests in the supply chain, then in new stores.†By using the latest in technology to squeeze inefficiencies out of the supply chain, Walmart keeps its costs down, which enables it to offer lower costs than its competitors. For example, recently Walmart has been a leader in pushing the adoption of radio frequency identification tags (RFIDs) in products coming into its distribution centres. These RFIDs are tiny tags that replace bar codes as a way of identifying products. They have the advantage that they do not require direct contact or line-of-sight scanning to identify the product, and make it possible for retailers to know exactly what is in a pallet coming into the loading dock without having to be near it.Walmart also uses information technology for competitive advantage in product distribution. For example, Walmart uses its POS data to minimize warehouse inventory. By using the warehouse as a “pass-through†point, where goods come in from the supplier at one side and go out to the store on the other side the same day over miles of conveyor belts, Walmart saves time and money. To improve this process further, Walmart was also an early member of UCCnet, the data synchronization and registry service of the Uniform Code Council that sets the codes used in bar code systems. This avoids problems with pallets with bar codes that fail to match the purchase order listing, which delays processing at the loading dock. If a pallet has a high-demand product on it, the result of the delay could mean lost revenue and unhappy customers.Case Questions1.In what ways does IT contribute to the growth of Walmart?2.How is Walmart using IT to share data and information with suppliers? Why does this lead to lower prices for consumers?3.What are Walmart’s recent IT innovations, and how will they lead to lower costs?
Section 3 – Question 5 – Case studyCASE STUDY:WalmartFrom its humble beginnings in Bentonville, Arkansas, Walmart has grown to be the world’s largest corporation in terms of revenue. As measured by the Fortune 500 before the 2006 oil price rise, it surpassed such corporate giants as General Motors and Exxon Mobil, the only two other companies to hold this position. On top of that, Fortune named Walmart as the “most admired†company in 2003, the first time the top Fortune 500 company has also had that honour. Reasons for this admiration? Walmart’s constant efforts to lower prices for consumers actually influences the U.S. economy by keeping inflation at low levels and forcing productivity up. Famed investor Warren Buffett calculated that Walmart contributes $10 billion a year to the U.S. economy.Founded in 1962 by Sam Walton, a large part of Walmart’s move to the top of the Fortune 500 ranking resulted from its aggressive use of information systems and technology. Unlike many of its competitors, Walmart always considered information technology as a competitive advantage rather than an expense. Walmart was one of the first companies to use POS terminals and bar codes at check-outs.Other retailers also eventually used this same technology, but Walmart applied it innovatively. For example, rather than hoarding or selling the data that bar codes and POS systems generated, Walmart shared it freely with its suppliers, such as Procter & Gamble, as a way of improving its incoming logistics. The suppliers thus obtained the data necessary to replenish Walmart’s products without waiting for the retailer to order them. This process resulted in an average savings of 20 cents per shipping case for both Walmart and the supplier.In 1991, Walmart took this sharing process one step further. It formalized sharing with an information system named Retail Link, which enables suppliers to look up sales and prices of their products in any Walmart store. This information helps the supplier plan its production and distribution to Walmart, leading to better and cheaper products. Over 40,000 suppliers now use Retail Link. Walmart is also pushing a web-based version of EDI as a way to provide suppliers with even more information and data.Another important part of Walmart’s philosophy of sharing information was the introduction in 1995 of collaborative
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