Competitive margin

Wal-Mart has been a leader in adopting technology that maximizes the competitive
margin. Since they have no control over competitor prices, there are only two
contributors that Wal-Mart can affect to increase this metric: supplier cost and
retailing cost. Using global sourcing and electronic inventory management, while
negotiating favorable terms, Wal-Mart continually drives down their cost of goods.
Using efficient warehousing and distribution channels and technologies that increase
productivity, Wal-Mart reduces the cost of retailing.
Wal-Mart regularly rotates their buyers, those employees who procure products
from suppliers. In doing so, the company assures that fresh eyes are continuously
focused on the goal of the company and not clouded by comfortable relationships.
Wal-Mart regularly “shops” its products to new potential suppliers to see if a lowercost
supplier can be identified, locally or globally. Bids are formally requested and
used as bargaining tools to extract lower prices from current suppliers. While these
practices are challenging, the result is a supplier network with clear expectations
and no chance to rest on past performance.
Wal-Mart was an early adopter of barcodes for inventory tracking (and is now
a first mover for radio-frequency identification tags, RFID, to further automate
stocking processes). Their electronic data for suppliers are transparently integrated,
passing the responsibility and accountability for product availability to the suppliers
without a middleman. This approach is similar to the one used by Dell to minimize
inventories.
Wal-Mart’s use of technology and economic strategies has made it a powerful
leader with a strong competitive position. So powerful, in fact, that it is a silent
force behind the modification of eminent domain laws in the U.S. In the past, eminent domain laws kept the government from seizing private property for any reason other
than the public good (highways, roads, municipal buildings, utility lines, etc.).
Recently, these laws have been under pressure from developers desiring to condemn
property for retail facilities that offer the promise of generating substantial tax
revenues. The 2005 U.S. Supreme Court case of
Kelo v.
City of
New London
is an
example of the broadening of eminent domain to accommodate one private use over
another, diminishing the rights of landowners.
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While this case did not involve Wal-
Mart in any manner, the ability of commercial developers to use the government as
a means to seize land for economic development purposes was greatly strengthened.
Techonomics predicts that many more eminent domain disputes based on economic
developments will arise in the future as those in power act for what they
deem to be the public good — increasing the tax base.
In summary, Wal-Mart uses a highly automated and continuously monitored
inventory system to place the responsibility for product availability in the hands of
its suppliers. The suppliers, virtually eliminating Wal-Mart’s financial risk, commonly
support the carrying costs for products on Wal-Mart’s shelves. By using digital
networks to tighten the linkage between supplier, retailer, and customer, while
simultaneously negotiating favorable payment terms with suppliers, Wal-Mart generates
a positive cash flow as its revenues grow. Wise use of other people’s money
via optimized data management of inventory logistics is a repeating techonomic
theme of successful twenty-first-century businesses.