Wal-Mart & Vlasic Pickles Assignment

September 15

2011 ESLSCA 34C, 3rd Semester, Strategic Management

By: Ahmed M. Adel

Q1. Analyze the differences between a marketing orientation and a sales orientation and identify the effects of not considering both in developing a business strategy.

What are the differences between sales orientation and marketing

orientation:

Sales Orientation Marketing Orientation A business approach or philosophy

that focuses on identifying and meeting the stated or hidden needs or wants of customers. See also product orientation and sales orientation.

A business approach or philosophy that focuses on promoting sales of whatever a companymakes or supplies, through marketing and sales calls. See also market orientation and product orientation.

The firm focuses on the skills of selling rather than on the needs of the buyer.

The firm tries to get the company to produce what the customer wants.

Is an emphasis on "moving" your product via advertising and/or salesforce. The product and production capacity preceded the consumer. There is a lot of emphasis on image. It worked for many years (and still works), but in more competitive environments started to fail.

The company tries to satisfy a consumer need (a felt deprivation). The product and production activity follows consumer research. A segment of the market is chosen. The system is molded to fit the consumer. There is an emphasis in "positioning" (Image + high Ranking as a solution).

1. a. Corporate Strategy Before analyzing Wal-Mart’s corporate strategy, it is important to decide what business it is in.

For example, if Wal-Mart is in the business of selling consumer goods such as TV’s, sheets,

clothes, etc then it is pursuing a concentric strategy by entering the food business. However, this

changes depending on how you analyze what business Wal-Mart is in. Wal-Mart is in the

business of selling everything customers need in their everyday lives. This includes the consumer

goods listed above as well as food-service items. Even still, Wal-Mart pursues multiple

strategies. Concerning concentration, Wal-Mart continually finds more consumer goods to sell

at its stores which can take money from competitors. Additionally, when Wal-Mart entered into

the food market, it quickly consolidated and held to good, saleable products. Wal-Mart never

forays too far into a market and only sells what will make it a profit.

Recently, Wal-Mart has pursued a conglomerate strategy by starting to sell used cars at some of

its stores in Buffalo, New York. Selling cars is an entirely different industry than selling consumer

goods. Additionally, it requires a whole new set of expertise that does not come easily. As far as

future plans are concerned, Wal-Mart should abandon this strategy and stick to what they do

best.

Lastly, an argument can be made that Wal-Mart is also pursuing a vertical integration strategy.

Wal-Mart has developed its own name brand to sell products called Sam’s Choice. This puts

Wal-Mart into the business of making things like soda, cereal, and dog food. While they still

don’t grow their own crops or raise their own livestock, it is still a form of vertical integration.

Also, Wal-Mart works heavily with its suppliers. This symbiotic relationship can be see as vertical

integration due to the level at which Wal-Mart analyzes its suppliers and improves their

manufacturing processes, etc.

b. Business Strategy Wal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to really

differentiate themselves from competitors and provide no-frills self-service stores that always

provide the lowest prices. Wal-Mart has built enough clout with suppliers that they can dictate

the prices and go in and change suppliers manufacturing processes in order to wring out more

and more savings for the consumer. Everything that Wal-Mart does from calling suppliers collect

to having execs double up in hotel rooms, is to save the customer money. While they do try to

provide good customer service on top of low prices, Wal-Mart’s strength is low-prices. No one

has such a supplier and distribution network like Wal-Mart that allows such low prices.

Q2. Analyze the distribution strength and power of Wal-Mart using Michael Porter’s Five Forces Theory and notions of Competitive Advantage.

Porter’s Five Forces:

1- The threat of the entry of new competitors

Profitable markets that yield high returns will attract new firms. This results in many new

entrants, which eventually will decrease profitability for all firms in the industry. Unless the

entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards

zero (perfect competition).

The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost

Industry profitability; the more profitable the industry the more attractive it will be to new

competitors.

2- The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the

propensity of customers to switch to alternatives:

Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online

product can easily replace material product. Substandard product Quality depreciation

3- The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of

customers to put the firm under pressure, which also affects the customer's sensitivity to price

changes.

Buyer concentration to firmconcentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM Analysis

4- The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw

materials, components, labor, and services (such as expertise) to the firm can be a source of

power over the firm, when there are few substitutes. Suppliers may refuse to work with the

firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYER

Ex. If you are making biscuits and there is only one person who sells flour, you have no

alternative but to buy it from him.

5- The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the

competitiveness of the industry.

Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy The visibility of proprietary items on the Web[2] used by a company which can intensify

competitive pressures on their rivals.

How will competition react to a certain behavior by another firm? Competitive rivalry is likely to

be based on dimensions such as price, quality, and innovation. Technological advances protect

companies from competition. This applies to products and services. Companies that are

successful with introducing new technology, are able to charge higher prices and achieve higher

profits, until competitors imitate them. Examples of recent technology advantage in have been

mp3 players and mobile telephones. Vertical integration is a strategy to reduce a business' own

cost and thereby intensify pressure on its rival...

Usage Strategy consultants occasionally use Porter's five forces framework when making a qualitative

evaluation of a firm's strategic position. However, for most consultants, the framework is only a

starting point or "checklist" they might use " Value Chain " afterward. Like all general

frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is

considered naïve.

According to Porter, the five forces model should be used at the line-of-business industry level;

it is not designed to be used at the industry group or industry sector level. An industry is defined

at a lower, more basic level: a market in which similar or closely related products and/or

services are sold to buyers. (See industry information.) A firm that competes in a single industry

should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that

for diversified companies, the first fundamental issue in corporate strategy is the selection of

industries (lines of business) in which the company should compete; and each line of business

should develop its own, industry-specific, five forces analysis. The average Global 1,000

company competes in approximately 52 industries (lines of business).

One aspect of Wal-Mart that sets them apart from other corporations is how they manage their

relationship with their suppliers. We have determined that Wal-Mart is such a dominant force

and has become such an important account for their suppliers that they have managed to

eliminate Supplier Power. By eliminating Supplier Power, Wal-Mart can pursue achieving their

goals and concentrate purely on their Cost Leadership Strategy, which serves the consumer with

“Everyday low prices.” However, the fact that Wal-Mart is able to disregard Supplier Power begs

the question of where exactly does Wal-Mart derive its power? Additionally, if Wal-Mart has

nearly eliminated Supplier Power, then what kind of relationship do they have with their

suppliers?

Wal-Mart’s power is derived from their size and the influence that comes with it. A quick look at

Wal-Mart’s numbers is the proof of Wal-Mart’s size and power. Some of Wal-Mart’s numbers

include 23% of Clorox’s sales and 20% of Revlon and RJR Tobacco’s sales. If these companies

choose to walk away from their supplier relationship with Wal-Mart, then they would lose out

on nearly a quarter of their revenue. The fact of the matter is that this same concept extends to

all of Wal-Mart’s other suppliers like Kraft, Proctor & Gamble, Gillette, Campbell’s Soup, and

many more. The reality that these suppliers live in is one where they know that their Wal-Mart

account is one that they cannot afford to lose. In fact, suppliers are also faced to look at the

predictions that, in an estimated five years, Wal-Mart will double in size, which mean Wal-

Mart’s account with only continue to grow.

Since Wal-Mart has effectively eliminated Supplier Power, it is also important to consider the

state of their relationship with suppliers. In many ways, Wal-Mart has changed the dynamic of

the supplier and buyer relationship. Joe Galli, Newell CEO, was quoted as saying, “The days of

price increase are over.” Often times, Wal-Mart will tell their suppliers upfront what they will

and will not pay for a good. However, despite the fact that Wal-Mart has removed the possibility

for supplier price increase, their suppliers generally feel one of two ways about Wal-Mart. The

first supplier sentiment is serving a client like Wal-Mart forces a company to become more

efficient.[6] Many suppliers feel that doing business with Wal-Mart is the equivalent of entering a

corporate basic training exercise. Robin Prever, who was CEO of Saratoga Beverage Group, was

quoted as saying that this relationship with Wal-Mart, “… wakes everybody up. And all our

customers benefited. We changed our whole approach to doing business."The second

sentiment of suppliers is that Wal-Mart is the big brother who likes to push them around. In

some instances when suppliers have attempted to raise prices, Wal-Mart has either denied their

request or they also been known to pay the same previous amount to their supplier with no

questions asked. An example of this situation is Wal-Mart’s relationship with Vlasic, who was

“forced” by Wal-Mart to sell pickles in gallon containers for under $3.00 a jar. Making only

pennies a jar and watching their supply of pickles dwindle, Vlasic attempted to negotiate a price

increase for their product with Wal-Mart and was denied causing a loss of millions of dollars for

Vlasic.

In this regard, if their suppliers feel cheated, does it really affect Wal-Mart in the end since

suppliers cannot afford to lose their business? The answer is yes because, “suppliers can affect

manufacturing time, product quality, and inventory levels.” All of these aspects of supply can

shape Wal-Mart’s ability to effectively restock their shelves for their inventory turnover. In

addition, if Wal-Mart pursued avenues that would seriously undercut their suppliers, then they

face a variety of possible repercussions. For instance, if suppliers became unable to take care of

their workforces, then Wal-Mart could see significant drops in their product inventories.

Therefore, even though suppliers do not have power in regards to their relationship with Wal-

Mart, it is still important for Wal-Mart to maintain relations with their 21,000 suppliers because

suppliers are the key to Wal-Mart achieving its goals and strategy.

Q3. What is the strategic dilemma that Vlasic faces in this situation? What would occur if Vlasic chose NOT to do business with Wal-Mart? Is this a realistic option for them? Why? Why not?

Wal-Mart and Vlasic Wal-Mart is not only the world’s largest retailer, but is the largest company in the world as far as

revenue is concerned. If Wal-Mart was a country, it would rank number 30 in the world behind

Saudi Arabia. With 100 million customers per week, Wal-Mart’s revenue for a year is around 250

billion dollars. To get a feel of the magnitude of Wal-Mart, consider that in the 30 seconds that it

will take you to read the current paragraph Wal-Mart’s revenue will increase by $250,000. Wal-

Mart’s revenue increases by $250,000 every 30 seconds, of every day or night, whether it is a

holiday or a working day, 365 days each year.

Vlasic is the maker of America’s favorite pickles and is as American as apple pie. The company

was founded by Frank Vlasic, a Polish immigrant. It took three generations of Vlasics, in order to

make Vlasic pickles the number one pickle in the US.

If Vlasic chose not to do business with Wal-Mart For Wal-Mart it was not planning to become rich byselling 12lb jars of pickles at a profit margin

of maybe 1%.

For Vlasic it was a different story. Wal-Mart accounted for a third ofVlasic’s business. A little

glitch in the cooperation or a small miscalculationon the part of Vlasic and this could easily mean

the downfall of Vlasic.

So it’s not realistic for both of them to stop the business between them as it will affect

negatively on Vlasic revenue and Wal-Mart was making a simple statement: the number

onepickle company in the US was producing pickles the Wal-Mart way. Wal-Mart was able to

carry the best brands at the best prices.

Q4. What role do supply chain management and logistics play in the way Wal-Mart conducts its business?

by Captain Vernon L. Beatty, Jr.

“Supply chain management is moving the right items to the right customer at the right time by

the most efficient means.” No one does that better than Wal-Mart.

Supply chain management practices of Wal-Mart, is one of the major reasons for Wal-Mart’s

continuing success globally.

Wal-Mart was named the number one ranked in the prestigious global Fortune 500 for the

financial year 2002 with earning revenues amounting to $219.81 billion has earned its

reputation as the largest retailing company in the world. Wal-Mart focused on four core

principles that engulfs the overwhelming success,the focus on the improvement of sales,

constantly reducing costs such that they will be able to capitalize on cost saving opportunities

to be passed on the customers, the adoption of efficient distribution and logistics

management systems to ensure the constant flow of the goods and the use of highly-

advantageous innovative information technology (IT) tools that makes the operating

processes even faster, efficient and up to date.

Analysts perceived the phenomenal growth of Wal-Mart to the emphasis being placed in the

customer needs and the reduction of cost through efficient supply chain management

practices.

Main Part

1- The essential pre-requisites for cross-docking and highlight

the key benefits to Wal-Mart.

Cross-docking refers to the logistics practice in the unloading and loading of materials with

little or no unnecessary storage in between to ensure the that the quality of goods would be

enjoyed by the customers by first hand.

To avoid all sorts of potent causes of inefficiencies in the distribution operations, Wal-Mart

features a logistics infrastructure that is guaranteed to be fast and responsive transportation

system wherein the distribution centers are being serviced.

The essential pre-requisite for cross docking are very basic and monitorable. Basics are strong

building foundations in which it ensures the overall efficiency of the whole process. Wal-Mart

recognizes the need to hire dedicated drivers who can share in their belief of prioritizing

customer service. Upon hiring potential drivers, they “filter” the driver’s capabilities and

measure the responsibleness and reliability in being able to handle the pertinent standards

essentially needed to maximize the worth of the drivers. Far more interesting is that after they

have “filtered” and honed drivers commitment as being stated in the code of conduct embodied

in the The Private Fleet Driver Handbook which contains the check-list to be followed at all times

in the safe exchanges of goods and the roles they are expected to act on. Further, Wal-Mart

after implementation, monitors their drivers progress in which drivers have to report the hours

of service they have done on a daily basis to their respective coordinators. By these means, Wal-

Mart is constantly assured that their drivers are able to do their jobs accordingly and do not

cause unnecessary delays that may hamper the efficiency of the distribution operations. To be

able to make it up on time, the coordinators on the other hand, gives information to the driver

as to what is the expected time of arrival or delivery of the goods should be made. Part of Wal-

Mart’s expectations to the drivers is that they are to take a loaded truck trailer from the

distribution center to be delivered to the retail store and such time drivers will be headed back,

their trailer would be empty and surely have unloaded everything to the point of destination

where it is supposed to be delivered.

Other than the standards being strictly imposed to Wal-Mart’s drivers, the structure of the

distribution process is truly well-organized that can be attributed to the efficient distribution

practices Wal-Mart has been employing. Like for example, the scheduling of the unloading time

at the dock of a store with two hours interval in between unloading. The precise unloading time

of goods to a dock permits the constant, smooth flow of the distribution process without the

fuzziness of rushing into the completion of the delivery process. Further, the purpose of the

time interval permits the employees to do their job without the pressure and hassle of doing it

impromptu. By the time the 2 hour lapses, Wal-Mart is then assured that everything has been

unloaded and the distribution is followed accordingly.

Cross-docking is an add-on technique that Wal-Mart employs to further contribute to the

efficient distribution process they already had. In this system, it requires the direct pick-up from

the manufacturing plant or supplier the finished goods, to be sorted out and also directly

supplied to the customers. With the shift of focus to the supply chain to the demand chain, it

takes out the centralization and allows the customers to pull products the moment they are

needed. The benefits of cross-docking technique Wal-Mart has reaped is the reduction in the

handling and storage of finished goods and most importantly the competitive edge of having an

efficient supply chain management system that includes reduction in lead time, speedy

inventory turnover, accurate forecast of inventory levels, reduction in safety stock, reduction in

the dependency of the distribution center, thereby, further causes reduction in the training

costs and errors. Overall, the cross-docking helped in the minimization of storage, labor and

handling cost.

2- The use of “state- of –the- art technology” systems to track

and predict levels of inventories in Wal-Mart.

The use of technological infrastructure such as information technology and state-of-the art

communication system is a very powerful tool in any business today that guarantees up-to-

date and hasten process in the logistics operations which leads to being able to cater to the

needs and demands of the customer in the least time possible. Therefore, to hand over

excellent service that is tantamount to customer satisfaction. For example, in many companies

the incorporation of e-business allows companies to keep up with the wants of customers in a

fast changing world of business and it enable companies to reach more customers while at the

same time increasing the number of customer retention. The use of the said state-of the art

technology guarantees Wal-Mart to readily and steadily track down the sales and merchandise

in all of its stores across the United States including the follow-up track down to theglobal

operations. In fact, in 1983, Wal-Mart launches its own satellite communication system as

they see the need to expand not only their operations but also their communication system

such that they can sustain the growing demand of communication essential to keep terms in

the operation of the increasingretail outlets or distribution centers. The satellite

communication system has been utilized in Wal-Mart at its maximum level including the

employees. Wal-Mart ensures that potent problems are being settled readily and just like the

valuable importance given by other companies to communication system, Wal-Mart, aside

seeing its importance, they regard the communication system as being pivotal aspect of their

entire operations.

The benefits of the communication system, “We can walk in the satellite room, where our

technicians sit in front of the computer screens talking on telephone to any stor es that

might be having a problem with the system, and just looking over their shoulders for a

minute or two will tell me a lot about how a particular day is going. On the screen, I can

see the total of the day’s bank credit sales adding up as they occur. If we have something

really important or urgent to communicate to the stores and distribution centers, I , or

any other Wal-Mart executive can walk back to our TV studio and get on that satellite

transmission and get it right out there. I can also go every Saturday morning around

three, look over these printouts and know precisely what kind of work we have had.”

With the use of communication system, Wal-Mart also actuates information technology in the

supply chain management. The manual way of using inventory which is sometimes costly of

the potential human errors has been minimized by Wal-Mart by the full usage of IT to make

inventories instantly available when needed. Similarly, Wal-Mart was able to network its

suppliers through the use of commuters where Wal-Mart in this regard can have a cooperated

collaboration with its leading big time suppliers like Procter and Gamble. Both the use of IT on

one hand monitors the inventory supply through automatically updating the IT system which in

turn, reciprocates by sending signal directly to the supplier and the communication system, on

the other hand, proposes a win-win solution for both the supplier and Wal-Mart due to the

open communication line between them results to better coordination and collaboration for

both parties. Thus, the supplier on one hand would love to do business with Wal-Mart of the

utmost convenience Wal-Mart has been offering to the suppliers.

Wal-Mart was very genius in the optimization use of information technology and

communication system because they only did not limit its usage to the executives and the

suppliers but they extend the usage and made available for the employees that can also benefit

the use of the said technologies in aiding them to do better of their work with no stress.

Employees of Wal-Mart in every store had what they called the ‘Magic Wand’, a hand held

computer which was linked to in-store terminals through a radio frequency network, that gives

assistance to employees of tracking down the inventory, deliveries and back-up merchandise in

stores at the distribution centers. The Point of Sales (POS) System is another application in the

use of IT that is used in the monitoring and tracking down of sales on the store shelves. These

helped employees to keep track of the inventory in stores, deliveries and backup merchandise in

stock at thedistributioncenters. The execution of both the order management and store

replenishment of goods was made possible by the use of the said POS system.

Another use of Wal-Mart’s information technology is the establishment of the centralized

inventory data system wherein it enables the store personnel to know precisely the status of

inventory levels and the location of every product since the centralized inventory data system

is made to monitor the progress of inventory, whether it has been already been loaded to a

distribution center or still in transit. By this means, the store is able to know what to expect

and make sure that every store has adequate supply to cater to the customers.

3- Wal-Mart’s in-house transport fleet.

The advantages of Wal-Mart’s in-house fleet are that they were able to reap the benefits of

low-cost in transportation for the delivering of goods to the different stores and distribution

centers. Given the benefits of having owned a transportation system, Wal-Mart capabilities of

replenishing the shelves, is four times faster than the other competitors. Not only that, it

enables Wal-Mart to save 3% compare with the 5% of the competitors. Moreover, the code of

conduct that is being imposed to the Wal-Mart’s drivers boosted more confidence for Wal-

Mart that the goods are being delivered exactly on time and right on the money.

A disadvantage of Wal-Mart’s in-house transport fleet is hard to pinpoint and cannot be readily

noticeable since the reputation of Wal-Mart is impeccable. Perhaps, one disadvantage of having

an owned transport fleet is that the repairs and maintenance may be a bit costly for Wal-Mart

since they have that sole responsibility of taking care of their trucks. Additional expenditure will

be evident and Wal-Mart is expected to sustain and allocate ample amount of money in the

operations of in-house transport fleet. Amidst of the disadvantage of the additional cost, the

easiness and effectiveness of the use of in-house fleet transportation system wins over the

slight disadvantage it brings.

Conclusion The success of Wal-Mart is proved to be in the reliability and efficiency in the supply chain

management system. Having gone through the essence of the underlying operations of Wal-

Mart, they always seek to improve and explore over the possible ways to give customers superb

quality service without an additional expense. From the purchasing to transporting and then

finally to selling, at Wal-Mart they were able to have a well-coordinated and systematized

system that ensures the success of the whole supply chain management which in turn would

benefit and satisfy Wal-Mart’s customers.

From the external environment dealings, Wal-Mart started first by bargaining prices with the

suppliers and manufacturers until Wal-Mart gets the bottom or the drop-down price and then

develops a more than a business relationship with the suppliers such that they give suppliers

full business loyalty and expresses how much Wal-Mart look forward of having years of

business with them. Then in the transportation, the monitoring and tracking down of the goods

allows Wal-Mart to constantly replenish the shelves giving its customers the taste of the

freshness of goods. Aided by the use of satellite communication system and the information

technology system, undoubtedly added to the effectiveness and efficiency of the whole supply

chain management and thus, certified the provision of uninterrupted service to its customers,

suppliers, stockholders and trading partners that leads to the integration and coherence of what

has been established.

True to the basic principle of business, the minimization of cost, high production leads to the

maximization of profit. The practice of thesecore principles on constantly improving sales is

brought about by the service they have been offering at no extra cost. At Wal-Mart, they have

been very successful in finding means in which to capitalize on every cost saving opportunities

and the adoption of efficient logistics system enable Wal-Mart to earn unrivaled intangible

competitive advantage and edge to the rest of the business.

Q5. What were the problems associated with the Vlasic Foods contract with Wal-Mart? Use the concepts of supply chains, loss leader,

brand equity, and manufacturing in your answer.

While supply chain efficiencies and its distribution system helps Wal-Mart to keep its prices very

low it may be logical to argue that all the members of its supply chain have to follow low cost

strategy without any option.

Vlasic Pickles was roped into a contract with Wal-Mart, in which Wal-Mart sold a 3 gallon jar of

whole pickles for $2.97. Wal-Mart sold 240,000 gallons of pickles per week. But the price of the

3 gallon jar was so low, that it vastly undercut Vlasic's sales of 8 ounce and 16 ounce jars of cut

pickles; further, Vlasic only made a few pennies per 3 gallon jar. With its profits tumbling, Vlasic

asked Wal-Mart for the right to raise the price per 3 gallon jar to $3.49, and according to a Vlasic

executive, Wal-Mart threatened that if Vlasic tried to back out of this feature of the contract,

Wal-Mart would cease carrying any Vlasic product. Eventually, a Wal-Mart executive said, "Well,

we've done to pickles what we did to orange juice. We've killed it"-meaning it had wiped out

competitor products. Finally, it allowed Vlasic to raise prices; but in January 2001, Vlasic filed for

bankruptcy.

Q6. Using the checklist in Appendix I, show how the concepts of global account management could be used to avoid a situation like the Wal-Mart and Vlasic deal described in the case.

Q7. What management steps should be taken to protect Vlasic from being in this situation again? What is the lesson that other Wal-Mart vendors should learn from this story?