On November 2nd, mega retailer Wal-Mart informed over 1000 of its apparel suppliers about its new “Supplier Alliance Program”. Eligible suppliers will be able to get payment on their shipment invoices to Wal-Mart in ten to fifteen days vs. Wal-Mart’s typical 60 to 90 day payment cycle, by having the ability to factor their receivable invoice with a select group of banks including Wells Fargo & Company and Citigroup Inc.
A Wall Street Journal article outlining this program indicated that this move is a obvious response to recent news of the bankruptcy filing of lender CIT, a lender to a large number of small and mid-sized businesses. With such a major credit facilities being eliminated, Wal-Mart executives obviously want to insure a steady flow of supply while insuring that suppliers do not suffer additional financial risk. The WSJ did not qualify that the program was limited to just apparel suppliers. A Wal-Mart spokesperson later clarified both the limited scope as well as denied that the sole purpose was to provide an alternative vehicle for CIT. The Reuters article provides a direct quote from Wal-Mart’s letter. “We are contacting you as part of our effort to proactively minimize the exposure of our supplier base to the financial difficulties of any particular factoring source.”
This move presents a double-edged sword. Wal-Mart is practicing proactive supply risk mitigation by reaching out to its most vulnerable of suppliers with a means for getting paid more quickly. One would question why the program was not extended to other types of smaller suppliers, other than apparel. Perhaps Wal-Mart felt constrained in scope. Retailer chain Kohl’s launched a supply chain finance program in July, offering a 3.5% rate of factoring interest to certain of its supplier base. Factoring of receivables is a common practice for certain cash-strapped smaller suppliers. Getting paid in fifteen days is far more preferable than the reality for getting paid in sixty days, and by offering more favorable interest rates, suppliers stand to gain relief.
On the other hand, such a program, particularly when it originates from such a large buyer as Wal-Mart, can place these suppliers either in a complete dependency on Wal-Mart, or more inclined to provide preferential treatment to any of Wal-Mart’s future needs in product innovation or preferences to product that may be in limited supply. Some Supply Chain Matters readers might respond to that question with a “so what” statement. That’s just the way business is conducted. Others may take the opposite view, namely a business should never practice a complete dependence on a single buyer.
Time and events will provide the final report card to Wal-Mart’s Supplier Alliance Program.
I’m sure Supply Chain Matters readers would value the comments and/or feedback Wal-Mart’s smaller suppliers regarding their reactions to this new initiative. Please utilize the Comments feature directly below this posting.