The company’s mission according to their mission statement is “We save people money so they can live better.” (Walmart) Sam Walton’s proposed a company purpose “If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.” (Wal-mart) This is the visionary foundation on which Sam Walton built the Walmart Company beginning on July 2, 1962 when he opened the first Walmart store in Rogers Arkansas.
The company has continued to grow and evolve since its beginning in 1962, growing from one store to over 10,000 stores globally. Walmart employs over 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries (Walmart Corporate) grossing net sales of 405 billion dollars (Walmart Annual). Wal-Mart’s success is based on supply chain management strategy.
Their strategy incorporates the following key components, cross docking, vendor partnerships, technology, distribution management and integration. (Walmart Supply) Wal-Mart’s technology infrastructure allows the company to forecast demand, track and predict inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics as well as finding products from suppliers who can supply at the lowest prices in long term high volume business relationships.
Walmart has been able to reap greater profits because it has less money tied up in inventory generating more profit compared to other retailers in the industry. Walmart utilizes a perpetual inventory system that records both revenue and the cost of goods sold.
Point of sale cash register systems and RFID tags efficiently track inventory sold to consumers and purchased from suppliers reducing inventory losses. Walmart depletes and replenishes its inventory 9 times per year. This computes to approximately 41 days in inventory prior to being sold. (Chron) In a year’s time, from fiscal year 2012 to the end of fiscal year 2013, Wal-Mart’s revenue has grown from 447 Billion in 2012 to 469.2 billion by fiscal year end January 2013. Increased revenue is not only attributed to product turnover, but to the reduction in expenses related to sales and administrative costs from 19.08% to 18.94%. This reduction in expense drove revenue growth from 15.7 billion to 17.0 billion.
(Bloomberg) Industry ratios for 2013 compared with Wal-Mart’s largest competitors Costco and Target resulted in a Walmart ratio of 36.46 billion EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) ratio compared to Costco’s 3.99 billion and Target’s 7.64 billion. (Yahoo) These ratios indicate the financial health of a company and their ability to service debts. These ratios are fluctuating based on the company’s selection or removal of data which can alter performance results. Gross Profit Margin ratios for Walmart were 25%, with Costco trailing at 13% and Target leading in gross profit margin at 29%.
(Yahoo) These ratios reflect the profit a company makes on the cost of goods sold and how management utilizes labor and supplies. Higher profit margins allow extra funding for business operations, marketing or research and development. A lower profit margin is a good indicator that there has been an increase in company expenses. This increase could be passed on to the consumer to recoup expenses, in any case it the bottom line for companies with low profit margins looks bleak.
Operating margins account for the profit after business expenses related to materials, labor, selling costs and administration. Because this includes the majority of expenses, the operating profit margins will be smaller but are preferred because they represent a more accurate accounting of the company’s profit margin. These ratios indicate the control of operating costs and sales are escalating faster than operating costs. Wal-Mart’s ratio was 6%, compared to Costco at 3% and Target at 8%.
Quarterly revenue growths for the 2013 fiscal year for Walmart were at 1%, while Costco gained revenue with a ratio of 8% and Target losing revenue at -1%. This reflects the quarter financials indicating financial performance by sales. Wal-Mart’s supply chain management strategy has provided the company with several sustainable competitive advantages, including lower product costs, reduced inventory carrying costs, improved in-store variety and selection, and highly competitive pricing for the consumer.
(Walmart Supply) Walmart is the current leader in the retail industry indicating their supply chain management strategy is serving this company well. Walmart has a business edge most companies are unable to compete with. Because of Wal-Mart’s size and the volume of business it does, it has leverage with their suppliers which allow them to negotiate prices that reflect their mission to stay the low cost leader. They are so large they can purchase in volume at an advantage over their competitors in the industry.
They have a strong market position worldwide. Although not reflected on the balance sheets, Walmart owns most of the properties their stores are located on. Most of these properties were purchased at lower than current market values. This will add to revenue growth by decreasing operating costs. Wal-Mart’s newest innovative feature is the ability to purchase products online without a credit card. You can pick out your items online, go to the store, pay for them and pick them up at the same time.
This allows the convenience of in home shopping which is becoming the trend for consumers in this decade. Although Walmart offers online purchasing for consumers without credit cards, their web presence does not feature as much merchandise as the stores. Walmart is marketing themselves as environmentally friendly with their green campaign.
They are dedicated to taking corporate responsibility functioning in green operations, sustainability and using local vendors to supply their grocery venues. Although they market their use of local produce, in most cases the produce purchased is a small percentage of the local market and often times the produce payments do not cover the expenses from the local producer. Although, one of the largest employers, reports about employee and supplier mistreatment, civil suits and import/export misconduct which is affecting the reputation of Walmart.
Walmart is also being criticized for its large size, which keeps smaller companies from being able to compete, putting smaller community businesses out of business. Walmart continues to reinforce global manufacturing, no longer purchasing from American companies. They purchase products from international companies that have unfair labor laws or product standards that meet with United States regulations.
As such, there have been multiple recalls of inferior or substandard products retailed by Walmart. At one time people were driven to shop at Walmart because of their product pricing, however that trend is slowly changing as technology educates the consumers of Walmart on products, their employees, and Wal-Mart’s newsworthy business problems and how it affects their consumers. Walmart needs to change its perspective about their consumers, as technology changes, so are their consumers. Works Cited
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“Examples of Inventory Turnover Ratios /Chron.com” Chron (July 18, 2013) Date Accessed July 18, 2013 http://smallbusiness.chron.com/examples-inventory-turnover-ratios-12489.html
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“Walmart Supply Chain Management | Supply Chain Management Strategy” University of San Francisco Online (7/18/2013) Date Accessed July 18, 2013 http://www.usanfranonline.com/wal-mart-successful-supply-chain-management
“Walmart Sustainability Report 2010 - Our Business - Our Mission” Walmart (July 18, 2018) Accessed July 18, 2018 http://www.walmartstores.com/sites/sustainabilityreport/2010/our_business_our_mission.aspx
“Wal-Mart Stores Mission Statement - Vision, Mission, Purpose, Headquarters, Founders Facts, and Trivia About Wal-Mart Discount Stores Chain” Retail