Walmart Management Accounting Systems

WALMART MANAGEMENT ACCOUNTING SYSTEMS 

INTRODUCTION

USA originated retailing company Walmart was founded by Sam Walton at 1962 in Rogers, Arkansas (Walmart, 2017). Currently, organization employs 2.3 million employees worldwide with close to 12000 stores in 28 countries and serves to more than 200 millions of customers with 55 years of experience (Walmart, 2017). Walmart is known to be the biggest company in the world with annual revenue close to 500 billion USD (Fortune, 2016).

Walmart’s history is full of success, leadership and innovation. All stores have the same working philosophy of providing the lowest prices with highest customer service. Keeping the prices low, allows Walmart to avoid promotions and discounts so that they can keep the sales predictable. With the drive force of the organizational strategies, Walmart growing globally very rapidly. Strategy elements of the organization are the pricing, accessibility, assortment and experience. By this means organization keeps its leadership in terms of employment opportunity, corporate philanthropy and sustainability. They state their mission as, ‘’Saving people money, so they can live better’’ (Walmart, 2014) and their values as, ‘’Service to the customer, respect for the individual, strive for excellence, act with integrity’’ (Walmart, N.D.).

Aim of the report is to deliver a brief glance on the management accounting systems of Walmart. Report will deliver the current management accounting systems that the organization employs, then it will evaluate the success of the existing systems to see if they are meeting with the organizational objectives and finally it will provide the recommendations to improve the existing systems.

MANAGEMENT ACCOUNTING SYSTEMS 

As per Ansari et al (1997), ‘’Management accounting is a system of measuring and providing operational and financial information that guides managerial action, motivates behaviours, supports and creates the cultural values necessary to achieve an organization’s strategic objectives’’. MAS has four elements which are nature, scope, purpose and attributes. Management account is measurement process by nature. Financial information like cost, operation information is included to the scope of MAS. Purpose is to reach the strategic objectives. The attributes are, technical, behavioural, cultural.

MAS for Walmart is crucially important to improve the effectiveness of the activities of their business. The information that is gathered from the accounting are being collected, stored and finalized at their professionally designed accounting information systems. It is simplified to collect the info for the people outside of the organization whenever it is necessary. By the usage of the management accounting systems company determines the purchasing price of the materials, operation and maintenance costs. MAS allows the organization to assess pricing structure efficiency towards demonstrating cost, revenue and sales data. It provides the organization to choose the best price of the item on the market.

Walmart mostly uses the strategic management accounting system that allows enhancing the effectivity of the decision making abilities of the organization. They use MAS in every step such as entering a new market, in product selection moreover pricing processes, promotion strategy and even in distribution strategy. The information gathered by MAS, Walmart manages the control, planning and managerial activities. On the other hand, the managerial accounting information is disseminated through the budget for each of the departments so that every single department can facilitate the integration to the activities within the organization.

Growth of the organization supported by managerial effectivity at the operations and this effectivity is mostly arranged by the manager planning by budgeting. Atrill et al. (2014) define budget as, ‘’a business plan for the short term – typically one year – and is expressed mainly in financial terms. Its role is to convert the strategic plans into actionable blueprints for the immediate future’’. Budget is the plan of the organization to reach the business objectives.

The idea for budgeting system of the Walmart is based on their organizational strategy, to provide a better servicing with better quality to the clients. Flexible budget is implemented to identify the overhead cost driver and to allocate the capital to the overhead cost ideally. So that Walmart can make the budget to different kinds of levels of activities. Plunkett et al. (2012) advocate that, ‘’ All approaches to budget building can utilize flexible budgeting, in which set levels of expense are correlated with specified output levels. The expense levels permit managers to judge whether expenses are acceptable at a given level of output’’. So that the expenses can be managed accordingly. Goals and objectives that set are to define the mission and vision in the budgeting process. While planning the stock requirements they can achieve the forecasted sales levels. With the help of budgeting the performance of the organization can be measured.

Walton (1992) states that, ‘’I tried to operate on a two percent general office expense structure, in other words, two percent of sales should have been enough to carry our buying office. Our general office expense, my salary, Bud's salary and after we started adding district managers or any other officers their salaries too ‘’. Success of Walmart is actually due to the Sam Walton's obsession of cost controlling.

To control the costs Walmart takes a corrective action, to make the flexible budget prepared. All the goals and objectives of each employee are observed through the budget and reporting is continuously made during operations, investments, financial activity based budgeting. Procedures help the organization to keep low pricing and economic use of the resources to make better revenues.

In terms of the costing organization focuses on inventory controlling since as a retailing organization it is the most important to determine the profitability. Determining cost inventory made through several methods. To reduce the inventory cost and also to determine the accuracy LIFO and FIFO are being used. Through the retail method in accounting, inventory kept at low cost or around the market rates. So that the effectivity is increased in the operations and it helps to facilitate the competitive advantage against the rivals. LIFO is used to understand the weighting-average cost of the products in USA and for the international operation inventories FIFO method is used (Walmart Annual Report, 2012). Besides it to allocate the cost of different products activity based costing system (ABC) is being used. This enables the company to understand the cost structure and drivers. Different ways of the costing enhance the effectivity of the organization in cost management. Walmart succeeds their mission ‘’everyday low cost (EDLC) philosophy’’ by using these methods (Walmart Annual Report, 2012).