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TERM PAPER ON BUSINESS MODEL
A business model describes the rationale of how an organization creates, delivers, and captures value economic, social or other forms of value. A business model is a blend of three streams that are critical to the business. These include the value stream for the business partners and the buyers, the revenue stream, and the logistical stream. In other words we can say- A business model describes how a business positions itself within the value chain of its industry and how it intends to sustain itself, that is to generate revenue. There have been many views on the various components of a business model, but some block which stand out in all the proposed models are shown below with the help of a diagram.
The flow chart has been prepared by me after gathering sources from many places.
Now here we can see the various components of a business model, and also see that how the business in placing itself in the value chain to create a value proposition and the generating revenue. These various components will be discussed in brief:
Partner & Associates:
These are a group of suppliers, partners, Associates, consultants etc. which help the firm in estimating and meeting the market demand, by sharing information, supplying material, sharing expertise etc.
Firm's value chain structure:
How the firm positions itself in the value chain and how does it plan to capture the value it creates in the value chain .The firm puts together all the resources, expertise and the key activities together to create a value proposition for the customer. The firm also has in place a cost structure to keep its cost under control, and from preventing them from exceeding a specified level.
A value proposition is for the customer, it is how or by what way is the firm offering to meet the needs of the customer. It is either by a product or a service or a combination of both.
These form a part of the logistical activities of the business. They are mainly directed towards supplying the product to the final consumer through various means, at affordable costs. Transportation, warehousing, supplying etc all form a part of the distribution channel. Now days this has become the battle ground for the business to compete, by creating an innovative and more efficient distribution system so as to achieve maximum availability of the product in the fastest possible time and at a lower cost. It has become a means for establishing a competitive advantage over the competitors.
Marketing is basically a group of promotional activities used by the firm to promote the product in the market. And also to gather information about the customer demand.
Market segmentation & Client Relation:
It is true that a single firm cannot serve all the customers in the market, so it has to rationally decide which segment of customer's to serve and how to maintain good relations with them.
Revenue generation & Sustainability:
After all the activities have taken place, it is only then the revenue is generated. And it is through it revenue model only that a firm is to meet its costs, margins and the proposed profits. A good and growing revenue stream is what will help the firm sustain its business activities in the future.
US$ 408.21 Billion (as on 31 January 2010)
Quality products at a great value (low price)
Wal-mart Stores, Inc. is an American public corporation that runs a large chain of discount departmental stores. In 2008 it was the world's largest public corporation by revenue, according to the Fortune Global 500 for that year. The company was founded bySam Waltonin 1962,incorporatedon October 31, 1969, and listed on theNew York Stock Exchangein 1972. Wal-Mart is the largest private employer and the largest groceryretailerin the United States. It also owns and operates theSam's Club retail warehousesin North America. Today, 8,400 stores and club locations in 14 markets employ more than 2.1 million associates, serving more than 176 million customers a year. Wal-mart operates in Mexico asWalmex, in the United Kingdom asAsda, in Japan asSeiyu, and in India asBest Price. It has wholly-owned operations inBrazil, Argentina,Brazil, Puerto Rico and Canada. Wal-Mart's investments outside North America have had mixed results: its operations in the United Kingdom, South America and China are highly successful.
Sam Walton said “If we work together, we'll lower the cost of living for everyone…we'll give the world an opportunity to see what it's like to save and have a better life.”
The three components of the Mission (in their own words)
Saving People Money So They Can Live Better
Saving people money to help them live better was the goal that Sam Walton, envisioned when he opened the doors to the first Walmart. Today, more than 40 years later with operations in 14 markets worldwide, we continue to deliver that promise to families around the globe. It is the focus that is underlying everything we do at Wal-Mart. And for the millions of customers who shop in our stores and clubs around the world each week, it means a lot.
We know that price matters to our customers, whether they live in the United States, the United Kingdom, Argentina or Japan. That's why we offer the best quality merchandise at the lowest prices in all our stores, from school supplies, to household items and top quality groceries. We also look at savings that go beyond the prices you see in our stores. For example, we are working with our suppliers to introduce more energy efficient products that can save customers money for years to come. And because every store or club is designed to reflect the local community, our customers know they will find the lowest prices around on the products that match their lifestyle.
Saving money is a means to helping our customers live better. By offering the best possible prices on the products our customers need, we can help them afford something a little extra. Whether it's a grandmother who can buy her grandchildren a special gift because she saved money on her prescriptions, or a young family saving money to buy their first home, we see our mission come to life every day.
Three Basic Beliefs & Values (in their own words):
Three simple things that make us great:
Our unique culture has helped make Wal-Mart one of the world's most admired companies. Since Sam Walton opened the first Wal-Mart in 1962, our culture has rested on three basic beliefs. We live out these beliefs every day in the way we serve our customers and each other.
1. Respect for the Individual
We're hardworking, ordinary people who've teamed up to accomplish extraordinary things. While our backgrounds and personal beliefs are very different, we never take each other for granted. We encourage those around us to express their thoughts and ideas. We treat each other with dignity. This is the most basic way we show respect.
2. Service to our Customers
Our customers are the reason we're in business, so we should treat them that way. We offer quality merchandise at the lowest prices, and we do it with the best customer service possible. We look for every opportunity where we can exceed our customers' expectations. That's when we're at our very best.
3. Striving for Excellence
We're proud of our accomplishments but never satisfied. We constantly reach further to bring new ideas and goals to life. We model ourselves after Sam Walton, who was never satisfied until prices were as low as they could be. Or that a product's quality was as high as customers deserved and expected. We always ask: Is this the best I can do? This demonstrates the passion we have for our business, for our customers, and for our communities.
Wal-Mart Business Model
A) Value chain:
Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The goal of these activities is to create value that exceeds the costs of providing the product or service, thus generating a profit margin.
This above is the complete process as to how Wal-Mart creates value proposition for the final customer. Since the value proposition that Wal-Mart offers to its customers is QUALITY PRODUCTS AT A VALUE (LOW PRICE). Wal-Mart manages its value chain very value chain very seamlessly in order to reduce its costs so that it can further pass on the benefit to the consumers in the form of low prices. Wal-Mart generates value at every step of the value chain:
Wal-Mart creates a lot of value or we can say cuts on costs through:
A- Fixed suppliers:
Wal-Mart has fixed suppliers, which enables them to earn a discount or lower costs.
B- Bulk ordering:
By ordering and purchasing in bulk Wal-Mart is able to achieve economies of scale.
C- Electronic inventory control:
By this they maintain their inventory in real time, things are re-ordered as in when they are sold. This helps to reduce lead time and hence cut costs.
D- Quality assurance:
The products are tested for quality on the docks as in when they are received.
Operations of Wal-Mart are divided into three divisions:
A- Wal-Mart Discount Stores
B- Wal-Mart Super Centers
C- Wal-Mart International
D- Sam's Club
All the operations of Wal-Mart are connected through a MIS, which helps to manage operations in real time, thereby reducing costs.
It owns a large fleet of logistical equipment, which helps it in keeping the costs low and still maintain high efficiency. Wal-Mart owns a fleet of more than 3500 trucks. And this dedicated fleet of trucks ships the products from the distribution centers to the stores within a period of two days, and the shelves are replenished twice a week.
The distribution centers and the stores are strategically located in such a manner that it maximizes efficiency.
Marketing & sales:
Through extensive marketing initiatives both outdoor and indoor marketing they have a large coverage.
They also have their own marketing channel which is used as a means of indoor marketing. Their staff is also well trained and always ready to help the consumers.
Wal-Mart strives to provide a variety of services to their customers:
A- The stores are located at very convenient locations, plus they shelve many items of daily requirements. This way the customers get the goods for daily use at a convenient place and at lower price. This way the consumers save a lot on their daily purchases and their other purchases,
B- Return policy:
Wal-Mart has a very consumer friendly return policy, if a consumer feels that the product does not match his/her requirements, they can return the goods.
is also readily all over the stores to help the consumers.
B) Supply chain:
Wal-Mart directly purchases from the manufacturers and offers them to the consumers. Their chart looks like this:
Wal-Mart has a rather simple supply chain, they have eliminated, the wholesalers, retailers and the distributors. As it does all that itself.
Step1: They procure products from the manufacturers.
Step2: They ship the products to their distribution centers. From their they supply to their stores as per the requirements. They own a huge fleet of trucks, which help them in achieving a high level of efficiency and cost effectiveness.
Step 3: Stores are located at very convenient locations, where the consumers can easily visit and shop.
C) Revenue model:
Revenue is a model representing as to from where does the firm plan to earn revenues, to meet its costs and profit margins.
Above we can have a brief idea, from where does Wal-Mart saves costs and generates revenue to meet its costs and profit margins.
Suppliers: They are mostly fixed, and they order in bulk which enables them to keep thee procurement costs as low as possible.
Operations: The whole company is interconnected by an efficient MIS, which helps keep a live track of inventory, and other things. Which has helped Wal-Mart to reduce operational costs to a great extent.
Stores: This is the end point where all the sales happen and Wal-Mart earns revenues. Stores are located at convenient locations and shelve all the famous and top selling products along with daily use items the consumer save a lot by this policy adopted by Wal-Mart.
* Walmart is a major and influential retail brand. It has a reputation for delivering value for money, service convenience and a large variety of products all in one store.
* Walmart has grown by leaps and bounds over the recent years, and has experienced global expansion.
* Walmart has a core competence of being able to use its information technology to support its international logistics system, which in turn makes it more efficient than others.
* Walmart has a dedicated and focused strategy towards human resource management and development.
* Wal-Mart maybe the largest retailer, with huge advantages in IT infrastructure, with business and control extending across boundaries, but is seriously affected by huge span of control.
* Walmart is a well known international brand, with international operations. Despite that it has presence in very few countries.
* The company sells products across many sectors, but there it losses on flexibility from some of its more sector focused competitors.
* To form global alliances with other major players to focus on more specific markets. Such as Europe, Asia.
* To increase global operations by not only increasing the store count, but also increasing the number of countries they are present in.
* There is a tremendous opportunity for future business growth and expansion in consumer markets, such as China and India.
* New location both domestically and internationally and new store types offer Wal-Mart opportunities to exploit the changing and evolving market.
* Wal-Mart still has great set of opportunities to continue with its current strategy of large, super centers.
* Being number at the top means that they are the target of large competition both domestically and internationally.
* Being an international retailing chain means that they are exposed to economic & political problems in the countries that you operate in.
* Manufacturing has fallen down due to shifting of the production to more developing countries where the cost of production is low. And even outsourcing has cut on costs a lot. This has led to intense competition in the price wars and Walmart is slowly loosing the low cost title as now even other manufacturers and retailers are offering the same price.
Bharti Wal-Mart in India
Bharti Walmart Private Limited is a joint venture between Bharti Enterprises, one of India's leading business groups with interests in telecom, agri-business, insurance and retail, and Walmart, the world's leading retailer, renowned for its efficiency and expertise in logistics, supply chain management and sourcing. The joint venture is establishing wholesale cash-and carry and back-end supply chain management operations in line with Government of India guidelines. Under the agreement, Bharti and Walmart hold a 50:50 stake in Bharti Walmart Private Limited. The first wholesale cash-and-carry facility named “Best Price Modern Wholesale” opened in Amritsar in May 2009. Best Price Modern Wholesale store is a one-stop shop that meets the day-to-day needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store owners, offices and institutions. The store offers an assortment of approximately 6,000 items, including food and non-food items, which are available at competitive wholesale prices, allowing retailers and business owners to lower their cost of operations. More than 90 percent of these goods and services are being sourced locally; thereby helping keep costs to a minimum, adding to the growth of the local economy and creating job opportunities, with the cash and carry store directly employing more than 200 local people.
Source: Walmart in India Factsheet 31, March 2010
The joint venture has also invested in establishing an efficient back-end supply chain management operation. The joint venture works with the existing supply chain infrastructure to help make it more efficient, thereby maximizing value for farmers and manufacturers on the one end and retailers, and in turn, consumers on the other. The supply chain operation supports farmers and small manufacturers who have limited infrastructure and distribution strength and help minimize wastage, particularly of fresh foods and vegetables. An efficient supply chain can play an important role in transforming farmers and small manufacturers into successful entrepreneurs.
Marc Fetscherin and Gerhard Knolmayer, International Journal on Media Management, Volume 6, Issue 1 & 2 September 2004 , pages 4 - 11, September 2004.
Mahadevan, B. “Business Models for Internet-based E-commerce.” California Management Review, Vol. 42 No. 4 pp. 55-69, 2000
http://finance.yahoo.com/q/ks?s=WMT-Retrieved on May 2, 2010
http://walmartstores.com/AboutUs/321.aspx- Retrieved on 2 May 2010
P. Mohan Chandran, “Wal-Mart's supply chain management practices.” ICMR case collection, 2003
Walmart in India Factsheet 31, March 2010
 Marc Fetscherin and Gerhard Knolmayer, International Journal on Media Management, Volume 6, Issue 1 & 2 September 2004 , pages 4 - 11, September 2004.
 Mahadevan, B. “Business Models for Internet-based E-commerce.” California Management Review, Vol. 42 No. 4 pp. 55-69, 2000
 http://finance.yahoo.com/q/ks?s=WMT-Retrieved on May 2, 2010
 http://walmartstores.com/AboutUs/321.aspx- Retrieved on 2 May 2010
 P. Mohan Chandran, “Wal-Mart's supply chain management practices.” ICMR case collection, 2003
P. Mohan Chandran, “Wal-Mart's supply chain management practices.” ICMR case collection, 2003
 Walmart in India Factsheet 31, March 2010
 Walmart in India Factsheet 31, March 2010