Economies of It Systems at Wal-Mart - an Historical Perspective

Article excerpt

ABSTRACT

This paper takes a retrospective look over Wal-Mart's IT systems. Major types of IT systems used by Wal-Mart are listed chronologically. The paper then explains the economies of IT systems at their application areas and how such economies have contributed to Wal-Mart's everyday low price strategy. The paper explores how distribution centers and IT systems function strategically at Wal-Mart, how Wal-Mart uses point-of-sale data and data warehouse technology, how Wal-Mart has used Retail Link in inventory management, and how economies of scale and scope and external economies are realized in the implementation of IT systems at Wal-Mart Stores, Inc. The paper concludes with the challenges Wal-Mart is facing.

INTRODUCTION

Researchers have attempted to reveal the importance of the relationships between retailers and suppliers using Wal-Mart as a case (Bloom et al., 2001 ; Bloom and Perry, 2001 ; Kumar, 1996). Stalk et al. (1992), on the other hand, have advocated capability-based competition by comparing Wal-Mart and Kmart. They have suggested that WaI-Mart's strategic vision was fully expressed in Wal-Mart's cross-docking system. None of the previous studies, however, have ever tried to take a comprehensive overview of Wal-Mart's IT systems and reveal how its IT systems have helped Wal-Mart in realizing its everyday low price strategy. This case study takes a retrospective look over Wal-Mart's IT systems. Major types of IT systems used by Wal-Mart are listed chronologically. The paper then explains the economies of IT systems at their application areas and how such economies have contributed to Wal-Mart's everyday low price strategy. IT systems at Wal-Mart are applied in major areas such as inventory management, administrative management, customer management and supplier management, etc. Efficiency and performance of IT systems in these areas apparently affect each other. Wal-Mart seeks to achieve not only the efficiency of individual systems, but also that of the integrated systems. Finally, the paper clarifies the existing challenges that Wal-Mart is facing. Cost control and inventory management are one of major concerns for Wal-Mart, though cost control goes beyond inventory management. Wal-Mart also has to control and reduce its cost of operation and administration and cost of sales.

The case is divided into a few sections. section one is a brief overview of Wal-Mart's IT systems; section two explain the case study approach and data; section three discusses the strategic role of Wal-Mart's distribution centers; section four describes how Wal-Mart uses Point-of-Sale systems to collect customer data and uses data warehouse and datamining to analyze customer behavior; section five is about Electronic Data Interchange (EDI) and Retail Link systems at WalMart; section six discusses productivity improvement from IT systems; section seven shows the economies of scale and scope at the distribution centers with IT systems; section eight is about the business process standards and external economies with IT systems. sectionnine covers Wal-Mart's integrated structure and major challenges Wal-Mart is facing. The final section concludes the case study with a summary.

THE CASE STUDY APPROACH

The case study approach in this paper follows Yin (1994). Yin (1994) gives very detailed instructions of how to conduct a case study. According to Yin (1994),

A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident. The case study inquiry copes with the technically distinctive situation in which there will be many more variables of interest than data points, and as one result relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result benefits from the prior development of theoretical propositions to guide data collection and analysis (p. …