Strategic Planning Paper free essay sample

Identifying the long-term strategic planning initiative of Walmart will be the focus of this paper. The reader should be able to recognize the strategic initiative within the reading and distinguish how the initiative will have an effect on cost as well as sales. Many times risks are associated with strategic planning. A brief look into the risks associated with Walmart’s long-term planning will also be evaluated. Strategic Initiative Wal-Mart is a leader in providing goods and services at lower costs than competitors. The store started with a cost leadership initiative for running the business, and it has worked for the company for years.Wal-Mart has taken this initiative and maximized the plan where no one can directly compete. Wal-Mart analyzes the market and decides what the company can do to continue to thrive and beat out competitors, beating competitors by an aggressive price point is how the company addresses this. Cost leadership defined by Zanebooks as a strategy that a company uses that provides low costs while concentrating on the cost advantages of all other sources, which requires a balance with cost and quality. Wal-Mart’s success is contributed to no other company able to provide the cost leadership initiative on the same scale.The company uses unrelenting tactics to bring low cost to the costumers. Using cost leadership successfully requires industry originality and is usually too costly for others businesses to copy, allowing Wal-Mart to stand alone without serious competition. A major criticism of Wal-Mart is the squeezing of the suppliers for the lowest cost and the savings passed to the consumer. The company ethics were questioned on how they deal with their suppliers and the employees for the franchise to continue to retain the title of leader in the cost leader initiative.Wal-Mart has created loyal customers just for the one stop shop concept. Those customers are important if Wal-Mart cannot maintain the position it currently holds regarding the company’s cost leadership initiative. Effects of Initiative Walmart has become one of America’s most successful companies due to their cost leadership approach in business, aggressive advertising, and fiscal diligence. Walmart continues to be a success with earnings exceeding 400 billion dollars net profit in 2010.Walmart has financial planning or due diligence to analyze when considering expanding or making any decisions that will affect the company’s future cost or sales. â€Å"The authors state that WMT gained more than 400 billion dollars in annual revenue and has low-cost leadership as it reduces the prices of consumer goods, but not in increasing profitability. They note that WMTs per-share earnings are projected at 7%-8% annual growth and higher payout ratios (Peters ; Hottovy, 2011)†. Walmart continues to use the cost leadership approach allowing their customers access to low prices to live better.The idea is the average to low income American can have access to the goods at the lowest price . Sales at Walmart have increased during this so called recession and the resistance to raise prices on their products by pinching the vendors has empowered Walmart even more. Being a cost leadership company Walmart keeps over head down and one way to cut overhead is to only have part time employees or restrict their benefit options. Walmart also controls cost by having and implementing effective ways of everything from internal communication to keeping inventory stocked at all times.This will allow them long term success and continued growth. Associated Risk The cost leadership initiative approach allows Walmart to leverage scale and reduce cost when purchasing from their suppliers. The cost leadership also enables Walmart to sell to their consumers at a lower cost than their competitors, which in return will build their customers base. Cost leadership also gives Walmart the benefit of leveraging operating expenses and improving productivity at a lower rate than sales growth. Global sourcing strengthens cost leadership strategy which helps to drive down the cost of merchandise so that Walmart can pass savings on to their consumers (Walmart 2010 annual report). Risks associated with cost leadership are changes in interest rate, changes in currency exchange rate, market change and changes in consumers taste. Walmart sources product on a global scale, so if there is a changes in currency exchanges rates the cost of the product will cost more for purchasing, shipping and handling.A change in interest rate can affect the selling price which can result in fewer purchases from consumers. Walmart analyses the potential risk that is associated with the currency exchange rate and the interest rate and use a 10% rate of increase to counteract these market risk. Market change will affect Walmart if the demand for the product is at a slower rate which will make the product remain on the shelves longer and gives a slower return rate. The 10% rate of increase does not a pply to the future possible market change. Change in one of the market risk may result in changes in another, which can affect how Walmart price the product for consumers and it also affect the value of the cost leadership initiatives. By using cost leadership to leverage operating expenses, increasing productivity and sourcing goods globally at low, low cost will maximize returns on capital invested. Walmart execute a tight financial expense control and a strong inventory management along with cost leadership and financial discipline will gives Walmart more profitable returns (Walmart 2010 annual report).In closing, Team C has evaluated Walmart’s annual report to identify relevant strategic planning initiatives as well as to gain a better understanding of how the Walmart organization uses strategic planning to their benefit. We have discovered the extreme efficiency of using such a tool as cost leadership, and how Walmart uses this tool to dominate the competition and strive as the industry leader in providing quality products at discount prices. This combination proves to maximize profits as Walmart continues to effectively utilize global sourcing policies while minimizing the collective risk associated within.