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 WalMart 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. WalMart 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 WalMart 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-theart 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 nontraditional 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.