Walmart Value Chain Analysis

Value chain analysis is an analytical framework that assists in identifying business activities
that can create value and competitive advantage to the business. The figure below illustrates
the essence of value chain analysis.

Walmart Value chain analysis

Primary Activities
Inbound logistics

It has been estimated that more than 50 per cent of Walmart products in the US come from
overseas suppliers[1] and about 75 percent of walmart.com sales come from non-store
inventory [2]. Generally, Walmart inbound logistic practices are based on the following three
principles:

1. Using the minimum amount of links in the supply chain. Starting from 1980s, Walmart began to
ruthlessly eliminate traders in its supply chain opting to work with manufacturers directly. Such a
strategic decision proved to have a positive impact on the bottom line after a few years.
Specifically, “in 1989, Wal-Mart was named Retailer of the Decade, with distribution costs
estimated at a mere 1.7% of its cost of sales – far superior to competitors like Kmart (3.5%) and
Sears (5%)”[3]. The efficiency of Walmart supply chain practices has further improved since in a
consistent manner.

2. Forming strategic partnerships with vendors. Walmart imposes strict conditions on various
aspects of the business when negotiating with potential suppliers. The company also attempts to
purchase for the lowest prices applying its huge bargaining power in order to be able to maintain
cost leadership competitive advantage. However, once a potential vendor is contracted as a supplier,
 Walmart offers a strategic partnership for long-term perspective and engages in high volume
purchases, although for lower prices.

3. Using cross docking as an inventory tactic. Cross docking implies “the direct transfer of products
from inbound or outbound truck trailers without extra storage, by unloading items from an
incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks,
trailers, or rail cars (and vice versa), with no storage in between”.[4]

Operations

Walmart runs operations in a global scale with more than 11,000 stores in 27 countries
serving nearly 260 million customers each week.[5] In general, the range of Walmart’s
business operations includes supercenters, supermarkets, hypermarkets, warehouse clubs,
including Sam’s Clubs, cash & carry, home improvement, specialty electronics, restaurants,
apparel stores, drug stores and convenience stores, as well as digital retail.

Walmart operations are divided into the following three reportable segments:

1. Walmart US. The largest operating segment comprises three primary store formats, as well as
digital retail in all 50 states in the United States (“U.S.”), Washington D.C. and Puerto Rico. About
60 per cent of the total net sales was generated in this segment in 2015.[6]

2. Walmart International. This segment comprises Walmart’s retail, wholesale and other business
operations in 26 countries outside of the US. Approximately, 28 per cent of the total net sales in
2015 was generated by Walmart International. This segment grows primarily via acquisitions of
other businesses.

3. Sam’s Club. Consisting of membership-only warehouse clubs, Sam’s Club operates in 48 states in
the U.S. and in Puerto Rico, as well as digital retail[7]. Membership income as the largest soruce of
revenue of this segment and the segment contributed to about 12 per cent of the total Walmart
revenues in fiscal year of 2015.

Outbound logistics.

Due to the scope and size of its operations as discussed above, Walmart runs complex
outbound logistics operations. In total dedicated Walmart e-commerce websites have been
launched in 11 countries and the average size of 4 new U.S. e-commerce fulfillment centers
opening in FY 16 is equal to 1.2 million square ft. [8] Walmart strives to optimize its
outbound routing and load building operations in a systematic manner in order to increase the
overall effieicny of these operations and achieve cost reduction. For example, optimization of
outbound loads via the implementation of ORTEC‘s routing and load-building solutions in
the US in 2013 has resulted in saving 4 million gallons of diesel fuel by driving 28 million
fewer miles while carrying 65 million more cases.[9].
Marketing and sales.

Walmart marketing strategy attempts to associate the brand image with abundant assortment
of products, highly competitive price and convenient access to stores via carious channels.
The marketing budget of the company equaled to USD2.4 billion for both fiscal 2015 and
fiscal 2014 and USD2.3 billion for the fiscal year of 2013[10].

Walmart utilizes both, online and offline channels in an integrated manner for marketing and
sales with a steady shift towards online channels. This is because the use of online channels
to communicate the marketing message to the target customer segment and facilitate sales is
more cost effective and it contributes to the sustainability of Walmart’s cost leadership
business strategy.

Service. Traditionally, Walmart had a poor reputation in terms of provision of customer

services due to paying low wages to customer service representatives to sustain its cost
leadership competitive advantage. New CEO Doug McMillion has announced his pledge to
improve customer service aspect of the business and up to date this pledge has been
materialized via the announcement of the investment of USD 1 billion in February 2015 in
U.S. hourly associates to provide higher wages and more training for shop floor employees.