Wal-Mart Stores Research Paper Example | Topics and Well Written Essays - 1500 words

Wal-Mart Stores - Research Paper Example The perpetual inventory system, according to Buckfelder (2010) requires advanced technology such that a company should have the POS system or aided by the presence of RFID (radio frequency identification) checkers allowing the sale of the products to be recorded immediately.  The use of RFID checkers is introduced by the company in 2003 in its efforts to overhaul the world’s supply chain.   According to Chim (2003), RFID is expensive (costing about 30 cents per electronic tag) and Wal-Mart is expected to throw in a lot of investment for this inventory system.   However, Chim believes that there are more considerable paybacks that could be gained by Wal-Mart in return for its costs.   RFID, according to him is a system that makes inventory management more efficient by allowing manufacturers to trail the flow of goods.   Advantages of REID to Wal-Mart, according to Chim (2003), is the substantial cost savings of about 6 % to 7% that would amount to $1.2 to $1.3 billion (using the 2002 financial figures as basis) This savings would come from costs associated from transporting, storing and keeping track of goods that has been estimated at 10% of overall sales.   Kang, P. (2006) reported benefits gained by Wal-Mart in sales growth are due to significant inventory reduction, among others. The effectiveness of the Wal-Mart Inventory system could also be measured by its inventory turnover that means the relative amount of the cost of goods sold to inventory. It is also an indication of the effectiveness of inventory management.... Advantages of REID to Wal-Mart, according to Chim (2003), is the substantial cost savings of about 6 % to 7% that would amount to $1.2 to $1.3 billion (using the 2002 financial figures as basis) This savings would come from costs associated from transporting, storing and keeping track of goods that has been estimated at 10% of overall sales. Kang, P. (2006) reported benefits gained by Wal-Mart in sales growth are due to significant inventory reduction, among others. The effectiveness of Wal-Mart Inventory system could also be measured by its inventory turnover that means the relative amount of the cost of goods sold to inventory. It is also an indication of the effectiveness of inventory management as it shows of the number of times the inventory is created and bought by customers at a specified time. It is computed by getting the cost of goods sold divided by inventory. The inventory turn over of Wal-Mart for 5 years is presented below: In million $ 2010 2009 2008 2007 2006 Revenue 408,214.0 404,374.0 377,023.0 348,368.0 312,101.0 Cost of goods sold 304,657.0 304,056.0 284,137.0 263,979.0 237,649.0 Inventory 33,160.0 34,500.0 35,159.0 33,685.0 31,910.0 Inventory turn- over 9.18 8.81 8.08 7.83 7.44 Source of financial data: msn.com. (2010) Wal Mart Stores, Inc. Financial Statement. As compared to the benchmark of competitors in the industry that is 7.9 %, Wal-Mart has a higher turn-over ratio that emphasizes efficiency in turning inventories into cash faster (msn.com. 2010). It is observed that the inventory level of Wal-Mart gets lower over the five years operations and at the same time, its inventory turn over gets higher. Disadvantages.