Many people wonder how Wal-Mart can charge such low prices and continue to make a profit. There are several factors in their business model that contribute to this ability, but one of the most important is their ability to adapt to an ever-changing global marketplace. Some criticize Wal-Mart’s efforts to offer its customers a quality product at low prices, but in reality, Wal-Mart has been able to offer low prices by being efficient. This efficiency is present in a number of areas, but one of the most important is how they can make products all over the world and get them to retail outlets, which are also all over the world. This capability requires a flawless logistics system that allows the product to be shipped anywhere at any time.
One of the keys to Wal-Mart’s effective logistics system is its flexibility in choosing suppliers. When Wal-Mart negotiates with suppliers and suppliers know that Wal-Mart will only pay the most competitive prices. This is because it is very easy for them to find another supplier of that particular material with a lower price and very few logistical problems. This gives Wal-Mart a great deal of leverage when dealing with suppliers. If a particular supplier knows that a company has found a lower price, it will lower its price accordingly. However, if the provider also knows that it will be incredibly difficult for the company to make the appropriate adjustments to ensure a smooth transition to a different provider, then it will be less inclined to drop its price that much. This is not how existing suppliers deal with Wal-Mart; when they see that Wal-Mart has found a supplier that will give them a lower price, the current suppliers lower their prices accordingly. They know that Wal-Mart’s logistics system can handle the transition smoothly, and therefore they do not gain additional leverage, since it will not be difficult or expensive for Wal-Mart to choose another supplier.
Another reason Wal-Mart’s prices are so competitive is because they buy in such large quantities that transporting from one end of the supply chain to the other is not as expensive for additional units. This aspect of the logistics system does not come from skill or experience, it just comes from the size of the company, but it is still a factor. Wal-Mart buys so many supplies from around the world that they have the luxury of using bigger trucks and using less fuel to get back and forth. Also, if they happen to have to use shipping services to transport material from one place to another, Wal-Mart will give them so much business that they will get deep discounts.
The logistics system that Wal-Mart uses is so effective because it is so flexible. That’s why Wal-Mart can offer things much cheaper than other companies. Wal-Mart has a reputation for being able to offer these things cheaply due to low employee wages and human rights violations, but that’s just not the case.
