Wal-Mart

Company Analysis

Overview

When Sam Walton opened the first Wal-Mart Discount City store in 1962, he instilled in

his employees a philosophy composed of four basic beliefs: excellence in the workplace, respect

for the individual, outstanding customer service, and always having the lowest prices. The

company has stayed true to these principles since 1962 and they have lead to an extreme

competitive advantage. Currently, Wal-Mart stands alone as one of the most successful retailers

of all time and has overpowered its competitors with its superior ability to combine value chain

activities. However, sustaining competitive advantage can be a daunting task. Wal-Mart has

been able to attain their competitive advantage through its key value chain activities: inbound

and outbound logistics, advanced technology development, brand reputation with suppliers and

consumers, and will be able to sustain competitive advantage for the future.

Conclusions and Recommendations

In order to sustain its competitive advantage, Wal-Mart needs to continue to focus on its

core competencies. Its success comes from the combination of key value chain activities. The

firm currently uses an integrated strategy focused on a broad target market and this strategy is

supported by the combination of superior logistics, technology development, “every day low

prices,” and brand reputation. These capabilities have distinguished Wal-Mart in the retail

industry and will allow it to sustain its current dominance in the Americas even though its

sustainability has been questioned by industry experts, market analysts, consumers, and

competitors. The next challenge for Wal-Mart to overcome will be transporting its distinct

competencies to its international operations so that it can fuel growth and become a dominant

force on the global stage.

Analysis

External Environmental Conditions: Generally favorable but changing.

• Sociocultural Segment. Shoppers are decreasing the amount of time spent shopping.

Grocery shopping is being viewed as a “need to do” instead of “want to do.” As a result,

consumers now travel fewer isles and ultimately spend less time in the store.

• Technological Segment. The linking of several different systems (ex. wireless

communications) used by retailers has provided a near flawless flow of information and

better resource management. Large retailers now rely on intranets and extranets for

information sharing within the organization and with external entities. Other technological

developments include smart cards and radio frequency data communication.

Internal Value Chain Analysis: Excellent use of value chain activities.

• Inbound Logistics. One of the most important reasons for Wal-Mart’s success has been its

inbound logistics. Wal-Mart pioneered the development of a hub-and-spoke distribution

system. Its central distribution warehouses are strategically located to serve clusters of Wal-

Mart stores which lead to minimized shipping times.

• Operations. Hand-held scanners allow Wal-Mart to monitor its inventory in real-time. This

helps Wal-Mart reduce the potential for stockouts and excess inventory. Other significant

operations that differentiate Wal-Mart from competitors are the use of people greeters and

the ten foot rule.

• Outbound Logistics. Bar scan registers tie into inventory control and ordering which is

another key factor for Wal-Mart’s success in its excellent inventory control systems. Wal-

Mart has continuous contact with its distribution centers, suppliers, and every point of sale in

each store, so that orders can be executed quickly. Wal-Mart also has an extensive
 communications network that connects all stores, warehouses, and suppliers. Effective

shipping processes provide quick delivery from distribution centers to stores and as a result

its efficient plant operations allow Wal-Mart to minimize its costs.

• Marketing and Sales. Wal-Mart’s every day low price (EDLP) strategy and limited

promotional budgets proved unique in the industry. Not considered a “sale,” Wal-Mart

ensures EDLP so consumers know they will find low-priced merchandise. Lower costs from

other value chain activities help make possible the retailer’s EDLP. This, in turn, helps the

company save money because it rarely needs to advertise promotions.

• Human Resource Management. Wal-Mart has a strong vision – it wanted all managers and

workers to have a hands-on approach to their jobs and to be totally committed to Wal-Mart’s

main goal: total customer satisfaction. To motivate employees, a strategic control system

was implemented that gave employees at all levels feedback about their performance as well

as the company’s performance. Its culture pushed decision-making authority down to store

managers, department managers, and individual employees. This culture also is backed by

profit-sharing and stock ownership plans for all employees, including associates. This led to

higher employee productivity, less shrinkage, and lower costs than industry rivals.

• Technology Development. Wal-Mart operates the world's biggest private satellite

communications system, the Wal-Mart Retail Link-System. It helps track sales, replenish

inventory, process payments, and even regulate individual store temperatures in real-time.

Also, it allows Wal-Mart to rapidly replenish stock in its stores and keep the amount of

unproductive space to a minimum. The results are higher sales per square foot and more

rapid inventory turnover. This combination helps increase store sales and drive down

inventory and logistics costs.

 Another advantage Wal-Mart has over competitors is its sophisticated information systems.

It utilizes computer based information systems to track in-store sales and transmit this

information to suppliers. This information is used to determine pricing and stocking

strategies that optimize inventory management. These advanced information systems

provide store managers with detailed information about customer behavior and can help

reduce costs. It also allows Wal-Mart to meet the needs of the customers and quickly respond

to their changing preferences.

Internal Resources and Capabilities: Excellent tangible resources and capabilities.

• Tangible Resources. One of Wal-Mart’s important tangible resources is its excellent capital

resource. In 2002, when the fiscal year sales reached $220 billion, Wal-Mart became the

largest company in the world, and by the end of 2003 had a market valuation of more than

$400 billion. Its plentiful financial assets allow Wal-Mart to utilize some of the most

advanced technology within its supply chain management and in its stores. Other tangible

resources include its satellite communication system, store locations and distribution centers.

• Intangible Resources. Wal-Mart’s most important intangible resource is its brand reputation

with suppliers and customers. It has a very strong brand image in the minds of consumers

because of its EDLP strategy. Employee loyalty is also another important asset because

dedicated employees and enhanced customer service translate into customer loyalty and

increased sales. Wal-Mart builds this loyalty by offering profit-sharing and stock ownership

plans for all employees and by decentralizing decision-making authority.

• Capabilities. Wal-Mart does an excellent job combining value chain activities to create

competency webs. Supplier relations are one of Wal-Mart’s significant capabilities.

Suppliers know that doing business with Wal-Mart can give them a jolt in sales and market
 share. Since it has power over suppliers, Wal-Mart can force them to redesign everything

from their packaging to their computer systems. Another capability that is vital to its success

is its superior inbound logistics.

VRIN Table
Capability Valuable Rare Inimitable Non- Substitutable Conclusion
Superior Inbound Logistics Yes Yes Yes Yes Sustainable comp. adv.
Real-Time Inventory Monitoring Yes Yes No Yes Temporary comp. adv.
Excellent Outbound Logistics Yes Yes Yes Yes Sustainable comp. adv.
Marketing and Sales (EDLP) Yes Yes Yes Yes Sustainable comp. adv.
Human Resource Management Yes Yes No No Temporary comp. adv.
Sophisticated Information Systems Yes Yes No Yes Temporary comp. adv.
Brand Reputation as Low-Cost Leader Yes Yes Yes Yes Sustainable comp. adv.

Summary: Wal-Mart has been able to control its expenses better than its competition. In fact,

it ranked number one in its industry for the lowest ratio of expenses to sales. Therefore, if Wal-

Mart gets a great deal, it’s able to pass it on to the customer. One of the keys to its competitive

advantage is Wal-Mart’s ability to manage its external environment with supplier relationships,

utilization of technology, and broad market appeal. Internally, the company has been successful

in creating value through combining key value chain activities. The combination of state-of-the-

art information systems and the hub-and-spoke distribution system allow Wal-Mart to lower

costs and have the most efficient supply chain in the industry. Wal-Mart also has left its

competition behind by differentiating itself through store placement. By moving into non-

traditional areas, it challenges competitors in industries other than traditional discount retailers.

Conclusion: Wal-Mart’s success is based on a combination of value chain activities. Utilizing

its superior logistics, state-of-the-art technology, “every day low prices” strategy, and well

established brand reputation Wal-Mart sustains its competitive advantage. The next challenge

for Wal-Mart will be to transport its distinct competencies to its international operations so that it

can continue to grow and become a dominant force on the global stage.