Walmart s Continuous Replenishment System Allows It to

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What is a firm to do when it is faced with all these competitive forces? And how can the firm use information systems to counteract some of these forces? How do you prevent substitutes and inhibit new market entrants? There are four generic strategies, each of which often is enabled by using information technology and systems: low-cost leadership, product differentiation, focus on market niche, and strengthening customer and supplier intimacy

Low-Cost Leadership
Use information systems to achieve the lowest operational costs and the lowest prices. The classic example is Walmart. By keeping prices low and shelves well stocked using a legendary inventory replenishment system, Walmart became the leading retail business in the United States. Walmart's continuous replenishment system sends orders for new merchandise directly to suppliers as soon as consumers pay for their purchases at the cash register. Point-of-sale terminals record the bar code of each item passing the checkout counter and send a purchase transaction directly to a central computer at Walmart headquarters. The computer collects the orders from all Walmart stores and transmits them to suppliers. Suppliers can also access Walmart's sales and inventory data using Web technology.

Because the system replenishes inventory with lightning speed, Walmart does not need to spend much money on maintaining large inventories of goods in its own warehouses. The system also enables Walmart to adjust purchases of store items to meet customer demands. Competitors, such as Sears, have been spending 24.9 percent of sales on overhead. But by using systems to keep operating costs low, Walmart pays only 16.6 percent of sales revenue for overhead. (Operating costs average 20.7 percent of sales in the retail industry.) Walmart's continuous replenishment system is also an example of an efficient customer response system. An efficient customer response system directly links consumer behavior to distribution and production and supply chains. Walmart's continuous replenishment system provides such an efficient = customer response.

Product Differentiation
Use information systems to enable new products and services, or greatly change the customer convenience in using your existing products and services. For instance, Google continuously introduces new and unique search services on its Web site, such as Google Maps. By purchasing PayPal, an electronic payment system, in 2003, eBay made it much easier for customers to pay sellers and expanded use of its auction marketplace. Apple created the iPod, a unique portable digital music player, plus a unique online Web music service where songs can be purchased for $.69 to $1.29 each. Apple has continued to innovate with its multimedia iPhone, iPad tablet computer, and iPod video player.

Manufacturers and retailers are using information systems to create products and services that are customized and personalized to fit the precise specifications of individual customers. For example, Nike sells customized sneakers through its NIKEiD program on its Web site. Customers are able to select the type of shoe, colors, material, outsoles, and even a logo of up to eight characters. Nike transmits the orders via computers to specially equipped plants in China and Korea. The sneakers cost only $10 extra and take about three weeks to reach the customer. This ability to offer individually tailored products or services using the same production resources as mass production is called mass customization. Table 3.3 lists a number of companies that have developed IT-based productsand services that other firms have found difficult to copy, or at least a long time to copy.

Focus on Market Niche
Use information systems to enable a specific market focus, and serve this narrow target market better than competitors. Information systems support this strategy by producing and analyzing data for finely tuned sales and marketing techniques. Information systems enable companies to analyze customer buying patterns, tastes, and preferences closely so that they efficiently pitch advertising and marketing campaigns to smaller and smaller   target markets.

The data come from a range of sources credit card transactions, demographic data, purchase data from checkout counter scanners at supermarkets and retail stores, and data collected when people access and interact with Web sites. Sophisticated software tools find patterns in these large pools of data and infer rules from them to guide decision making. Analysis of such data drives one-to-one marketing that creates personal messages based on individualized preferences. For example, Hilton Hotels' OnQ system analyzes detailed data collected on active guests in all of its properties to determine the preferences of each guest and each guest's profitability. Hilton uses this information to give its most profitable customers additional privileges, such as late checkouts.

Strengthen Customer and Supplier Intimacy
Use information systems to tighten linkages with suppliers and develop intimacy with customers. Chrysler Corporation uses information systems to facilitate direct access by suppliers to production schedules, and even permits suppliers to decide how and when to ship supplies to Chrysler factories. This allows suppliers more lead time in producing goods. On the customer side, Amazon keeps track of user preferences for book and CD purchases, and can recommend titles purchased by others to its customers. Strong linkages to customers and suppliers increase switching costs (the cost of switching from one product to a competing product), and loyalty to your firm. Table 3.4 summarizes the competitive strategies we have just described. Some companies focus on one of these strategies, but you will often see companies pursuing several of them simultaneously. Starbucks, discussed in the Interactive Session on Organizations, is an example.

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When two organizations pool markets and expertise that result in lower costs and generate profits they are creating group of answer choices?

When two organizations pool markets and expertise that result in lower costs and generate profits, they are creating: synergies. The expenses incurred by a customer or company in lost time and resources when changing from one supplier or system to a competing supplier or system are known as: switching costs.

Which of the following would a company employ to measure and compare its business processes to similar processes of other companies within their industry?

Which of the following would a company employ to measure and compare its business processes to similar processes of other companies within their industry? The most successful solutions or methods for achieving a business objective are called: benchmarks.

When a firm buys on the marketplace what it Cannot make itself the costs incurred are referred to as?

19) When a firm buys on the marketplace what it cannot make itself, the costs incurred are referred to as: transaction costs.

What are the most successful solutions or problem solving methods that have been developed by a specific organization or industry?

Best practices are the most successful solutions or problem-solving methods in an industry for consistently and effectively achieving a business objective.

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