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How Walmart Successfully Optimized its Costs in 2022

Walmart Inc. is an American multinational retail corporation that operates a chain of hypermarkets (also called supercenters), discount department stores, and grocery stores in the United States and internationally. It is the world's largest retailer by revenue, and as of October 2023, it operates approximately 10,500 stores and clubs in 20 countries.

Walmart was founded by Sam Walton in 1962, and it quickly became a major player in the retail industry. The company's success is due in part to its focus on low prices and its convenient one-stop shopping experience. Walmart offers a wide variety of products, including groceries, electronics, clothing, and home goods.

In 2022, the company faced rising costs due to a number of factors, including inflation, increased transportation costs, and supply chain disruptions. This case study will look at how Walmart successfully optimized its costs in 2022.

What pushed Walmart into optimizing its costs?

1. Rising inflation

Inflation is the rate at which prices for goods and services are rising over time. In 2022, inflation in the United States reached a 40-year high, with prices rising by 8.6% over the year. This was driven by a number of factors, including:

• Increased demand: Demand for goods and services increased sharply as the economy reopened after the COVID-19 pandemic. This increased demand put pressure on prices.

• Supply chain disruptions: The global supply chain was disrupted by a number of factors, including the COVID-19 pandemic, port congestion, and the war in Ukraine. This made it more difficult and expensive to produce and transport goods, which also contributed to inflation.

• Government spending: The US government spent trillions of dollars in fiscal stimulus during the COVID-19 pandemic. This increased the amount of money in circulation and also contributed to inflation.

2. Increased transportation costs

Increased transportation costs had a significant impact on Walmart in 2022. The company's transportation costs increased by 11.5% in the fiscal year ended January 31, 2023, compared to the previous year. This was due to a number of factors, including:

• Higher fuel prices: Fuel prices increased sharply in 2022, due to a number of factors, including increased demand and supply disruptions related to the war in Ukraine. This made it more expensive for Walmart to transport goods by truck, rail, and ship.

• Labor shortages: The trucking industry is facing a severe labor shortage. This has made it more difficult and expensive for Walmart to find truck drivers to transport its goods.

• Port congestion: Port congestion has also been a problem in 2022. This has made it more difficult and expensive for Walmart to get goods imported from overseas.

The increased transportation costs have squeezed Walmart's profit margins and forced the company to raise prices for its customers. In the fiscal year ended January 31, 2023, Walmart's operating margin declined from 4.6% to 4.4%. The company also raised prices for its customers by an average of 3.5% in the fiscal year.

3. Ever rising competition

Walmart faces increasing competition from other retailers, both online and offline. This is putting pressure on Walmart to keep prices low and to improve its customer experience.

Online retailers, such as Amazon, are a major source of competition for Walmart. Amazon offers a wide selection of products at competitive prices, and it is known for its convenient delivery options.

Offline retailers, such as Target and Costco, are also competing with Walmart. Target offers a more upscale shopping experience than Walmart, and Costco offers a wider selection of bulk items. The increased competition is putting pressure on Walmart to keep prices low. Walmart has traditionally been known for its low prices, but it is now facing competition from other retailers that are offering even lower prices.

The increased competition is also putting pressure on Walmart to improve its customer experience. Walmart customers expect a convenient and affordable shopping experience.

Walmart’s Cost Optimization Strategy

1. Investment in Technology

Walmart's investment in technology is a key part of its cost optimization strategy. The company is using technology to automate tasks, improve efficiency, and make better decisions.

Here are some specific examples of how Walmart is using technology to reduce costs and improve efficiency:

• Inventory management: Walmart is using machine learning to optimize its inventory management. This helps the company to ensure that the right products are in the right stores at the right time. It also helps to reduce waste and stock outs.

• Pricing strategy: Walmart is also using machine learning to optimize its pricing strategy. This helps the company to set competitive prices and to maximize profits.

• Store operations: Walmart is using technology to automate tasks in its stores, such as checkout and shelf-stocking. This helps to reduce labor costs and improve efficiency.

• Supply chain management: Walmart is using technology to improve its supply chain management. This helps the company to reduce transportation costs and to get products to stores more quickly.

Here are some of the benefits of Walmart's investment in technology:

• Reduced costs: Technology can help Walmart to reduce costs in a number of ways, such as by automating tasks, improving efficiency, and reducing waste.

• Improved efficiency: Technology can help Walmart to improve efficiency in its operations, such as inventory management, pricing strategy, store operations, and supply chain management.

• Better decision-making: Technology can help Walmart to make better decisions by providing data and insights that can be used to inform business decisions.

• Enhanced customer experience: Technology can help Walmart to enhance the customer experience by making it easier for customers to shop and by offering a wider range of products and services.

2. Walmart’s Food Waste Reduction Program

Walmart's new food waste reduction program is a comprehensive approach to reducing food waste at all stages of the supply chain, from farm to fork. The program includes a number of initiatives, such as:

• Improved forecasting and ordering: Walmart is using data analytics to improve its forecasting and ordering accuracy. This helps to reduce the amount of food that is over-ordered and ultimately wasted.

• Donation of surplus food: Walmart donates surplus food to food banks and other charitable organizations. This helps to feed people in need and reduces the amount of food that is sent to landfills.

• Composting of food waste: Walmart composts food waste that cannot be donated. This helps to divert food waste from landfills and create a valuable fertilizer product.

• Education and training for employees and customers: Walmart is educating and training its employees and customers on how to reduce food waste. This includes providing tips on proper food storage and meal planning.

Walmart's food waste reduction program has been successful in reducing the amount of food waste that the company generates. In 2022, Walmart diverted over 760 million pounds of food from landfills. This helped the company to save millions of dollars and to reduce its environmental impact.

Here is a more in-depth look at some of the key components of Walmart's food waste reduction program:

• Improved forecasting and ordering: Walmart uses a variety of data sources, including historical sales data, weather data, and consumer trends, to forecast demand for food products. This information is used to generate orders for suppliers. Walmart has also implemented a new ordering system that allows stores to place smaller, more frequent orders. This helps to reduce the amount of food that is over-ordered and ultimately wasted.

• Donation of surplus food: Walmart partners with food banks and other charitable organizations to donate surplus food. This food is distributed to people in need, such as low-income families and seniors. Walmart has a goal of donating 100% of its edible surplus food by 2025.

• Composting of food waste: Walmart composts food waste that cannot be donated. This food waste is sent to composting facilities, where it is converted into fertilizer. Walmart has a goal of composting 100% of its unsold produce by 2025.

• Education and training for employees and customers: Walmart educates and trains its employees and customers on how to reduce food waste. This includes providing tips on proper food storage and meal planning. Walmart also offers a variety of resources on its website and in its stores to help customers reduce food waste at home.

Walmart's food waste reduction program is a comprehensive and innovative approach to reducing food waste. The program is having a positive impact on the environment and on the company's bottom line.

In addition to the benefits mentioned above, Walmart's food waste reduction program also helps to:

• Reduce the company's carbon footprint: Food waste that is sent to landfills produces methane, a greenhouse gas that is more potent than carbon dioxide. By reducing food waste, Walmart is helping to reduce its carbon footprint and mitigate climate change.

• Conserve water: Food production requires a significant amount of water. By reducing food waste, Walmart is helping to conserve water resources.

• Improve public health: Food waste can attract pests and rodents, which can spread disease. By reducing food waste, Walmart is helping to improve public health.

3. Revision of its P&G Contract

Walmart's negotiation of a new contract with Procter & Gamble (P&G) is a good example of how the company uses its bargaining power to get lower prices from its suppliers. Walmart is the world's largest retailer, and it accounts for a significant portion of P&G's sales. This gives Walmart leverage in negotiations.

Walmart used a number of tactics to negotiate a better deal with P&G. First, Walmart threatened to switch to other suppliers if P&G did not offer it lower prices. Second, Walmart used data analytics to show P&G that it was overpaying for some products. Third, Walmart offered P&G a number of concessions, such as agreeing to give P&G more shelf space in its stores.

In the end, Walmart was able to negotiate a new contract with P&G that saved the company billions of dollars. This savings was passed on to Walmart's customers in the form of lower prices.

Key Takeaways for Product Managers

• Continuously monitor and optimize your costs: Costs are constantly changing, so it's important to regularly monitor and optimize your costs. You should also be prepared to adapt your cost optimization strategy as conditions change.

• Use data and analytics to inform your decisions: Walmart used data and analytics to identify areas where it could reduce costs. For example, the company used data analytics to show P&G that it was overpaying for some products.

• Be willing to negotiate: Walmart is not afraid to negotiate with its suppliers to get lower prices. Product managers should also be willing to negotiate with their stakeholders to get the resources they need to develop and launch successful products.

• Be innovative: Walmart is always looking for new ways to reduce costs and improve efficiency. Product managers should also be innovative in their work and be willing to try new things.

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