According to Porters Five Forces Model Wal-Mart focuses on overall cost leadership . Overall cost leadership requires firms to develop policies aimed at becoming and remaining the lowest-cost producer and/or distributor in the industry. Company strategies aimed at controlling costs include construction of efficient-scale facilities, tight control of costs and overhead, avoidance of marginal customer accounts, minimization of operating expenses, reduction of input costs, tight control of labor costs, and lower distribution costs. The low-cost leader gains competitive advantage by getting its costs of production or distribution lower than those of the other firms in its market.
It is understood that Porters Five Forces Model helps business people understand the relative attractiveness of an industry and the industry's competitive presseures in terms of buyer power, supplier power, threats of substitute products or services, threat of new entrants, and rivalry among existing competitors.
Buyer Power: Walmart does an excellent job in reducing buyer power and creating a competitive advantage by making it more attractive for customers to buy from them than from their competitors.
Supplier Power: Walmarts supplier power is extremely low becasue Wal-Mart purchases in such large quantities, it nutralizes supplier power.
Threat of Substitute Products or Services: Wal-Mart focusing on ensuring that their customers are happy and that their suppliers are delivering quality products at a low cost. They ensure that they remain ahead of their competitors and in doing so, it would make it difficult for new entrants and the competition to match their prices.
Threat of New Entrants: To create entry barriers, Wal-Mart would have to increase market research on what customers are actually purchasing and ensure that they are able to deliver, and become the only person offering that product at a price the customers and afford.
Rivalry: Is relatively low because Wal-mart has such low prices which has created a problem for years and fierce competition has made it tough for competitors to make a profit.
In achieveing a Low Cost Leadership strategy Wal-Mart relies heavily on a Supply Chain Management System, an IT system that supports activities by automating the tracking of inventory and information among business processes and across companies. Wal-Mart strives to ensure that all their suppliers are using Electronic Product Codes and for those who do not have the capability they work with them to find packages that are within their price range. This allows for a successful ensuring that customers get what they order in a timely manner. It allows for logistics, fulfillment, production, revenue and profit, cost and price efficiency.
With operations all over the country and several thousand suppliers, supply chain management and IT-based supply chain management systems are critical necessitites in ensuring a positive flow of goods, with limited inconsistancies.
As an Overall Cost Leadership company, their strategy is that of a bottom-line company. A bottom-line strategy optimizes manufacturing processes, decrease transportation costs, and reduces cost of human capital, and minimizes errors in a process.
Wal-Mart relys on IT enabled tight supply chain management systems to squeeze every penny possible out of the procurement, distribution, and warehousing of its products. They use business intelligence systems to predict what customers will want and when they will want it. Wal-Mart is currently using ERP, which incorporates, Customer Relationship Management system; they are also in the process of implementing SAP to strengthen their business skills. Philosophical Approach could be the Matrix, where there is collaboration across the board to ensure customers’ needs are satisfied. They have in-out flows, which is from computers to suppliers.
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