Walmart and Its Emerging Accounting Practices

Wal-Mart Corporation Financial Analysis

Wal-Mart Corporation is considered the world's largest retailer, renown for it's low prices and high volume sales. Wal-Mart's emerging accounting practices include complete automation of accounting functions. Wal-Mart is considered a pioneer of sorts, enabling EDI or electronic transmission of inventory information and Just In Time ordering. As such, they have virtually eliminated the need of middlemen calculating future inventory needs, and assessed potential bottlenecks before they become a problem.

Part of Wal-Mart's success lies in its ability to negotiate TOC practices, JIT and EDI. Wal-Mart has successfully moved toward improving performance by identifying potential bottlenecks or constraints, and also implementing innovative inventory practices and electronic dissemination of information (JIT and EDI). How does Wal-Mart do it? Wal-Mart focuses of EDI enabled JIT purchasing mechanisms. Wal-Mart shifts the "burden" of inventory to the supplier. Inventories move very swiftly with Wal-Mart, due in part to the substantial customer base the company commands.

According to Eli Goldratt's theory of constraints, or TOC, described in his book, "The Goal," the "core constraint of virtually every organization it has assisted is management as a collection of parts instead of a single unit" (hoodstrong, 2002). Most managers and high-level executives in a corporation fail because they focus on the collection of parts rather than the relatedness of various functions within an organization. The TOC approach enables organizations such as Wal-Mart to identify "constraints" that prevent them from achieving a goal. In the case of Wal-Mart, this would be selling bulk products at a discounted rate to the mass market. TOC can only be successful if everyone understands the goals.

In order for a TOC approach to be successful, Wal-Mart has identified its constraints and reduced or eliminated any bottlenecks that may have occurred to prevent bulk quantity selling to the masses. The TOC requires organizations to do just this; To be successful companies must identify constraints, rally staff behind approaches to eliminate such constraints, motivate employees to make changes, and reduce or eliminate bottlenecks to the constraints identified (hoodstrong, 2002).

Wal-Mart specifically has "popularized" the TOC solution of reducing inventory constraints by outsourcing inventory to a selected third party (hoodstrong, 2002). Wal-Mart shares a "supply chain partnership" whereby they openly communicate with their suppliers in an effort to adopt a mutually beneficial relationship. Information shared with the third party includes production schedules, design and engineering specifications, costs and inventory data (hoodstrong, 2002).

Wal-Mart is also successful based on its acceptance of EDI, or "Electronic Data Interchange" and JIT practices. Wal-Mart engages in Computer-to-Computer Exchange of business documents with their vendor/suppliers (Sitcur, 2002). The use of electronic data transmission eliminates the need for excessive paperwork and paper trails, thus making the corporation more efficient and productive. EDI is a simple process that allows Wal-Mart executives to communicate on a global level, with the click of a button.

Wal-Mart actually is an entrepreneur in EDI technology, having started to use the communication method over twenty years ago. How does Wal-Mart use EDI? First and foremost they utilize it in scanning technology. For example, when a customer comes into the store to purchase a product, a cashier scans the item. The cashier is not only receiving information about the purchase price, but also sending information to a computer exchange information system, whereby manufacturers of the product will be notified that one of their products has sold. Additionally, store managers will be able to pull inventory reports, or in the case of Wal-Mart supply their outsourced inventory data to their suppliers. EDI allows instantaneous data exchange, making not only shopping, but also inventory management and cost control extraordinarily easy and manageable for the company.

The advantages Wal-Mart has using EDI are enormous; eliminating potential bottlenecks in supply exchange is just one. As one author puts it, "The obvious advantage of EDI is that everyone can accurately forecast with accuracy how much inventory they will be buying and selling over a reasonable period of time" (ScotSys, 2000). EDI virtually enables J.I.T., or just in time ordering. How is this accomplished?

By utilizing EDI technologies, Wal-Mart Corporation enables all members of the manufacturing/supply chain to have instantaneous access to changes in inventory and supply. Going back to the cashier scanning example, when an employee scans a product that is low inventory, that data will be automatically transferred to the store manager and suppliers, triggering a chain reaction that calls for a shipment of the product immediately. EDI and J.I.T. utilization allow for the automation of functions that previously required shear manpower.

The qualitative impact of TOC, JIT and EDI utilization at Wal-Mart is very apparent even to the layperson. Wal-Mart continues to be considered one of the most successful and largest discount retailers. Their success lies in the ability to foresee inventory needs before shortages occur. By utilizing EDI technologies, Wal-Mart has successfully ensured that all members of their organization, their vendors and supplier included, always have up to the minute information about product inventory.