book review

1. THE WAL-MART
EFFECT
BOOK REVIEW
OPERATIONS
MANAGEMENT
MADE BY: AHMAD MUSTAKEEM NADEEM
STEDENT ID: 1030220
MBA
MADE FOR: YAVUZ GUNALAY

2. THE WALL-MART EFFECT
Book review
Brief History
Wal-Mart was launched by Sam Walton in 1962. Walton sought to provide customers with
low prices by passing on savings from wholesalers rather than pocketing the money like other
retailers. This ended up being a cornerstone of the business strategy in the Wal-Mart Empire.
Sam Walton established many business practices that allowed him to keep prices low for
consumers. Although he dreaded unions and really didn’t like paying his workers anymore
than he should, Walton understood that he must keep his workers happy and introduced
profit-sharing plans and sold them the notion that working at Wal-Mart meant limitless
opportunity. And for the most part Wal-Mart had a great reputation due to Sam Walton until
his death in 1992.
Sam Walton Current Facts
Wal-Mart is the largest corporation in the world. Their revenues equal 2% of US GDP. Wal-
mart operates over 5000 stores worldwide and employs 1.6 million people, 1.3 million people
in the U.S. Only the US government employs more people than that in the U.S. Serves more
than 138 million people weekly worldwide. Wal-Mart plans to open up 225 supercenters this
year alone. Four of the five Walton heirs are the top 10 richest people in America, whose net
worth in one year alone increased from $94 billion to $102 billion.
Wal-Mart Locations
Supercenters on average take up 186,077 Square feet while discount stores average 98,079
square feet. The average wage of the Wal Mart worker is approximately $10/hour.
Wal-Mart Distribution Center (Supercenter)
The Story behind Wal-Mart’s success Wal-Mart can attribute their success to two very
important factors Supply chain efficiency Control of Payroll.
Supply Chain Efficiency
Ever since the 1970s Wal-Mart used computers to keep track of inventory and sales data
between their stores and warehouses. Wal-Mart was so efficient that it was believed that they
had a three day turnaround, not from the store to the warehouse but from the store to the
manufacturer. This allowed them to keep low inventories and not lose money to fad items,
which go in and out of style quickly.
Along with efficient control of their supply chain, Wal-Mart also finds its savings by getting
85% of their products from foreign manufacturers, mainly from China. Due to this
outsourcing Wal-Mart has been accused of supporting sweatshops in order to keep its low
prices. Wal-Mart’s “Made In the U.S.A” Campaign in 1985, which guaranteed that Wal-Mart
would choose the U.S. supplier over the foreign supplier if they were within 5% of the price,

3. was ineffective due to the overwhelmingly cheap prices that they could obtain products from
other countries with lax policies on labor.
Control of Payroll
Wal-Mart always kept wages down by fighting off unions and limiting health benefits,
overtime and bonuses. Studies have shown that where Wal-Mart’s average wage was below
$10/hr, other large retail-employees have average wages of around $11/hr. Full Time
employees have health benefits but the package is so expensive (35% almost double the
national average) that less than half opt to buy it.
Wal-Mart's statement on unions
At Wal-Mart, we respect the individual rights of our associates and encourage them to
express their ideas, comments and concerns. Because we believe in maintaining an
environment of open communications, we do not believe there is a need for third-party
representation.
The Wal-Mart effect: Local
Economy: Direct Effects Regardless of these facts people continue to work for Wal-Mart due
to the number of jobs it creates when it enters a local economy. An estimated 500 jobs are
created from a Wal-Mart supercenter. These earnings translate to a positive effect on the
economy Because Wal-Mart provides almost all needs for a low price, lower income
families’ benefit from the cheap prices. But local businesses do suffer due to competition.
The overall effects directly appear to be positive
Economy: Indirect Effects
Positives: Due to increase in retail consumption, there are spillover effects to other local
businesses such as restaurants. And increased local retail activity from Wal-Mart employee
earnings.
Negatives: Lost local retail activity with competing businesses, loss of local white collar
firms that provide business to local businesses. Overall appears to be a negative impact.
Economy: Fiscal
Positives: Increased sales tax and property tax revenues.
Negatives: Increased demand of local services such as waste management, police and fire
services.
Overall positive effect
Legal Issues
Wal-Mart, due to its labor policies and business practices has faced many legal issues
concerning its conduct. Wal-Mart faces class action lawsuits due to work off the clock issues.
Managers give out unreasonable tasks to complete in a certain time and ask that workers

4. don’t log in the extra hours in order to stay under payroll standards, or else they’ll receive a
penalty from headquarters.
In 2000, Wal-Mart paid $50 million to settle an off-the-clock issue with 69,000employees in
Colorado. In 2002, a federal jury in Oregon ordered back wages to be paid to 83 workers.
Last December, a California jury awarded $172 million to thousands of Wal-Mart employees
who had been illegally denied lunch breaks. Approximately 40 of these class action lawsuits
are still pending.
Sexual Discrimination
Wal-Mart has had issues concerning the lack of women in higher positions throughout Wal-
Mart stores On average women managers get paid $90,000 while men on average are paid
over $100,000 Now Wal-Mart faces a class action lawsuit with up to 2 million current and
former Wal-Mart employees concerning sexual discrimination
Wal-Mart vs. Unions
While most companies don’t make it easy to form unions, Wal-Mart has gone above and
beyond to prevent unions from forming. Sam Walton prevented unions by caring and giving
personal attention to employees (calling them “associates”), now they use the strong arm
approach. In 2000, when workers in a Jacksonville, Texas, meat-cutting department
successfully voted to unionize, Wal-Mart announced two weeks later that it would be closing
its meat cutting departments nationwide and switching to pre-cut meat. Four of the employees
who voted in favor of the union were fired.
A year ago, employees at a Wal-Mart tire and lube shop thought they had enough votes to
unionize, but the company fired one of the likely yes-voters and transferred in six likely no-
voters. Again, an administrative judge ruled that Wal- Mart's conduct had been illegal, but the
goal of blocking the union had been achieved. And in February 2005, the company
announced that it would be closing a Wal-Mart in Quebec, one of only two unionized Wal-
Marts in North America (the other is also in Quebec). Wal-Mart claimed the store was losing
money, but it refused to release numbers.
Wal-Mart vs. Costco
Why all the bad publicity when Costco and Target appear to be the same type of store?
First of all size - In terms of annual revenue, Wal-Mart is nearly four times the size of The
Home Depot, the country's second largest retailer, and almost twice the size of Target,
Costco, and Sears (which includes Kmart) combined. Costco pays on average $17/hr to their
workers, resulting in fewer turnovers, and have unionized workers.
Costco’s business and labor practices are overall considered to be the “high-road” approach,
paying their workers more to be happier with less turnover and thus spending less on areas
such as job training, while at the same time providing customers with cheaper goods. The
counter argument- The mean income of a Costco shopper is $74,000, which is substantially
higher and appears to support the idea that Costco supports the rich. A possible explanation
could be the number of small business owners that shop there.

5. Final Conclusion
Wal-Mart and its economic effects are debatable, but the presence and effect of Wal-Mart as
an economic actor can definitely be felt. Anti-Trust practices? As Wal-Mart continues to
outgrow its competitors when do we draw the line on how much market power Wal-Mart is
allowed to take?
The Wal-Mart Effect seeks to convey the enormous impact of this mega company’s
operations on suppliers, customers, employees, communities, and the nation. Unlike most
books on the subject, however, this one presents both the positive and negative effects in a
balanced manner.
Wal-Mart’s social and economic impact first provides some shocking data on its growth,
dominance in sales of certain types of merchandise, number of shoppers who frequent its
stores, and so forth. For example, Wal-Mart is the world’s largest private employer, and it
sells more groceries than any other company in the world. These data help us get our arms
around the enormity of Wal-Mart’s influence on all aspects of our society.
Wal-Mart’s mission is clearly written on every bag that leaves a store--always low prices,
always.
If nothing else, Wal-Mart is true to its mission. When Sam Walton opened his first store in
1962 in Arkansas, he knew that if he sold products that people need daily at a lower price
than anyone else, customers would flock to his store. Sam Walton was right; as consumers,
we love low prices and good deals.
Now, consider how low prices at Wal-Mart impact suppliers. On one hand, suppliers know
that a contract with Wal-Mart will increase their sales and growth, at least in the short-run.
But when Wal-Mart becomes your biggest customer, you may find that it can dictate both
your operating procedures and prices. If Wal-Mart is to continually lower its prices, suppliers
must continually lower theirs. Product design, quality, efficiency, and other manufacturing
operations will be impacted. Former CEO of Snapper, Inc., Jim Wier said, “Once you get
hooked on the Wal-Mart volume, it’s like getting hooked on cocaine. You’ve created a
monster for yourself.” Numerous suppliers have discovered that a cancelled contract with
Wal-Mart can have devastating consequences.
On the positive side, who else can sell fresh salmon year-round for less than five dollars per
pound, or offer fresh flowers in mid-winter? And, more importantly, isn’t Wal-Mart partly
responsible for keeping inflation in check, given its sales volume and pricing policy?
Throughout the book, the author presents accounts of suppliers and employees who have
benefitted and suffered from their relationship with Wal-Mart. Also, he includes synopses of
research studies conducted by professors who have addressed Wal-Mart’s effect on
employment, communities, and competition. These accounts are both informative and
interesting.
This book is based on careful research, discussions with former and current employees and
suppliers, and analyses of available data on Wal-Mart’s operations. Readers from all walks of
life will find it remarkably revealing. This is the opinion of Jerry Kinard, head of the Global
Management and Strategy Department at Western Carolina University.

6. Last Words
The company has prospered by elevating one goal above all others: cutting prices
relentlessly. U.S. economists say its tightfistedness has not only boosted its own bottom line,
but also helped hold down the inflation rate for the entire country. Consumers reap the
benefits every time they push a cart through Wal-Mart's checkout lines.
Yet Wal-Mart's astonishing success exacts a heavy price.