How is Walmart using cost leadership and value chain strategy?
Business management literature identifies three generic strategies that a business can use to achieve competitive advantage: focus, differentiation and cost leadership (Porter, 1980). The cost leadership strategy means marketing a company’s products and services as the cheapest. This strategy can be highly successful; however it is very difficult to employ as it requires minimising costs and passing the savings to the customers. Walmart is one of the salient examples of a successful cost leadership strategy. Walmart markets its business as everyday low prices to attract customers (Annual Report, 2015). The idea behind this marketing slogan is to offer products at a cheaper rate than competitors consistently. Walmart achieves its cost advantage by leveraging its large scale purchases to source products at the cheapest rates from domestic and low-wage international markets. Furthermore, Walmart sells its products on very thin margins by taking advantage of its large volumes of sales.
Walmart’s cost leadership strategy is further supported by its value chain strategy. Walmart’s inbound and outbound logistics is one of the history’s greatest supply chain triumphs. Walmart follows three principles for its inbound logistics: use minimum links in supply chain by working directly with manufactures; form strategic partnership with suppliers for long-term perspective and engage in high volume purchases, and use cross docking tactic in managing inventory, i.e. by unloading items from an inbound truck directly into an outbound truck without storing goods in-between (Dudovskiy, 2016). In terms of operations, Walmart runs more than 11000 stores in 27 countries worldwide serving nearly 26 million customer every week (Dudovskiy, 2016). In managing these stores, Walmart runs a complex outbound logistics operations which is supported by its proprietary ORTEC‘s routing and load-building solutions (Dudovskiy, 2016). For marketing and sales, Walmart uses both offline and online sales channels to sell an abundant assortment of products on highly competitive prices.
- Annual Report (2015) Walmart Stores Inc. Dudovskiy, J (2016). Walmart Value Chain Analysis. Research Methodology. Available from http://research-methodology.net/walmart-value-chain-analysis/ (cited on 23rd October, 2016).
- Porter, M (1980). Competitive Strategy. New York. Free Press.