How to beat up on your suppliers - a Walmart masterclass

 

To be fair, all companies on planet look to get the most out of their suppliers in the way of price reductions but we’ve never seen a companies this good at squeezing concessions out of it 'suppliers at scale. 

Whether it’s gouging suppliers with strict guidelines or announcing “modernization” projects that suppliers through price concessions and distribution fees, Walmart are scarily efficient at beating their suppliers like no other retailer on earth. We would argue that the Bentonville based retailer would have really stiff competition from Seattle based e-commerce giant and sworn enemy Amazon if they had to deal with sellers on its platform directly but Amazon finds its own special way to squeeze efficiencies wherever they can find it (more on that another time). 

However, Walmart stands alone in its control over suppliers as it quite simply can externalize costs to its suppliers as suppliers simply cannot afford to avoid doing business with the biggest retailer on earth. For example, Walmart has, like many companies with globalized supply chains, come under pressure in recent years to reduce its carbon footprint and to its credit the company has responded. The company in 2017 announced to plan to reduce a billion metric tons by 2030 which is admirable goal but much of work and costs in achieving this goal will fall on suppliers as Walmart already taxing vendor guidelines will certainly make demands on suppliers to become more sustainable which means even more margin compression. 

Not to worry though as Walmart partnered with HSBC to provide supply chain finance for suppliers to looking to make their operations more sustainable at rates largely determined by Walmart’s internal supplier rating system based on how well suppliers follow “social and environmental standards”.  However, Walmart's high demands on its supplier are not all bad as it has encouraged its suppliers to adopt new technologies as such as IBM’s blockchain to help make its supply chain more transparent which we can all get behind as supply chain transparency, more now than ever, is critical for all players in the value chain from suppliers to consumers. 

However, for every common-sense initiative there’s an underlying assault on suppliers' margins which gets worse as Walmart finds itself in direct competition with Amazon and Alibaba who can rival it for scale and power. It seems counter intuitive to beat your suppliers into submission when there are other players who can compete in reach but Walmart, used to getting its way, persists nonetheless. Despite locking horns with Amazon, Walmart launched its OTIF (on time in full) program which fined suppliers for late and incomplete deliveries which is fair but the program also punishes suppliers who deliver ahead which is egregious to say the least. 

In sum, Walmart has always played hardball with its suppliers and is not alone in extracting concessions from producers as retail is trying business at the best of times but going forward with growing number of alternative and growing number of brands looking to develop their own direct to consumer capabilities, Walmart may have work on pitch to suppliers in the long run.