Walmart is the largest retailer in this world. In the year 2020, Walmart's revenue was around $5059 Billion. Now the question is Why is Walmart so successful? Now 90% of the people will say because they provide so much of discounts. But the reality is that discounting is only 10% behind Walmart's success. Now the question is, what is rest of the 90%? Hello everyone welcome back to our website case-bio.blogspot.com where we provide you interesting case studies, biographies etc.
Walmart was established by Sam Walton in 1962. But before starting Walmart he had borrowed $20000 from his father in law for the Ben Franklin franchisee. And he made that store the most profitable store in the town. Now how did all this happen? So back in 1960s Sam Walton found his pot of gold. What was that? The pot of gold was Disposed Income Percentage. An average American spends 40-50% of his income for home bills, it means this money is bound to be spent. But to pull those customers, a very strong "Why" was needed. And that why became discounting. But this discounting power is backed by 4 pillars and that is 90% of the game. And the most crucial game changing pillar is the 4th pillar.
#1 Procurement Lockin : Walmart Buisness
So the first pillar is Procurement Lockin. There is a very big problem in the market called Bull Whip Effect. For example you sell soaps, but the demand for soaps starts falling. So consider that you have 100 units of soap, and these 100 units are not sold. But the wholesaler from whom you took the soaps, his 1000 units are not sold. And the manufacturer from whom the wholesaler got the soaps, his 10000 units are not sold. Means whenever the demand of any product fluctuates, the top levels of the supply chain face more and more impact. Now see what Walmart do.
First of all Walmart understands the cost structure from all their suppliers and manufacturers. And then directly connects them to its stores through EDI. Now see the magic. EDI is Electronic Data Interchange. Firstly, Walmart links all its system to supplier's systems. Now see how this works. First of all suppliers get purchase order details. They get all the details of each purchase order, which helps them to generate demand figures. Now the supplier knows how much will be the demand and how many products do I need to manufacture. After manufacturing, they supply those units directly to Walmart's distribution centers. And this reduces the Bull Whip Effect. But all of this is only possible because of the 2nd pillar.
#2 Cross Dock Hub Spoking : Walmart strategy
Now the 2nd pillar is Cross Dock Hub Spoking. Now, how does it work? Walmart identified that there are two dots in the process & the major cost is in between these two dots. Now this was a challenge. So the first dot is the manufacturer. Now Walmart integrated Hyper Ledger Fabric Systems. Now Walmart uses IBM's Block Chain technology to track each and every item that left from the manufacturing unit and also gives it a certificate of authority.
Firstly, all the products from manufacturer reaches the distribution centers, where there is cross docking. In simple words all the products which are to be supplied in the desired quantity to the the respective stores are loaded in trucks. A central hub gets all the products from different manufacturers & the products are dispatched to the respective stores through trucks in the desired quantities. The two dots are manufacturers and stores and the cost of logistics between these two is maximum. And the cross dock hub spoking reduces the logistics cost. But what if the products go out of stock?
#3 Just In Time Inventory System : Walmart case study
Vendor Managed Inventory
Now this never happens at Walmart because of the 3rd pillar & that is Just In Time Inventory System. In 1991 Walmart invested around $4 Billion to form Retail Link System which gave birth to Vendor Managed Inventory. Now what is this? With VMI supplier gets to know that how much of their inventory is sold and how much is in stock, so that they can do timely replenishment. Now this builds speed to market but Walmart never takes more than 1/5th of the volume from any of its suppliers. Why? Because there should be no competition among suppliers.
Domino Effect Shelfing
But now the question is what saves Walmart so much money except from bulk buying? And that is the Domino Effect Shelfing. In simple words packaging innovation. Walmart instructs all its suppliers to keep minimum packaging material. Now see how does this change the game? Walmart firstly experimented with frozen pizzas. Walmart asked frozen pizza supplier to slightly reduce the dimensions and packaging material of the frozen pizza. What happened with this? The truck which was earlier carrying 44300 pizzas is now able to carry 51200 pizzas. With this their inventory, shipping and labor cost reduced. Using the same technique Walmart saved Six Hundred Thousand Dollars per truck in one year. That means they saved Rs. 3 Crore per truck per year. But all of this is a waste if this fourth pillar does not exist. Now what is that fourth pillar?
#4 Persuasion of Sequential Buying : Walmart marketing strategy
The 4th pillar is Persuasion of Sequential Buying. Now how does this work? In simple words this means selling goods in a sequence through a tool called Social Analytics. So it has three steps.
Reading the Economic Environment
The first step is Reading the Economic Environment. Walmart first of all studies the economic environment for the area around its store.
Needs and Trends
Number two is Needs and Trends. Walmart studies what are the current needs of the people and what is trending? For example, it is recession time and economy is poor, so at that time Walmart changes its product mix. They keep 50-60% consumable items and the rest of the 40% is home apparels. But if the economy is in good shape then they keep 60% home apparels and 40% consumable items. So firstly they study the needs & trends in the market after which they plan the shelfing of their stores. And this brings us to the third step.
Sequential Shelfing
The third step is target the buying forces through Sequential Shelfing. Okay, tell me one thing, What do you buy first milk or cornflakes? 95% of the people first buy cornflakes and then they buy milk. So this is the sequence in which we make our buying decisions. It means that we purchase in a particular sequence. Walmart studies these sequences and arrange the shelf accordingly. With which customer buys one product, then other and then another and he keeps on purchasing and Walmart keeps on making money. And during this whole process the customers are pulled by the discounts.
