Group 4 - Value Chain Analysis of Walmart

Value Chain Analysis of Walmart
Submitted by Group 4:
Esha Chaudhary: 016
Aditya Choudhari :
Monil Mehta:
Kinnari Shah:
Slisha Shetty:
Purnendu Pradhan:
Value chain is used to analyse the flow of value adding activities from the raw material supplier to the
end customer. The model looks at what value the company adds to each link and thereby uncovers
the company’s competitiveness.
Profit/Margin = Value chain’s total value (value to the customer) - The total cost of production.
Primary Activities:
1. Inbound logistics- receiving goods, inspection, storage

2. Operations- transforming raw materials
3. Outbound logistics- Order processing, shipping, packaging, everything that deals with the
distribution of finished goods to the buyer
4. Marketing & Sales- distribution channel, prising, promotion, personal selling
5. Service- enhances or preserves value to the customers, repairs, customer training, maintenance,
in person or online, value for customer
Support Activities:
1. Firm Infrastructure
2. Human resource
3. Technology department
4. Procurement

Inbound Logistics:
Walmart inbound logistic practices are based on the following three principles:
1. Using the minimum amount of links in the supply chain. 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.
Walmart’s distribution costs estimated at a mere 1.7% of its cost of sales – far superior to its
competitors.
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. Thus, the
Cost of Goods which was to be sold is low and resulted in savings of 1.1% on discounted
sales price over its competitors.
Operations:
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.
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. Membership income as the
largest source 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:
At the core of Walmart’s inventory management technique is a supply chain practice called cross
docking. The products received from the suppliers are cross docked at the distribution centres and
then forwarded to the stores.
This keeps the inventory and transportation costs low and cuts down on the time needed for
transportation and thus eliminates inefficiencies. In this way, the Walmart stores are immediately
replenished without having to wait for long periods. This has reduced the costs for Walmart and the
benefits can be passed on to the customers.
Additionally, in total dedicated Walmart e-commerce websites have been launched in 11 countries
and the average size of 4 new U.S. e-commerce fulfilment centres.
Marketing & 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.
Walmart utilizes both, online and offline channels in an integrated manner for marketing and sales
with a steady shift towards online channels spends billions on marketing. 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.
Walmart’s slogan is “Save money. Live better”. Its pricing strategy is one of the key elements of its
marketing strategy. The everyday low prices strategy has helped it build a reputation of the best price
retailer. Apart from it, customer service is also a key part of its strategy that helps create a positive
brand image and better reputation.
Walmart also cannibalised its competitors by opening multiple stores in the same locality rather than
giving its competitors a chance. Furthermore, they spent as much time studying the competitors
pricing as much as it did for its own, thereby always maintaining a lower price than competition.
Firm Infrastructure:
It always preferred opening stores at locations where it can be easily expanded thus having the
opportunity to expand at will.
In the mid 80s, about one-third of Walmart stores were located in areas that were not served by any of
its competitors.
Walmart has built a very large infrastructure that includes its management, supply chain, human
resources, its distribution and fulfilment centres and more.
It has kept increasing its investment in technology and people consistently considering their
importance for the faster growth and success of the brand.
Human Resources:
Walmart had its own way of doing things and tried to make life at the company unpredictable,
Interesting and fun.
Walton believed that if you wanted the people in the stores to take care of the customers, you had to
make sure that you were taking care of the people in the store.
The employees of the Walmart were called Associates, which instilled a sense of empowerment and
ownership into the Associates. As mentioned in the case, the most important ingredient for Walmart
success was the way it treated its associates. Walmart took care of its people in the store. Thus, the
management style adopted by Mr. Sam Walton was “Management by walking and flying around” and
“Management by looking over your shoulder.”
Additionally, sharing profits enabled the manages to be more proactive and work diligently.
Technology:
Walmart’s merchandise was tailored to individual markets and in my cases tailored to individual stores
it was possible because of information system with the help of traiting a process which indexed
product movements in stores to over a thousand stores and market traits.
Walmart has the largest information technology infrastructure of any private company in the world,
and it is this state-of-the-art technology and network design that allows Walmart to accurately forecast
demand, track and predict inventory levels, create highly efficient transportation routes, manage
customer relationships, and service response logistics.
The company has also devised Retail Link, a mammoth database. Through a global satellite system,
Retail Link is connected to analysts who forcast supplier demand to the supplier network, which
displays real-time sales data from cash registers and to Walmart’s distribution centers.
Procurement:
To avoid dependency on any one vendor Walmart ensured that not more than 2.3% of the
procurement is done from a single supplier. Economies of scale while procurement ensured lower
prices which were passed on to the consumers.
Walmart has long practiced strategic sourcing to find products at the best price from suppliers who are
in a position to ensure they can meet demand. The company then establishes strategic partnerships
with most of their vendors, offering them the potential for long-term and high volume purchases in
exchange for the lowest possible prices.

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Value Chain Analysis of Walmart

1. Inbound logistics- receiving goods, inspection, storage

2. Forming strategic partnerships with vendors. Walmart imposes strict conditions on

3. Sam’s Club: Consisting of membership-only warehouse clubs, Sam’s Club operates in 48

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