Walmart began as "Walton's Five and Dime" in Bentonville, Arkansas, operated by Sam Walton. Walton was able to be successful against the market by achieving higher sales volume through competitive pricing. In 1962, the first Wal-Mart Discount City store opened in Rogers, Arkansas. Through careful expansion and effective merchandising, Wal-Mart Stores, Inc. (branded as Walmart since 2008), has become the world's largest public corporation by revenue according to Forbes magazine. While beginning as a discount general merchandise store, it has also become the largest grocery retailer in the United States.
In addition, Walmart is the largest majority private employer in the United States. In the past, Walmart has requested and was granted different concessions from members of its supply chain, such as environmentally friendly packaging, cooperative advertising, and radio frequency identification tags on products. Due to its enormous size and purchasing power, Walmart is able to make burdensome demands on its suppliers. This allows the company to achieve its main customer objective of providing the lowest possible price for its general merchandise and groceries. One of the challenges of this type of strategy is that it may be impossible to obtain because it has no endpoint.
Therefore, Walmart is constantly pressuring suppliers to continually lower their price to the firm. In its latest efforts to reduce its costs, Walmart wants to provide transportation services for its domestic suppliers. Walmart searches for those situations where it believes that it can provide delivery services for less money than the supplier charges. The company intends to use its scale to take advantage of shipping efficiencies that will ultimately lead to lower prices offered to customers. This process will lead to lower margins for the suppliers by eliminating an opportunity to provide services. Since Walmart generally represents a notable part of the suppliers' sales, they may offer little resistance.
For instance, Walmart accounts for over 30 percent of Vlasic's pickle business. It is unlikely that Vlasic will not go along with the new policies. When it comes to handling, moving, and tracking merchandise, Walmart has a reputation that includes continuous improvement in its methods. Walmart has a fleet of 6,500 trucks and 55,000 trailers that would be supplemented with contractors to pick up products from the manufacturer and deliver the items to its regional centers and individual stores. Walmart would receive lower wholesale prices from the manufacturer as compensation for its transportation services.
However, some retailers are complaining that the discount requested by Walmart is more than the cost of transporting goods by the manufacturer. This new arrangement represents another point of tension in its supplier relationships. Walmart is not able to provide transportation services for all of its business partners' products. Therefore, Walmart still has to effectively manage these relationships. Having a relationship with Walmart affords each supplier an opportunity for increased sales and market share growth. Does this potential success come at too high a cost to the supplier?
For many companies, they will have to pass on the additional costs from Walmart to partners in other supply chains in which they participate. Nevertheless, for many suppliers, they believe that they may have no choice in the matter. It has been stated before that "For many suppliers, though, the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart." You Make the Call
1. What is the decision facing Walmart?
2. What factors are important in understanding this decision situation?
3. What are the alternatives?
4. What decision(s) do you recommend?
5. What are some ways to implement your recommendation?