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Wal-Mart has been expanding its construction of super centers, which include major food sections encompassing general grocery items, health and beauty aids, perishable produce, meat, seafood, frozen food, and deli items. The company is nonunion with labor costs at about 7.5 percent of sales versus its organized competitors’ 13 percent. This, in part, allows Wal-Mart to offer prices anywhere from 6 to 10 percent below its supermarket competitors. Price sensitivity in the business is important and an overall price difference above 2 percent will cause loss of market share. You work for one of the organized companies and your CEO has directed you to begin an initiative to reduce your wage and benefit costs to be in line with Wal-Mart’s levels. You know that negotiating lower wages and benefits with your unions will be a difficult task. While you have not abandoned that idea, you have decided to take a broader approach to reducing overall costs and enabling your company to offer prices that meet Wal-Mart’s.
| a. | Describe a range of possible solutions that does not necessarily involve reducing the level of benefits and wages, but might serve to reduce the ratio of labor costs to sales and would be consistent with the overall business strategy of building sales and profits through top service, competitive prices, and great product variety. |
| b. | What analytical steps, metrics, and assessments would you apply to each? |
| c. | Are there possible total reward solutions that might help to attain your objective? Briefly identify them and explain. |
| d. | How would you measure and evaluate each? |
| e. | Select a comprehensive plan that you believe will enable your company to be price competitive without changing the level of benefits and wages. |
| f. | Describe how you would measure and evaluate your plan. |
Expert Answer
Ans: besides reduction of wages and benefits there are other options of cost reduction as listed below.
(i) Elimination of waste of perishable items, prevetion of accumulation of slow moving items, and optimum ordering by adopting lean methodology for management of ordering, inventory and sales.
(ii) Redesigning warehousing process to optimize the storage cost.
(iii) Redoing of work allocation and redesigning job roles for effective utilization of workforce.
(iv) Monitoring for reduction in wastage and pilferage.
(v) Analyzing the movement of items to formulate strategies for stocks moving at different pace.
(vi) Re arrangement of SKUs for smooth, interactive and swift sales process.
Ans b:
Analysis of the effectiveness of processes will include continuous evaluation of the results of sales, wastage as a fraction of sales, percentage pilferage per unit , sales per unit workforce, space cost per dollar of sales, customer complaints per dollar of sales, ordering cost as a fraction of sales, inventory turns for different SKUs, and total revenue per dollar spent.
Ans c:
The cost reduction through redesigning of wages might include a part of remuneration based on performance, better healthcare, insurance and retirement benefits in lieu of a small pay revision now, or linking the payhike to individual and group performance. This will prompt all workers to perform better and lead to better profitability.
Ans d:
The reward solutions can be measured by calculating labour cost as a fraction of sales, calculating the future liability and mapping it with current gains.
Ans e:
The most suitable plan for being price competitive for the organization will be to follow lean six sigma methodology to reduce the defects and cutting down on avoidable actions that increase the cost of operations. This way the organization will not only be able to keep up with its top class service by enhancing the customer experience through zero defect and zero variation policy, but will also be able to idetify and eliminate the non value adding activities to reduce the operating cost. The reforms will encompass all activities from the ordering and supply of goods to the facility to the sale to final customer.
Ans f
The plan will be measured with the cost reduction as a part of sales, ROI on the lean implementation process, reduction in customer complaints, customer feedback and ratings for service parameters, Increase / decrease in the number of repeat customers, Changes in the number of returns and reworks and decrease in the number of customer incidents ( Miffed or dissatisfied customers at the store)
