Presented by: Benjamin FiemanMBAM 619 Strategy ManagementProfessor Sunil Mehrotra

WAL*MART Value Chain

WAL*MART’s Value Chain

Suppliers Wal-MartDistributionCenter

Wal-MartStore

Wal-MartShopper

Vendors are Wal-Mart's suppliers. They deliver products to Wal-Mart's distribution center or directly to one of the stores.Wal-Mart is able to bargain for the lowest possible price because of the high volume of sales. Therefore, Wal-Mart passes this savings to its customers.

Once the products are delivered to the distribution center, they are sorted and placed on trucks to be delivered to stores. This allows for less than 48 hour deliveries to stores and increased efficiency on trucks with backhauls.

After products are delivered to the stores, they are placed on the appropriate shelf location for customers to view. Store locations are located throughout the U.S. in rural and urban towns.

Customers can purchase products at very low prices and have the ability to return any item.

WAL*MART’s Value Creating Activities% Sales

COGS Operating Profit75.3% 24.7% Oper. Activities

17.6%

Oper. Income7.2%

Operating Flows Sales $8,451 million - COGS $6,361 million (75.3% of Sales) Gross Profit $2,090 million (24.7% of Sales) - Operating Activities (Value creating activities below) $1,485 million (17.6% of Sales) Operating Income $605 million (7.2% of Sales)

Wal-Mart's Value Creating Activity Value Created Cost % of Sales (1985)Store merchandise in distribution center Buy in volume at attractive prices $25 million 0.3%Centralized purchasing (in store termial + central computer) Inventory control 0.5%Central computers linked to several hundred vendors Expedited deliveries 0.1%Hub- and- spoke distribution network (400+ truck tractors) Less than 48 hour delivery and backhauls 2.0%Inbound logistics Distribution network 1.0%Leasing costs More capital (high sales/sq.ft. & bargain- basement acquisition 1.8%Store manager salary Autonomy in ordering stock and setting up displays 1.0%Store renovations Upscale look 0.1%Licensing fees Specialty departments $55 million 0.2%Computerized system in each store Computerized inventory system to track sales and do accounting 0.5%Satellite system Ease real- time communication to headquarters and cap phone costs ($10 million) $20 million 0.0%UPC at point of sale Speed checkouts, bypass, paperwork, simplify inventory, reorders, postaudits $500,000/store 1.0%Increased store size (42 to 85,000 sq. ft.) and more locations More floor space and increased efficiency of delivery trucks 0.1%Advertising expenditures Newspaper, circulars, and spot TV to advertise promotions 1.1%Terms of sale No questions asked return policy, credit transactions 5.0%Computer aided design Merchandise mix for each store based on 100 factors 0.0%100,000 Employee salaries "We care about our people" reduced shrinkage to 1.3% of sales 10.1%Administrative costs Regional vice- presidents living in Bentonville and flown to stores 1.0%Warehouse club Sam's club diversification $10 million 1.0%

Category of Sales Description % of SalesSoft goods sales Apparel, linen, and fabrics 29%Hard goods sales Hardware, houseware, automotive, small appliances 28%Stationary and candy 11%Sporting goods and toys 10%Heatlh and beauty aids 9%Gifts, records, and electronics 5%Shoes 3%Pharmaceuticals 3%J ewelry 2%

Total 100%