Walmart: Success on an Unimaginable Scale

Walmarts emphasis on sales volume and cost minimization has grown it into a bohemith, Fortune 1 company

There is no better place to see the perfect alignment between business model and operating model than in a Fortune 1 company, Walmart.




Walmart was founded by Sam Walton in 1962 with a business model of keeping prices as low as possible. In order to achieve this, Sam Walton had to create an operating model that allowed him to keep the lowest prices in his stores. By operating on a large scale and by minimizing costs, Sam could have a successful business even if his margins were slimmer than competitors. Because Walmart provided a huge market for suppliers’ goods, Sam could negotiate better deals and offer his customers even lower prices. With such slim margins, Walmart has an incredible competitive advantage difficult for others to replicate.


Modernizing Business Model

walmart sales

After over 50 years of business, Walmart has kept the same business model of “everyday low prices.” It has kept this model in sync with its operational model by concentrating on four key areas: volume of sales, leveraging its bargaining power with suppliers, minimization of overhead and operational costs, and innovation in supply chain management. First for volume, Walmart sells everything and is everywhere. With four different types of stores, discount stores, supercenters, Sam’s Clubs, and neighborhood markets, Walmart can capture a wide customer demographic. It has over 11,500 retail stores and it is estimated that roughly 90% of Americans live within 15 minutes of a Walmart. The sheer volume of its customer base is staggering; each week more than 260 million customers visit Walmart’s retail stores and e-commerce websites. With this breath of a customer base, Walmart is able to churn out sales in 2014 over $482 billion.


Leveraging Bargaining Power and Driving Down Costs

Walmart’s enormous size and purchasing power enables it to drive supplier behavior, driving down costs. Many general merchandise producers rely on Walmart for up to 70% of their sales. Without having Walmart as a partner, these businesses would not be able to operate. This gives Walmart unlimited power in establishing its price and delivery terms.

Walmart is also able to drive down costs by managing its on trucking fleet and by innovating its transportation method. Walmart has adopted a warehouse practice called cross-docking. This method moves inventory directly from an arriving truck to a departing truck. This enables products to be transferred quickly and without need for lengthy and expensive warehouse, storage time. As a result of the lower costs for products and a more efficient inventory management process, Walmart can pass along savings in the form of lower prices to consumers.


Supply Chain Management

Walmart has modernized its supply chain management process and strives to further minimize overhead and operation costs. Walmart was one of the first companies to deal directly with manufacturers, in effect making it the supplier’s responsibility to manage Walmart’s inventory. With this “vendor managed inventory” (VMI), irregularities in the flow of inventory can be smoothed, preventing oversupply and stockouts.

Walmart was also one of the first businesses to invest in technology that used a computer system for inventory control. In this system, information such as in-store point of sale data, warehouse inventory, and real time sales was funneled into centralized databases. This information was shared with suppliers so they knew when to ship more goods. By continuously innovating and harmonizing every step in its supply chain, Walmart can further drive down costs.


Walmart Moving Forward

Walmart e-CommerceThe one area where Walmart remains vulnerable is in the online realm. With less and less people shopping at brick and mortar stores, Walmart needs to revolutionize itself. Customer preference is no longer defined solely by price but also on convenience. Consequently, Walmart must invest in its e-commerce platform to ensure speedy delivery in a convenient, online experience. As Walmart begins to compete with companies like Amazon, it will be interesting to see if it can maintain an alignment between its business and operating models. Walmart will need to modify its existing distribution network and distribution centers to better incorporate online commerce. If Walmart hopes to stay a Fortune 1 company, it needs to either adjust its business and operating models, or it needs to leverage its existing models to bring value to customers in an increasingly digital world.




  4. Hill, Charles W. L., Gareth R. Jones, and Melissa A. Schilling. “Chapter 9: Corporate Level Strategy.” Strategic Management Theory. 11th ed. Stamford: Cengage Learning, 2015. 292.


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Student comments on Walmart: Success on an Unimaginable Scale

  1. Very interesting look at WalMart. I wonder if you saw any indication of a move toward automation within their warehousing processes (i.e. machine movement of inventory from dock-to-dock)? I also understand that WalMart has recently launched a platform that allows consumers to purchase goods online and via a mobile app and then physically pick-up their purchases at the nearest brick-and-mortar store. This purchasing method seems less convenient and potentially more expensive, given time-costs and gas prices, than simply ordering online via Amazon and receiving purchases by mail. Did you see whether the launch of this new model by WalMart has been successful so far?

    1. Thanks for your questions:

      1) there is a significant amount of automation in Walmart warehouses. They have thousands of machines that pick, pack, and sort items. Walmart has also sped up its delivery times by 15% by using a new algorithm to locate and sort items. They are also starting to have workers pick and ship products from within their over 4,000 retail stores. This is more efficient than shipping a product over longer distances if it only used its warehouses.

      2) I have not been able to find any results based on the mobile order and in store pickup. However I do know that almost half of the online orders placed on were completed on mobile devices. I am not sure whether customers picked up their orders in stores though. I do think that this purchase method is incredibly convenient. A lot of times, a certain SKU is only available as an in-store purchase. With the mobile order, a shopper can put a high demand product on hold, so he/she can ensure it is in stock when they arrive. This will save the shopper time once they are in the store.

  2. TommyD – This was a very informative post, so thank you! From a purely operational/TOM perspective, I completely agree that Wal-mart is an example of a successful company that has leveraged its size and numerous capabilities to maximize efficiency. However, I question whether we would discuss Wal-mart in a similar light when taking a step back to examine the company more holistically, such as in LEAD or potentially also LCA. Cutting operational costs has caused huge sacrifices, many of which Wal-mart employees bear. Although Wal-mart is doing extremely well financially and operationally speaking, I cannot help but wonder how employee grievances or disengagement impact company culture and consequently the overall efficiency of the company. I think a very interesting study would be to compare Wal-mart to an equally giant company (let’s call it EGA Co.) who invests more fairly in human resources (including full-time workforce, benefits, worker’s compensation contracts, etc.). My hypothesis would be that EGA Co. would ultimately prove more efficient in the long-term, and I wonder to what degree Wal-mart’s employee practices stifle its own operational efficiency.

    1. Quita!!! I hope you are feeling better. Get all of your sicknesses out now…before you sit next to me next semester 🙂

      I am so happy you posted about this. I wanted to address it in my write-up, but did not have a chance because of the word limit. While there may be some truth to the accusations of Walmart being tough on its workers, I want to try and remain completely objective. In order to do so, I believe it is important to look at it through the lens of what Walmart provides its employees. Walmart employs the third most individuals in the world at 2.1 million people, behind only the U.S. Department of Defense and China’s People’s Liberation Army. Because of Walmart’s frugality, it has been able to provide careers and opportunities for over 1.4 million people in the U.S. alone. Walmart’s prudence, across all areas in its business including labor, has enabled it to achieve success on such a large scale. Without these frugal policies, Walmart probably would not be able to employ as many individuals. This moderation also applies to executives who reportedly fly coach and share hotel rooms with colleagues.

      On the other side of the objectivity lens, Walmart probably has been tough on its employees. However, Walmart has listened to critics and recently adjusted its policies. This past January it raised starting salaries to $9 an hour, and promised to raise it to $10 by this coming February, well above the minimum wage of $7.25. It has also put forth more training programs, employee benefits, and flexibility in scheduling shifts. This $1-billion investment is a huge commitment to its employees. I am surprised there has not been more publicity. Critics have been quick to attack Walmart, but there seems to be no praise when they do right. It will be interesting to see two things in the coming years. First, will worker productivity increase because of the changes? Second, will the Walmart hire rate slow now that labor costs have increased and the productivity of one employee increase (less workers needed for each sale).

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