Wal-Mart Outputs Wal-Mart Produces Hundreds

Wal-Mart Outputs Wal-Mart produces hundreds of outputs. The company is engaged in a cost leadership strategy, so their systems are designed to deliver low costs, high volumes and high market share. In order to do this profitably, they need to maintain margins. The bulk of the company's workers are unskilled so there is little evidence that employee-related outputs are of significant importance. Wal-Mart's key output instead both support and complement one another.

There is little conflict between outputs, since outputs that do not directly support the cost leadership strategy are subordinated in Wal-Mart's organizational culture. Thus, the key outputs of Wal-Mart are all directly related to the strategic goals, resulting in a high degree of congruence. The first key output is the sales volume. Wal-Mart operates a business model based on low margins. This necessitates a focus on high volumes in order to generate sufficient returns. Sales volume is also critical because Wal-Mart is still on a growth trajectory.

The company has been able to maintain high rates of growth despite their large market share. Moreover, Wal-Mart has large international operations in Canada, Mexico, China and other countries. The opportunities for international expansion are strong, placing more emphasis on sales volume growth as a key output. Related to sales volume is same-store sales. This key measure in the retail industry is used to analyze efficiency in existing stores.

Sales volume growth achieved through expansion is a valuable measure, but most retail operations also measure same store sales as a means to determine the success of their existing operations at growing revenues. For a company such as Wal-Mart that emphasizes consistent improvements in efficiency as a source of competitive advantage, same store sale is a key measure. Another key output for Wal-Mart is their margins. Gross margins are a measure of the effectiveness of their purchasing department.

Wal-Mart has always placed significant emphasis on purchasing as a means to drive down costs. Some of these cost reductions are passed along to consumers, so this output is evaluated at Wal-Mart less in terms of their ability to grow expand margins but rather by their ability to maintain them while growing volumes. That said, the ability to extract healthy margins from some products is necessary to finance the deep discounting and loss leading on other products. In addition to gross margins, net margins are also important.

These reflect Wal-Mart's ability to keep overhead low. Reducing costs at all levels of the organization is considered a source of competitive advantage for Wal-Mart, having been instilled as a core part of the corporate culture by Sam Walton. Net margins are thus a key output because they work in concert with gross margins to allow Wal-Mart to pursue its cost leadership strategy. Lastly, inventory turnover is another key output for Wal-Mart. Many of Wal-Mart's strategies have been focused on inventory turnover and inventory reduction.

The company was an aggressive pioneer in cross-docking, resulting in inventory costs as a percentage of cost of goods sold that was significantly lower than that of their competitors. Likewise, Wal-Mart has been a leader is reducing inventory in stores, preferring to maximize floor space for the sales function. Wal-Mart typically outperforms its rivals significantly in the inventory sold per square foot category. The quality of the fit between these outputs is high.

Wal-Mart has always emphasized these outputs more than others, because these are the most important to their business strategy. These five outputs are all highly related to one another, and to the overall cost leadership strategy. For example, improving inventory turnover helps to improve same store sales. The latter is a measure of improved efficiency on a given asset, the other represents one of the means by which that efficiency improvement can be generated. Likewise, improvements in inventory turn and same store sales will contribute to improvements in sales overall.

Inventory turnover also contributes to improvements in the net margin. Inventory costs typically flow to overhead and are measured as a percentage of revenues or a percentage of costs of goods sold. Reducing inventory costs as a percentage of revenues directly improves the net margin, all other variables being equal. The gross margin contributes to the net margin. Improvements at the cost of goods sold level continue to flow down the income statement to the net income calculation. When you combine outputs, the effect becomes further enhanced.

Gross margin improvements, when combined with increases in either sales volume or same store sales, dramatically improve the net margin. This is also true for inventory turnover. As significant as the impacts of all of these outputs can be on the organization, when improvements are made to multiple outputs, the impact is magnified. Furthermore, these outputs all contribute to another crucial output for Wal-Mart, the profits. Profit is the ultimate output for Wal-Mart, and all of their other key measures relate directly to this objective.

Many other outputs at Wal-Mart, for example staff turnover, intergroup collaboration, or even customer satisfaction are less directly correlated with improvements to profits. Thus, they are not considered to be outputs of equivalent importance to those described above. Those inputs have a high level of congruence with one another. They support one another and combine with each other easily to improve the bottom line. In areas where the key outputs do not come together, they complement one another.

While improvements to same store sales will inevitably improve the sales volume, the two measures are considered distinct because they are essentially measuring two very different, complementary outputs. The growth that is based on improvements in same store sales is complemented by the growth attributable to new store growth. Likewise, gross margin makes some contribution to the net margin, but the measures reflect to distinct, complementary components of cost - the cost of goods sold and the overhead.

This complementary relationship is reflected on the balance sheet as such, but Wal-Mart could choose to measure COGS and overhead separately should they so desire. In either case, the outputs are complementary because they combine to yield one definitive output. Yet, because of the strong emphasis on the cost leadership strategy, both are equally relevant to Wal-Mart's strategic objectives. Wal-Mart has done an exemplary job of building output congruence. Many of their other outputs are considered of lesser importance to the ones described above.

For example, it is not that Wal-Mart is entirely unconcerned with employee job satisfaction, it is simply that the company is less concerned with that than they are with improving inventory turnover or margins. Indeed, where possible Wal-Mart does seek to improve job satisfaction. At times, there are conflicts that arise. Sam Walton once remarked that there were "too many millionaires" at Wal-Mart, a reference to a managerial culture that he felt was not congruent with the company's low-cost strategy.

Walton himself had stayed at budget motels and walked to meetings in order to reduce costs, but the need for Wal-Mart to deliver job satisfaction at the executive level in order to attract and retain.