Wal-Mart Stores Inc. is the self-proclaimed, and rightfully so, largest retailer in

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1 Justin Dittmar MGT 352 Wal-Mart/Mattel Case 3/4/04 Overview Wal-Mart Stores Inc. is the self-proclaimed, and rightfully so, largest retailer in the world. For the fiscal year ending Jan. 31, 2003, they had $244.5 billion in sales. The company employs over 1.3 million people worldwide in more than 3,200 facilities. These facilities are spread out over the US, Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the UK. On average, there are more than 100 million customers that visit a Wal-Mart store during a week. Wal-Mart opened its first retail store in Rogers, AK and now has 1,600 stores in the US. Wal-Mart Supercenters are open 24 hours a day, and now number 1,300 in the US. The founder of Wal-Mart, Sam Walton, stayed the head of the company until his death in Wal-Mart is known for their charitable work and putting money back into the communities in which they have locations. In 2002 alone, Wal-Mart contributed over $150 million in support of communities and other local non-profit organizations. Through clubs and promotions, customers raised another $75 million. Wal-Mart also has a division of warehouse club stores called Sam s Club. Similar to BJ s Warehouse or other competitors, Sam s sells a broad selection of large-volume items at value prices. Wal-Mart s success can be in no small part attributed to their fluid and aggressive business strategies, which seem to match well with the Porter Five Forces Theory. In regards to supplying power, Wal-Mart is the king. They only deal with companies that are large enough to supply all their stores, and have worked out fluid supply chain management strategies with those suppliers so that their inventory is kept at a minimum (to be discusses further later on).

2 With the help of their SCM, Wal-Mart is able to keep their prices way down below their competitions, creating an absolute cost advantage, which tends to push out existing businesses in areas in which Wal-Mart locates, plus keep from attracting new competitors to the area. Wal-Mart s buying power is massive. Because they have to service more than 100 million customers a week, the quantity in which they buys goods is enormous, giving them a cost advantage in the prices of these goods. As a I mentioned before, Wal- Mart also tends to eliminate their substitute market in an area, simply by pushing them out using price advantage. As far as rivalries go, Wal-Mart is not necessarily a favorite among other businesses because of their sheer dominance in the market. However, this advantage can cause fierce price competition between Wal-Mart and other businesses, one in which Wal-Mart has the ultimate advantage. Ruth and Elliot Handler, and Harold Matson started Mattel Inc. in 1945 out of a Southern California garage. The company started out by making picture frames, but soon started to make dollhouses and other small toys on the side. Before selling his share in the company soon after its inception, Matson encourage the emphasis of the company upon toys. Two years later, Mattel begins to make musical toys, the first of which being the Uke-A-Doodle. The company incorporated the next year, and had moderate success over the next decade. However, real success did not hit the company until the production of a new line of toys started in 1959: Barbie. Named after the Handler s daughter Barbara, the new doll quickly achieved success, and was soon accompanied in 1961 by Ken dolls. The success of the dolls led to the creation of a second flagship product line for Mattel in 1968: Hot Wheels. Now holding a successful line of toys for both girls and boys, Mattel took off riding the success of Barbie and Hot Wheels. Last year, the two

3 lines and all the consumer products produced from those two lines of toys accounted for over $2 billion in sales worldwide. Expanding its product lines, in 1993, Mattel merged with the Fisher-Price brands, instantly doubling the size of their respective companies. Mattel then also acquired the American Girls doll brand in 1998, an already successful line of dolls for girls 3-12 aimed at positive reinforcement and education. Sales for Mattel in 2003 were $ billion, with growth that year of 1.5%. As of 2002, Mattel employed over 25,000 employees on four continents, including North America, Europe, Asia Pacific, and Central and South America. Mattel s current chairman and CEO is Robert Eckert. Mattel has also been able to apply the principles of Porter to their business. As for supplier power, much of Mattel s suppliers are from overseas, and primarily from China. The ability to get cheap resources and labor to toys makes China an excellent place to produce the products and an integral portion of their SCM. Mattel s brand image and name are well known in the toy and doll industry, and their presence provides a huge global barrier to entry into the market. Mattel also has deals with Toys R Us and Target (in addition to Wal-Mart) as major buyers and distributors of their products. However, Mattel is trying to ease their dependence on these retailers to move their products, through Mattel s own catalogs and Internet buying. Mattel also has to deal with substitute goods, with competing companies such as Hasbro Inc., Jakks Pacific Inc., and Lego Company. Because all of these companies are strong and share in the success of the tenants of Porter, all four of these companies are strong competitors for toy and doll market share.

4 Case Study Questions 1. Wal-Mart truly has become the best supply chain operator of all time. Wal-Mart was one of the first retailers to benefit from collaborative planning, forecasting and replenishment (CPFR), which is an inventory management initiative first tested in During early pilot programs with companies such as Sara Lee and Warner-Lambert, Wal-Mart achieved results that would make the CPFR program the Holy Grail of supply chain management for retailers. Ron Ireland, a managing director for supply chain consulting firm Surgency and a former Wal-Mart executive, lead the early pilot with Warner-Lambert and also helped to improve chains with other companies, such as Listerine, where Wal-Mart saw an improvement of 87 to 98 percent on stock levels. Because Wal-Mart was able to share its data with Listerine on inventory and purchasing, the company was able to efficiently supply Wal-Mart the necessary amount of stock. In the case of Sara Lee, after the implementation of the CPFR program, sales increased by 32 percent, and inventories fell by 14 percent, leading to huge monetary gains. CPFR is a just-in-time inventory program that is designed to reduce carrying costs for both the retailer and its suppliers. CPFR has allowed Wal-Mart to reduce their cost of goods so they are selling at a price 5 to 10 percent lower than their competitors. Joseph Eckroth, CEO of Mattel, summed up the process well: Having that data (inventory and purchasing data) on a global basis from every one of my customers allows me to optimize the sales of my products and the fill rates of my customers The theme for the future is that at the end of the day, there can be a symbiotic relationship between companies. Wal-Mart takes the process of information sharing to a higher plane, however. The information on its

5 sales and inventory for all of its participating supply chains is available online and in real time, so that the records of this data can be dealt with not only on a yearly and monthly basis, but also on a daily or hourly basis, as needed. This creates an incredible understanding of where all members in the supply chain stand as far as their needs. The biggest key to all CPFR strategies working, however, has been Wal- Mart s ability to get their suppliers to buy into the idea. Most every supplier of Wal- Mart s uses this information sharing process, allowing for these companies to achieve a higher level of success, and create the most successful and revolutionary method of supply chain management ever conceived. 2. Mattel has learned a great deal about supply chain management and implementation of a highly effective CPFR system from its relationship with Wal-Mart. While the creation and design of a CPFR system specific for the SCM of Mattel is crucial, Eckroth recognizes the point, which I mentioned as being the biggest key for Wal- Mart s CPFR success, is getting your entire supply chain to buy into the system. The importance of having a complete network of companies in a supply chain all sharing information with each other is that if there is a break anywhere in the chain, the efficiency of all companies after that break is hampered, as their data is incomplete and less up-to-date as the rest of the chain. As Eckroth explains Getting the supply chain optimized inside of Mattel is only 50% of the equation The other 50% is getting tightly linked with every one of our customers so that we re reacting as quickly as they re giving us data. These tight links enable Mattel to meet the next big business problem, increasing manufacturing efficiency, head on. Sales data gives Mattel vital information on whether or not to increase or shut down manufacturing.

6 These decisions on manufacturing can be tailored according to data that can come in at even an hourly basis. Having this kind of efficiency in their supply chain gives Mattel a competitive edge. These efficiencies will only grow as relationships between Mattel and the rest of its supply chain grow as trusting as the one it has with Wal-Mart. 3. The symbiotic relationship between Mattel and Wal-Mart is a success story that can be seen as a positive example for other organizations in their own supply chain management. Through a trusting relationship based on being open and accurate about sales and inventory records, Wal-Mart and Mattel have increased their efficiency and productivity, while reducing costs, inventory, and supply chain hassles. By opening up their books to each other in a real-time manner, where both companies are able to retrieve data and analyze it on even an hourly basis, movement along their supply chain is optimized, and unused inventory is essentially eliminated. This means less money tied up in inventory and storage, less instances of running low or completely out of product for sale, and huge gains in profit for both organizations. Other companies have seen this CPFR work so effectively for Wal-Mart and Mattel and have designed their own systems to reflect the concepts of CPFR, and have been quite successful in doing so. This is true with the companies Dell, Cisco, and Intel. All three of these organizations are reliant on each other to produce an end product and get it to the customer. Dell, Cisco, and Intel sell more than $100 million in product to each other over the Internet each year. This system of real-time inventory and sales data sharing online, much like the system employed by Wal-Mart, allows all three of these supply chain members to be constantly updated on the status of all other

7 members in the chain. For example, Cisco Systems is able to utilize the Internet to connect to its suppliers, which in turn creates a virtual enterprise that can seamlessly support the needs of their customers. The similarity between the CPFR for these companies and the one employed by Wal-Mart is Mattel is striking. Both chains are able to keep excess inventory to an extreme minimum, creating higher profits and far less money tied up in stagnant inventory. Also, real-time data allows for current data sharing, even as current as hourly reports, on inventory and sales. It is no surprise that like Wal-Mart and Mattel, Dell, Cisco, and Intel are also all leaders in their respective industries, which can be seen as in no small part due to their incredibly efficient methods of supply chain management using CPFR. Sources: /free-co-factsheet.xhtml g.0&pagetype=about&categoryoid=-8497&catid=- 8242&template=DisplayAllContents.jsp 0&pagetype=news&categoryOID=-8769&catID=- 8248&template=DisplayAllContents.jsp

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