Many people wonder how Wal-Mart can charge such low prices and still make a profit. There are several factors in your business model that contribute to this ability, but an important one is your ability to adapt to an ever-changing global market. Some criticize Wal-Mart’s efforts to provide its customers with a quality product at low prices, but in reality, Wal-Mart has been able to offer low prices while being efficient. This efficiency is present in several areas, but one of the most important places is how they can manufacture products all over the world and bring them to the points of sale, which are also all over the world. This capability requires a flawless logistics system that allows product to be shipped anywhere in no time.
One of the keys to Wal-Mart’s efficient logistics system is its flexibility in choosing suppliers. When Wal-Mart negotiates with suppliers, 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 supplier also knows that it will be incredibly difficult for the company to make the proper adjustments to ensure a smooth transition to a different supplier, then it will be less inclined to lower 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, current suppliers lower their prices accordingly. They know that Wal-Mart’s logistics system can handle the transition smoothly, and therefore they do not get additional leverage, as 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 transportation 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 simply comes from the size of the company, but it is still a factor. Wal-Mart buys so many supplies from different places around the world that they have the luxury of using larger trucks and using less fuel to get to and from. Also, if they happen to have to use shipping services to transport material from one location to another, Wal-Mart will give them so much business that they will get huge discounts.
The logistics system Wal-Mart uses is so effective because it is so flexible. That is 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 this is simply not the case.