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126 Part One Organizations, Management, and the Networked Enterprise

Supermarkets and
large retail stores
such as Walmart use
sales data captured at
the checkout counter
to determine which
items have sold and
need to be reordered.
Walmart’s continuous
replenishment system
transmits orders to
restock directly to its
suppliers. The system
enables Walmart to
keep costs low while
fine-tuning its
merchandise to meet
customer demands.

© Bonnie Kamin/Photoedit

Low-Cost Leadership
Use information systems to achieve the lowest operational costs and the lowest
prices. The classic example is Walmart. By keeping prices low and shelves well
stocked using a legendary inventory replenishment system, Walmart became
the leading retail business in the United States. Walmart’s continuous replenish-
ment system sends orders for new merchandise directly to suppliers as soon as
consumers pay for their purchases at the cash register. Point-of-sale terminals
record the bar code of each item passing the checkout counter and send a
purchase transaction directly to a central computer at Walmart headquarters.
The computer collects the orders from all Walmart stores and transmits them to
suppliers. Suppliers can also access Walmart’s sales and inventory data using
Web technology.
Because the system replenishes inventory with lightning speed, Walmart
does not need to spend much money on maintaining large inventories of
goods in its own warehouses. The system also enables Walmart to adjust
purchases of store items to meet customer demands. Competitors, such as
Sears, have been spending 24.9 percent of sales on overhead. But by using
systems to keep operating costs low, Walmart pays only 16.6 percent of sales
revenue for overhead. (Operating costs average 20.7 percent of sales in the
retail industry.)
Walmart’s continuous replenishment system is also an example of an
efficient customer response system. An efficient customer response system
directly links consumer behavior to distribution and production and supply
chains. Walmart’s continuous replenishment system provides such an efficient
customer response.

Product Differentiation
Use information systems to enable new products and services, or greatly
change the customer convenience in using your existing products and services.
For instance, Google continuously introduces new and unique search services

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