1. Introduction
In 2016, Walmart topped the Fortune 500 companies list with $482.1 Billion revenue (Fortune Editors, 2016). Walmart’s success can be attributed to its dedication to serve customers better, relationship management with various stakeholders and efficient supply chain management.
2. Customer Value Creation Process
Since 1962, Walmart envisions to provide great value and good customer service to its customers (Walmart, 2017). It understands that consumers want fresh groceries at affordable prices. Hence, Walmart creates value for them by adopting an ‘Every Day Low Pricing’ strategy instead of commonly adopted ‘High-Low Pricing’ adopted by other grocery retailers. This is made possible due to its large economies of scale with …show more content…
Agency Theory
In an agency relationship, suppliers are the principals and Walmart is the agent. Suppliers delegate the decision-making authority and control over their inventories to Walmart. The agent ought to act in the best interests of the agent to actively promote and achieve high sales for its principals. However, there is a potential underlying moral hazard problem.
Firstly, Walmart has incentives to pursue goals and objectives different from its suppliers. As a form of punishment for not complying to its demands, Walmart could potential jeopardise a supplier’s sales by cutting shelf space for example. In addition, Walmart has its own in-house brands such as Great Value, Equate and Sam’s Choice. There is a tendency for the giant retailer to favour its in-house brands which would has a higher profit margin as compared to selling the same product provided by suppliers. Furthermore, Walmart has an information advantage. Apart from their own sales data, suppliers do not gain access to other data such as sales performance of Walmart’s in-house products. Hence, they are unable to evaluate the performance of Walmart as their agent. As Walmart is the dominant partner in the relationship, it is difficult for the suppliers to overcome this problem by implementing governance mechanisms or incentives. Suppliers have low bargaining power despite being the …show more content…
Walmart invests a lot in ensuring an efficient supply chain management. Inventory management system such as cross-docking is used to unload inbound shipment directly into outbound trailers. This saves the retailer billions in storage cost (Market Realist 2015). Technology such as Radio Frequency Identification (RFID) was used to eliminate inefficiencies in the supply chain. In addition, Walmart invested in a relationship-specific asset called Retail Link. This is a platform which provides suppliers with data on sales and inventory levels. Furthermore, retailers could download purchase orders directly. This close integration and information flow gives suppliers a better sense of true demand which makes the supplier chain more effective (Harvard business review,
In 2016, Walmart topped the Fortune 500 companies list with $482.1 Billion revenue (Fortune Editors, 2016). Walmart’s success can be attributed to its dedication to serve customers better, relationship management with various stakeholders and efficient supply chain management.
2. Customer Value Creation Process
Since 1962, Walmart envisions to provide great value and good customer service to its customers (Walmart, 2017). It understands that consumers want fresh groceries at affordable prices. Hence, Walmart creates value for them by adopting an ‘Every Day Low Pricing’ strategy instead of commonly adopted ‘High-Low Pricing’ adopted by other grocery retailers. This is made possible due to its large economies of scale with …show more content…
Agency Theory
In an agency relationship, suppliers are the principals and Walmart is the agent. Suppliers delegate the decision-making authority and control over their inventories to Walmart. The agent ought to act in the best interests of the agent to actively promote and achieve high sales for its principals. However, there is a potential underlying moral hazard problem.
Firstly, Walmart has incentives to pursue goals and objectives different from its suppliers. As a form of punishment for not complying to its demands, Walmart could potential jeopardise a supplier’s sales by cutting shelf space for example. In addition, Walmart has its own in-house brands such as Great Value, Equate and Sam’s Choice. There is a tendency for the giant retailer to favour its in-house brands which would has a higher profit margin as compared to selling the same product provided by suppliers. Furthermore, Walmart has an information advantage. Apart from their own sales data, suppliers do not gain access to other data such as sales performance of Walmart’s in-house products. Hence, they are unable to evaluate the performance of Walmart as their agent. As Walmart is the dominant partner in the relationship, it is difficult for the suppliers to overcome this problem by implementing governance mechanisms or incentives. Suppliers have low bargaining power despite being the …show more content…
Walmart invests a lot in ensuring an efficient supply chain management. Inventory management system such as cross-docking is used to unload inbound shipment directly into outbound trailers. This saves the retailer billions in storage cost (Market Realist 2015). Technology such as Radio Frequency Identification (RFID) was used to eliminate inefficiencies in the supply chain. In addition, Walmart invested in a relationship-specific asset called Retail Link. This is a platform which provides suppliers with data on sales and inventory levels. Furthermore, retailers could download purchase orders directly. This close integration and information flow gives suppliers a better sense of true demand which makes the supplier chain more effective (Harvard business review,