Supply Chain Matters has penned quite a few commentaries regarding Wal-Mart’s ongoing relentless quests to trim supply chain costs. Past commentaries have noted that this global retailer’s increased thrusts to save even more supply chain costs are preludes to disintermediation, as Wal-Mart moves its buying influence further down its supply chain. Earlier in the year came the announcement of global based direct purchasing procurement involving clothing, hard goods, fruits and vegetables. In June, there was the announcement that the company would become its own freight forwarder, assuming transportation services of shipments from certain suppliers.
This mega-retailer has yet another program underway, its collaborative sourcing program, a program we predict will have even more far-reaching implications for this retailer’s key suppliers, along with its retail competitors.
A Bloomberg Businessweek story notes that Wal-Mart has been approaching its key suppliers, such as PepsiCo, to secure joint purchasing agreements for select commodities at a lower price than either company can get on its own. In the specific PepsiCo case, the purchase opportunity is potatoes. PepsiCo consumes large quantities of potatoes with its FritoLay snacks division. Wal-Mart hopes to leverage this combined buying buyer to lower inbound supply costs for both its key supplier, as well as itself, in the purchase and distribution of goods at global stores. According to Businessweek, only certain of this retailer’s private brand suppliers have signed-on. Sugar and paper are noted examples.
Manufacturers of branded products have taken a pass thus far, and for very good reasons. Like other global supply chain partners have learned, sharing of data and business practices implies trust among the participants, and that is an area that Wal-Mart’s reputation as a win-lose negotiator precedes itself. Suppliers sharing annual purchase volumes of commodities open themselves to revealing product formula composition. Suppliers who embark on joint purchasing agreements with a key customer the size of a Wal-Mart also risk the backlash of the market, as raw material suppliers or other retailers sense a stronger and far more influential buying presence in the market. In the case of commodities, farmers and producers could risk the ability to negotiate higher prices for their goods, or in times of scarce supplies, preference could be given to those with the strongest buying influence.
Collaborative supplier programs are successfully accomplished with mutual trust and win-win goal fulfillment. With Wal-Mart’s current efforts to move down the retail supply chain, the question remains as to what is defined as win-win.
Bob Ferrari
