Wal-Mart turns to suppliers for price reductions

Dive Brief:

Wal-Mart's recent supplier summit revealed the seller's demand for 15% across-the-board price cuts, Supply Management reported last week.
The cuts are intended to help the big box seller achieve its goal of underpricing rivals such as Germany-based Aldi and U.S. competitor Kroger.
Wal-Mart also seeks logistics improvements from suppliers like Johnson & Johnson, Kraft-Heinz, and Unilever that will aid it in increasing sales by $1 billion through an effort to consistently ship orders on time and in full to reduce delivery costs, re-orders, and out-of-stock complaints.

Dive Insight:

High volume stores like Wal-Mart and Target have the power to require such changes from their suppliers, and often do so in exchange for continued product placement, which adds exponentially to suppliers' bottom line.

For example, in January, Target announced its intent to sell only products without hazardous chemicals. With more than sufficient buying power to influence the suppliers from which it makes its purchases, compliance is entirely likely, despite the extra demand doing so will put on the supply chain. The financial payoff of selling to Target will likely be enough to bring many into line, but unfortunately, seller demand doesn't always reward the supplier.

Such was the case with General Motors supplier Clark-Cutler-McDermott (CCM), which sued the automaker last fall, alleging that continual cost-cutting demands eventually forced it out of business. GM argued that the fault lay entirely with CCM mismanagement, while CCM claimed that the ongoing "price of doing business" with GM was ultimately too high and led to bankruptcy.

Yet, recent actions by Wal-Mart and Amazon show the retail supply chain relies heavily on supplier compliance. If suppliers did not collaborate, would Wal-Mart succeed in its 15% reduction cost? The contracting process is an annual dance between supply chain partners where the burden of cost-reductions is often placed upstream. Supply managers would do well to remember waste exists internally and downstream as well.