Walmart Value Chain Analysis

When it comes to retail, there is no company more synonymous with success than Walmart. The company started as a small mom-and-pop shop in Arkansas, and its growth into a massive global retailer is the stuff of legend. Today, it ranks 1st on the Fortune Global 500 list and is the largest private employer in the United States, with 2.3 million associates globally.

It begs the question: how did Walmart become so successful? Part of the answer undoubtedly lies in its value chain. The Walmart value chain is a model of efficiency and effectiveness, and it’s a big reason for its unrivaled success in retail. Primarily, it kept costs low and passed those savings on to customers through low prices. 

While a value chain analysis works best for companies in production and manufacturing, Walmart’s retail business model also lends itself to this analysis. Any other company looking to replicate Walmart’s success would do well to study its unique value chain. This article will take a deep dive into the Walmart value chain, looking at its primary and support activities and how they create value for the company.

Bottom Line Upfront

Walmart’s value chain encompasses the primary and support activities described by Michael Porter’s Value Chain Framework. Walmart uses these activities to create a cost advantage and pass the savings on to its customers through low prices. By understanding how the Walmart value chain works, other companies can learn from its success and replicate its winning formula.

What Is a Value Chain Analysis?

A value chain is a set of activities a company performs to bring a product or service to market. Michael Porter, a professor at Harvard Business School, first introduced the concept of a value chain in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance (Free Press, 1998). 

In the book, Porter argues that there are two ways to create competitive advantage: cost leadership and differentiation. A company can either be the low-cost producer in its industry or offer a unique product for which consumers are willing to pay a premium. Porter further argues that a company’s competitive advantage comes from the many activities it performs to bring a product or service to market, not by looking at the firm as a whole. 

In other words, it’s not enough for a company to have a great product. It also needs efficient and effective processes to get that product to market and into the hands of consumers. That’s what a value chain analysis is all about. It’s a tool that companies use to identify the ways they create value for their customers and how they can improve those processes. 

Walmart Overview

Sam Walton founded Walmart in 1962 with a simple mission: to offer customers the lowest prices possible. From its early days as a small discount retailer in Arkansas, Walmart expanded rapidly, eventually becoming the largest company in the world by revenue. Today, Walmart operates over 10,500 stores in 24 countries and employs 2.2 million people.

According to Walmart’s FY2021 annual report, the company generated $559.151 billion in revenue and $13.51 billion in net income. It trades on the New York Stock Exchange under the ticker WMT and has a market capitalization of $362.921 billion as of September 16, 2022. The company’s expansive growth and dominance in retail make it an excellent case study for a value chain analysis.

The past 60 years have seen Walmart grow from a small family-owned business to the largest company in the world. Intern activities, guidelines, departments, and subsidiaries changed and expanded as the company evolved. These changes helped Walmart maintain a competitive advantage and continually drive down costs.

The company’s marketing strategies fully outline its business model and the differentiating value propositions it offers to various customer segments. Mainly, Walmart’s goal is to establish cost leadership by eliminating intermediaries, using information technology for competitive advantage, and leveraging its global scale economies. The company uses its ability to cut supply chain links and its bargaining power over suppliers to offer low prices to customers.

Walmart’s philosophy has always been “Everyday Low Prices (EDLP),” which gives customers the feeling that they can always find lower prices at Walmart than anywhere else. To sustain this pricing strategy, Walmart must carefully control its costs throughout the entire value chain. The company’s cost-cutting efforts have been so successful that other retailers have tried to imitate its business model.

Walmart Value Chain Analysis

Porter identified five primary and four support activities that comprise a company’s value chain. Essentially, primary activities are the things a company does to bring its product or service to market. Support activities help the company perform its primary activities more efficiently. 

Applying Porter’s value chain framework to Walmart reveals how the company creates value for its customers and maintains a competitive advantage. 

Walmart’s Primary Activities

Walmart uses these fundamental activities to bring its products and services to market.

1. Inbound logistics

The first primary activity in Walmart’s value chain is inbound logistics. The company’s inbound logistics operations are primarily responsible for receiving and stocking products in Walmart stores.

Walmart has a well-developed infrastructure of distribution centers and cross-docking facilities that allow it to receive and ship products efficiently. The company uses a just-in-time inventory system to minimize the amount of inventory it keeps on hand. This system reduces costs by reducing the need for warehousing space and lowering the risk of obsolescence.

By tracking inventory levels in real-time and using automated reordering, Walmart can keep its shelves stocked with the products customers want. In recent years, Walmart has been working to streamline its inbound logistics operations further using data analytics. The company can forecast demand more accurately and use technology to automate receiving and stocking processes. 

Walmart’s suppliers play a significant role in the company’s inbound logistics operations. The company buys its products in bulk, which allows it to negotiate lower prices. Although using clout to extract lower prices from suppliers might seem like it would hurt supplier relationships, Walmart managed to develop a supplier scorecard system that benefits both Walmart and its suppliers.

2. Operations

Any company in the retail business has to have well-functioning operations to succeed. Operations in manufacturing entities include the process of transforming inputs into outputs. For retailers, the transformation process is different but still crucial to success. The main operations activities in a retail company are the buying and merchandising of products, the running of the store itself, and ensuring product availability. 

Walmart has three operating segments: Walmart U.S., Walmart International, and Sam’s Club. Each segment has its own unique set of operations activities. 

In the United States, Walmart operates 5,335 retail units, including 3,572 Walmart Supercenters, 367 discount stores, 682 Neighborhood Markets, eight convenience stores, 105 small formats, 600 Sam’s Club, and one pickup location. Sam’s clubs are membership-only warehouse clubs similar to Costco.

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Internationally, Walmart operates about 5,165 stores and Sam’s clubs in 24 countries outside the United States. To support such many retail locations, Walmart has a vast network of distribution centers. The company operates 210 distribution centers in the United States. These facilities help keep Walmart’s shelves stocked with merchandise and allow the company to respond quickly to changes in customer demand. 

3. Outbound logistics

Outbound logistics are the activities associated with getting products from the store to the customer. In Walmart’s case, these activities include packing and shipping products for home delivery, transporting products to customers’ vehicles in the parking lot, and running the cash registers and bagging areas in the stores.

Walmart uses a variety of methods to get products to its customers. The company offers home delivery in some areas and partners with UPS for shipping. In other areas, customers can order products online and pick them up at the store. Walmart also offers a subscription-based grocery service called Walmart+.

Walmart’s outbound logistics operations use cross-docking to save time and money. Cross-docking is when the company receiving products from suppliers ships those same products out to customers without having to unload and then reload the products onto different trucks. This process eliminates the need for warehousing space and reduces transportation costs.

Walmart uses this cross-docking tactic to connect with its inbound logistics activities.

4. Marketing and sales

Marketing and sales involve creating and executing a plan to sell products or services. Marketing starts with research to understand customer needs and develop a plan to reach those customers. The sales process begins with creating demand for the product or service and then converting that demand into sales.

The company’s slogan, “Save money. Live better,” highlights Walmart’s focus on offering low prices. Walmart’s commitment to low prices is crucial to its marketing strategy. The company uses a variety of marketing channels to reach its target customers, including television, radio, print, and online advertising.

Walmart’s sales team is responsible for executing the company’s marketing plan and generating sales. The company’s salesforce works with suppliers to ensure that products are available when customers want to buy them. Walmart’s sales team also works with store managers to ensure that displayed items are priced correctly and that products are stocked as needed.

5. Service

Service is the activity of assisting customers before, during, and after a purchase. Service involves helping customers find their needed products, providing product information, and assisting with returns and exchanges. 

Walmart’s customer service policies ensure that the company provides a high level of service to its customers. The company’s customer satisfaction guarantee promises a refund or replacement for any item that is not wholly satisfactory. Walmart also offers a toll-free customer service number and a live chat option on its website to assist customers with questions or problems.

Unfortunately, Walmart doesn’t have the best public appeal regarding service. Its poor reputation is likely due to the company’s focus on low prices over customer service. However, Walmart is working to improve its image by investing in its customer service policies and training its employees to provide better service.

Walmart’s Support Activities

Support activities are the back-end operations that enable a company to function. These activities include infrastructure, information technology, human resources, and procurement.

1. Firm Infrastructure

Firm infrastructure is an organization’s internal support systems, such as its accounting and finance functions, legal department, quality control mechanisms, and marketing research. Firm infrastructure provides the foundation for a company’s operations and helps it to run smoothly.

Walmart’s firm infrastructure is massive. By some estimates, the company has over 2.2 million employees and operates more than 10,500 stores in 24 countries. Walmart’s size and scope require large support staff to keep things running smoothly. The company has a team of accountants to manage its finances, lawyers to handle legal issues, and marketing research analysts to understand customer needs.

Given Walmart’s top-notch infrastructure, it’s no wonder the company can run such a successful business. Moreover, it has the resources to invest in new technologies and initiatives to improve its operations further.

2. Information Technology

Information technology (IT) is the application of computers and telecommunications equipment to store, retrieve, transmit, and manipulate data. Businesses use different types of IT systems to automate various processes. For instance, a company might use an enterprise resource planning (ERP) system to manage its inventory or a customer relationship management (CRM) system to track sales.

Walmart uses IT systems extensively to manage its massive operations. The company has developed its proprietary software, Retail Link, to track inventory and sales data. Walmart also uses RFID tags to track product movement through its supply chain. Moreover, the company’s website and mobile app allow customers to shop online and track their purchases.

IT is a critical part of Walmart’s business model. By using IT systems, the company can run its operations more efficiently and effectively. As technology advances, Walmart will likely invest even more in IT to maintain its competitive advantage.

3. Human Resources

Human resources (HR) are the people who work for a company. HR functions include recruiting, hiring, training, and managing employee benefits. A company’s HR department is responsible for ensuring that the company has the right number of employees with the necessary skills to perform its work.

Walmart has a large HR department responsible for managing the company’s massive workforce. The company employs over 2.2 million people around the world. To address such a large workforce, Walmart uses an extensive employee training program. The company also offers a variety of benefits to its employees, including health insurance, retirement savings plans, and paid vacation.

Unfortunately, Walmart is facing criticism for its HR practices. It’s notorious for its low wages and faces accusations of gender discrimination. However, the company is working to improve its HR policies. For instance, it raised its minimum wage and is investing in training programs to foster a more diverse and inclusive workforce.

4. Procurement

Procurement is the process of acquiring goods or services from external suppliers. A company’s procurement department is responsible for finding suppliers, negotiating contracts, and managing the delivery of goods or services.

Walmart’s procurement department is responsible for sourcing the merchandise sold in its stores. The company has a team of buyers who work with suppliers to negotiate prices and secure inventory. Walmart also uses its massive buying power to get favorable terms from suppliers. For instance, the company might agree to purchase many goods from a supplier in exchange for a lower price.

Walmart’s procurement practices give it a competitive advantage. The company can offer its customers competitive prices by sourcing products at low prices. Moreover, by having a team of experienced buyers, Walmart can ensure that it always has the merchandise it needs in stock.

Walmart Value Chain Analysis (FAQs)

Conclusion

Walmart is a massive company with a complex value chain. The company creates value for its customers by offering them low prices on various products. Given the company’s size and scope, it can achieve economies of scale and pass on the savings to its customers. Additionally, Walmart has a strong logistics network that helps it efficiently deliver goods to its stores. 

Any company looking to emulate Walmart’s success must be able to replicate its low-cost business model and efficient logistics network. By understanding how Walmart creates value for its customers, other companies can learn from its example and develop their strategies for success.

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John Hughes

John Hughes is a seasoned expert in digital marketing strategy, business model analysis, and financial insights. Possessing a robust background in finance, his expertise extends into deciphering complex business models, conducting comprehensive SWOT analyses, and staying attuned to the latest market trends.

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