Business requirements that drove Wal-Mart’s need for Centralized Information System 3
How Centralized Information System has transformed Wal-Mart 4
i. Low cost strategy 4
ii. Supply chain management 4
iii. Strategic sourcing 5
iv. Warehouse management 5
v. Just-in-Time Technique 6
vi. Inventory management 6
vii. UPC bar codes and Electronic Data Interchange, EDI 7
Wal-MartStores is an American multinational public corporation founded in1933. The supermarket has a total of over 11,000 stores across 27countries. Wal-Mart has been ranked as the largest company in theworld in terms of revenue. It is also the largest grocery retailer inthe United States. In the retailing industry, Wal-Mart is the mostdominant company in terms of customer base and its ability to reduceits operational costs, and still delivering high-quality products toits customers.
Wal-Martis also a global leader in information technology innovation.Wal-Mart’s success in the retailing industry can be attributed tothe use of centralized information system in running its operations.Wal-Mart’s approach is to centralize the highest percentage of itsoperations.
Business requirements that drove Wal-Mart’s need for CentralizedInformation System
Wal-Marthas numerous stores spread out across the world. The stiffcompetition in the retail industry created the need for Wal-Mart todevelop strategies that would improve its competitive advantage inthe market. Wal-Mart’s main competitors included Costco WholesalersCorp and Target Corp. In 2010, the then CIO, Kevin Turner, arguedthat a centralized information system was key in creating competitiveadvantage. Any change in customers’ needs and preferences need tobe taken into consideration.
Asidefrom creating competitive advantage, Wal-Mart aimed at obtaining themost current information on the market demand and supply andinformation on the consumers’ tastes and preferences. Wal-Mart’semployees were also given the opportunity of giving ideas on how toimprove the business. Such information would only be obtained withthe help of a centralized information system.
Theneed to minimize on inventory-related costs also created the need fordeveloping a system that will help to monitor and determine there-order levels and the level of inventory to hold. Wal-Mart needed asystem that would help to determine the slow-moving merchandise andthe optimal inventory level. The geographical distribution ofWal-Mart’s stores made it difficult for inventory management to bedone manually.
Wal-Martprovides an online purchasing platform for its clients. The successof the online platform solely depends on the efficiency of theinformation system. A centralized information system was needed tofacilitate online purchases [ CITATION Sub09 l 1033 ].
How Centralized Information System has transformed Wal-Mart
Thecentralized information system has been the main driver forWal-Mart’s significant growth. It creates competitive advantage.The desire to improve its information system saw Wal-Mart spendapproximately $600 million in a span of five years. The centralizedinformation system has been instrumental in Wal-Mart’s operationsin various ways
Low cost strategy
Centralizedinformation system helps in creation of competitive advantage throughcost minimization. The system has enabled Wal-Mart lower itsoperational costs. The sources of low cost include electronic basedsupply chain management system, wide customer base and a variety ofoutlets well distributed to reach all the customers. Wal-Mart sellsits products through four main types of stores discount stores,Sam’s Club Warehouses, neighborhood markets and Wal-MartSupercenters. Wal-Mart has a bargaining power on its suppliers tolower their prices enabling it to offer its products at lower pricethan its competitors.
Supply chain management
Thecentralized information system has facilitated the success ofWal-Mart’s supply chain management. SCM refers to harmonizedresolutions and activities utilized to efficiently integratesuppliers, manufacturers, warehouses, transporters, retailers, andcustomers. An efficient SCM helps to ensure correct products orservices are disseminated at the right quantities, to the rightplaces, and at the right stint. The overall result is to assist inreducing the system-wide costs without compromising on the quality.
Amongstthe main SCM practices include customer service management, customerrelationship management, order completion, demand management andvendor relationship supervision. The centralized information systemhas led to Wal-Mart’s efficient integration of suppliers,distribution and warehouse stores facilitating coordination andinventory management. Wal-Mart’s supply chain has four maincomponents namely cross docking, technology and integration,suppliers’ partnership and efficient distribution management. Thefour components are inter-linked through the centralized informationsystem.
Thesystem has facilitated the growth of strategic sourcing. The main aimof strategic sourcing is to enable Wal-Mart to identify the optimumprice from different suppliers. Wal-Mart can enjoy price discountsthrough bulk purchases. The concept of high volume purchases wasinitially introduced by Wal-Mart. Creating strategic partnershipswith suppliers is also essential in price reduction. Strategicsourcing stems from Wal-Mart’s ability link systems with those ofthe suppliers [ CITATION Joh06 l 1033 ].
Centralizedinformation system is crucial in warehouse management. The system isused by the managers in tracking the products from the storage in thewarehouse and the distribution process to the customers. The systemhelps to improve warehouse services such as docking logistics and ininventory management. Warehouse management was introduced byWal-Mart.
Centralizedinformation system was vital in the development and implementation ofJIT technique of inventory management. Wal-Mart introduced theconcept of just-in-time technique. JIT is considered to be one of thebest inventory management methods. JIT help to minimize the totalinventory cost, especially the holding cost. JIT also helps tominimize the costs associated with stock obsolescence. The concept ofJIT has been widely adopted by most corporations with the aim ofreducing inventory related costs.
Inventoryrelated costs include holding costs, ordering costs and purchasecosts. Economic order quantity concept is crucial determining theoptimal stock level, when to order, the minimum stock level and thesafety stock. The system helps Wal-Mart determine the stock level atany given time. The determination of the optimal quality to orderdepends on the formula below.
WhereD is the annual demand
Cis the cost per order
Chis the holding cost
JITis also essential in efficient implementation of periodic andcontinuous inventory systems. Underthe periodic inventory system, the inventory/merchandise is recordedin the purchases account. The closing inventory balance is updated atthe end of the accounting period. The method is suitable forcompanies that deal in small number of merchandise which is of highvalue. The use of centralized information system is essential inenabling the inventory to be updated at a single instance across allthe warehouses. Also, it helps to minimize incidences of doublecounting.
Thecontinuous inventory system, on the other hand, is where all theaccounts being affected by inventory are constantly updated. Theaccounts include purchases account, sales account, inventory accountand purchases discount account. The inventory system helps todetermine any form of theft or inventory spoilage.
UPC bar codes and Electronic Data Interchange, EDI
Wal-Martpioneered the use of UPC bar codes and Electronic Data Interchange,EDI, in the ordering of goods from suppliers. The bar codes and EDIare essential in data collection regarding sales and purchases. Theyenhance data transfer between the stores computers and the centralcomputers. Centralized information system enables Wal-Mart tomaintain a real-time database of all the operations [CITATION MrG12 l 1033 ].
Wal-Mart’ssuccess can be attributed to the efficient central informationsystem. The benefits of the system discussed explain its large marketshare and wide customer base in the retail industry.
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