Dive Brief:
- In a memo to its suppliers last week, Wal-Mart announced its merchant and supplier teams will be working more closely with suppliers to speed up operations, improve communications, evaluate pricing, and other measures, according to Supermarket News.
- The move is part of an effort by the world’s largest retailer to lower internal costs following slower sales and several large capital expenditures. In the past year, Wal-Mart raised employee compensation, acquired e-retailer Jet.com, and revamped numerous stores.
- Some suppliers, however, report the retailer’s deepening involvement with their operations will only strain relationships between the two sides.
Dive Insight:
When you’re the world’s largest retailer, you call the shots, and suppliers follow suit. That’s been the case over the years as Wal-Mart, in its relentless pursuit of low prices, has asked its suppliers time and again to bring down their prices, tighten up their operations, improve sustainability and more.
Because Wal-Mart accounts for such a large part of their business, manufacturers usually do whatever the retailer asks. This is likely what will happen with this newest initiative, which seems to be an evolution of the company’s ongoing drive toward increased efficiencies. Rather than ask suppliers to adjust their operations and monitor the results, Wal-Mart wants to increase its control of the process by getting its merchants and suppliers inside farms, factories and warehouses to help develop solutions. This could help Wal-Mart achieve further efficiency and uniformity of its supply channels.
It’s easy to imagine power struggles between the retailer's buyers and the suppliers that know their operations so well. No doubt, the retailer will ask for further sacrifices from at least some of its trading partners. But getting buyers more intimately involved might make relationships stronger and more efficient. Wal-Mart’s team knows what the retailer needs, and could help rationalize pricing and make sure any changes are impactful and carried out in line with its expectations.
