LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

WAL-MART'S PUSH TO NEGOTIATE WITH SUPPLIERS - CONTINUING THE POWER PLAY TO CONTROL EVERY SUPPLY CHAIN IT TOUCHES?

Bloomberg Businessweek reported that Wal-Mart wants to consolidate its buying power of raw materials with suppliers. The joint leveraging discussion is with PepsiCo to purchase potatoes at lower prices than either company can do individually. PepsiCo is not participating in the plan. But Wal-Mart realizes that potential impact of such a global cooperative leveraging program.

Add this to the earlier story that Wal-Mart want to control U.S. deliveries from manufacturers. Wal-Mart can take its transport buying power to pay less freight than its suppliers can. And, the additional volume will enhance Wal-Mart's transport buying power.

Wal-Mart is making steps to take control its total supply chain. It is laying the foundation to potentially create a de facto vertical organization with and of its suppliers worldwide. The company is making when with supply chain management and doing what competitors did not and do not do. It is now the largest retailer in the world and is ranked the #1 company in the Fortune Global 500.

What Wal-Mart sees that a supply chain is not a series of links forged together for a common purpose. That is a nice image. However it minimizes the reality of the chain and how each link in that chain must design its own process to function within the chain. As a result, there are supply chains within each supply chain.

Each chain is really a series of buyers and sellers of products and services. That means that each link participant has his own objectives, and sometimes these are conflicting objectives that can work against supply chain effectiveness. Companies buy and sell and participate in the supply chain for their own reasons. This is an important and sometimes overlooked fundamental of developing a working supply chain process, both for the entire chain and for each link in the chain.

A supply chain is extended from ultimate buyer back through his supplier to his supplier's supplier and to his supplier's supplier. The mix of trade partners and participants in a chain reflects differences as to size, capital, costs, technology and efficiencies. Wal-Mart is taking action to control its total supply chain, including that of suppliers.

There are two flows in every extended chain, the product one and the financial one. With the continuing pressure to generate shareholder value, reduce costs, improve profits, reduce inventories and increase service, a key to achieving these results rests with recognizing and melding two flows and processes. They can merge the product supply chain with the financial supply chain for total control from beginning to end of the supply chain process. That compounds the power for Wal-Mart.

The implications are significant for-

The above is not a doomsday forecast. It is a signal to businesses to consider what they would do. Too many firms are looking for the end of the global recession to continue doing business as usual before the recession. That can be a serious mistake. Ignoring the potential of what Wal-Mart can do can be another serious mistake. Firms need to act at both strategic and tactical levels in how they sell and operate. They should spread risks and customer / market vulnerabilities.

Transport and logistics providers need to look beyond how many customers and how much volume, as measured in containers, pallets or whatever, that they handle. They need to identify select market sectors in which they can create and implement strong value propositions. These value propositions mean greater profits and less customer turnover.

Small-medium firms, wholesalers and others should look at how to take their supply chains to a higher level to reduce variability, accelerate inventory velocity and turns and compress cycle time. They also need to rethink how to come together to leverage their combined volumes to achieve sourcing and logistics cost reductions. This means working in global supply chain councils instead of going it alone or participating in traditional trade associations.

Firms have choices. Those who act can win. Those who do nothing are less likely to survive.