Value Chains Porter (1985) Introduced the Concept

Value Chains

Porter (1985) introduced the concept of "physical" value chain.

According to Porter (1985), by understanding and analyzing physical value chain, a business can uncover strategically relevant activities -- purchase of raw material, design, manufacture, market, and support of the products or services it sells -- for adding value to the customers.

A physical value chain consists of five core activities: inbound logistic, operations, outbound logistics, marketing & sales, and services, and four support activities: firm infrastructure, human resources management, technology development, and procurement.

The extent to which a company is able to reduce or eliminate redundant activities and hand-offs in carrying out different tasks in the physical value chain processes determines its capability in responding to customers' specific demands and expectations in quick time. By improving its internal business activities, a company can not only meet customers' demands in products and services quickly but also offers additional values to customers (Kotler, 1972).

In the following discussion, we discuss the value chains of the Wal-Mart. Wal-Mart has several distribution centers nationwide. These include nine grocery distribution centers and two import distribution centers. The vast number of items and the need to frequently order perishable items at its stores makes it necessary to have its distribution operations highly automated.

Wal-Mart uses computers to directly link to all its vendors for faster delivery time. Operations at Wal-Mart are built so that Wal-Mart can offer every day low prices. This has been the main competitive area that Wal-Mart has been able to execute so successfully.

It has built success into its business strategy by driving down costs in all aspects of the business. This encompasses the goal as the low cost provider in the market, thus working efficiently on the marketing link of the value chains. Wal-Mart's development of its Retail Link expands on the productivity loop that has proven to be highly successful. It is working with global suppliers to implement Retail Link systems that it hopes to completely implement in the near future.

Wal-Mart's competitive advantage lies in its ability to know faster than its competitors what is selling and what is not selling on the shelves. The ability to do this lies in its efficient distribution system comprised of a network of suppliers, distribution centers, and being the retailer with the most sophisticated information systems (Kotler and Armstrong, 1996).

It has more than 150 terabyte computer system that receives critical data from around the globe via satellite. This enables managers to use handheld scanners to check information on a product on the shelves in terms of how much of the product the store has sold that day, at what price, the profit contribution, and inventory levels. Analysts can check inventory levels and orders and track sales everywhere. Wal-Mart also places its stored in key strategic locations to better serve customers. It has placed its stores in small towns that were ignored by the competitors. Wal-Mart has benefited on the idea that people will come if prices are as good or better than stores in larger cities that were a couple of hours drive by car. This also helped Wal-Mart to establish itself in strategic geographic locations as the sole discount retailer. Part of this success was the ability to successfully tailor to local market demand whereby managers were empowered to oversee what items to display based on customer preferences and also how to allocate the amount of shelf space based on the local demand. Moreover, with the combination of efficient use of store floor space afforded by less holdings of inventory, a regionally competitive pricing.

Wal-Mart is continually finding new ways to create value for its customers. Value creation involves focusing on offering everyday low prices, and making it easier to shop at Wal-Mart. The Rollback program was first introduced in 1992 to create the image that Wal-Mart is continually finding ways to roll back its prices. This means that Wal-Mart is not resting on its "everyday low prices" but trying to offer a low price that tends to stay low. The ability to keep the prices low makes people smile, which is how the cheerful Wal-Mart mascot of a smiley face came about.

When Wal-Mart customers enter the Wal-Mart stores, they can expect to be greeted by a Wal-Mart associate with a warm welcome. This is part of the whole customer shopping experience.

Wal-Mart associates are trained to make their customers welcomed and aware that there is someone there to help them with their shopping decisions. Return policies are made easy at Wal-Mart to increase customer satisfaction. The company wants their customers to be completely satisfied with their shopping experience. Thereby, Wal-Mart offers to take back most products that do not meet the customer's expectations at no cost. There are some restrictions on certain products. They also offer their customers different ways of returning products depending on where it was bought.

Customer's can return products either to a Wal-Mart Store or return it by mail.

Wal-Mart continues to grow by improving its merchandise and continually offering new product lines. Wal-Mart is currently doing well and hopes to further develop opportunities for better sales performance in the heat-and-serve meal section of its food program. Its food program is continually driven by national brands of which it is well prepared to develop.

The Role of IS/IT in value Chains: