Information System - the Major Competitive Advantage of Walmart

Information System – The Major Competitive Advantage of Wal-Mart

Wal-Mart is the largest and most profitable retailer on the earth, with $23.95 billion operating income and approx. 2,100,000 employees in last year. Its growth from a single store in to almost 8,500 stores in 15 countries with 55 different names is legendary in American business. The Wal-Mart culture is built on obtaining the most current information about what customers want, getting the best ideas from employees about how to run the stores well, and sharing some of the profits with employees. The way Wal-Mart operates has been a model for General Electric's quest to increase speed and productivity.

The use of information technology has been an essential part of Wal-Mart's growth. A decade ago Wal-Mart trailed K-Mart, which could negotiate lower wholesale prices due to its size. Part of Wal-Mart's strategy for catching up was a point-of-sale system, a computerized information system that identifies each item sold, finds its price in a database, creates an accurate sales receipt for the customer, and stores this item-by-item sales information for use in analyzing sales and reordering inventory. Aside from handling information efficiently, effective use of this information helps Wal-Mart avoid overstocking by learning what merchandise is selling slowly. Wal-Mart's inventory and distribution system is a world leader. Over one 5 year period, Wal-Mart invested over $600 million in their Information Systems.

Wal-Mart use telecommunications to link directly from their stores to their central computer system and from that system to its supplier's computers. This allows automatic reordering and better coordination. Knowing exactly what is selling well and coordinating closely with suppliers permits Wal-Mart to tie up less money in inventory than many of their competitors. At their computerized warehouses, many goods arrive and leave without ever sitting on a shelf. Only 10% of the floor space in Wal-Mart's stores is used as an inventory area, compared to the 25% average for the industry.

With better coordination, the suppliers can have more consistent manufacturing runs, lower their costs, and pass some of the savings on to Wal-Mart and eventually the consumer. Some 3,800 vendors now get daily sales data directly from Wal-Mart stores. And 1,500 have the same decision and analysis software that Wal-Mart's own buyers use to check how a product performs in various markets.

Aside from computers and telecommunications equipment, the technical basis of the point-of-sale system is the bar code scanner. Bar code scanners make it possible to record the sale of each item and make that information available immediately for both reordering and sales analysis. The first use of bar code scanners occurred in the 1970s. After two decades of experience, accurate inventory tracking using bar code scanners