Wal-Mart Gets Truckin’

Discussion
May 24, 2010
George Anderson

By George Anderson

Wal-Mart Stores did not get to be the world’s largest retailer
by doing things badly. Among its strengths has been an ability to find ways
to drive costs out of the supply chain. Now, the company has decided that there
are more supply chain savings to be had and all it has to do to make them happen
is keep suppliers from making deliveries to its distribution centers. That’s
right, Wal-Mart has concluded that it can save money by picking up products
directly from its suppliers.

According to a Bloomberg News report last
week, Wal-Mart has contacted all manufacturers that supply its more than
4,000 stores and warehouse clubs to let them know of its plans to take over
the deliveries.

"It has allowed our suppliers to focus on what they do best, manufacturing
products for us," said Kelly Abney, Wal-Mart’s vice president of
corporate transportation. "With lower costs usually comes increased sales."

In
an interview in February with eTrucker, Mr. Abney said roughly 60
percent of Wal-Mart’s non-grocery and 80 percent of grocery freight deliveries
were controlled by manufacturers.

Leon Nicholas, a director at Kantar Retail,
said Wal-Mart believes it will be able to carry more product on a per truck
basis and do a better job of delivering product to distribution centers on
time. He also said the increased activity would give the retailer greater ability
on negotiating the price it pays for fuel.

"They are reaching further back into the supply chain," Mr. Nicholas
told Bloomberg. "It is an effort to ultimately reduce costs of
goods sold, which will ultimately increase their gross margins. They believe
they can ship and transport product more efficiently than the suppliers can."

One
area of concern for some suppliers is that Wal-Mart’s calculation on what can
be saved is greater than their own.

"There may be a disconnect when we walk into the room on what that cost
might be," Mr. Abney told Bloomberg. "But we work collaboratively.
As soon as a supplier shares the data, almost always those differences are
quickly resolved."

According to Mr. Abney, he has already had conversations
with over 100 suppliers and a number have already turned deliveries over to
Wal-Mart.

A potential downside to the Wal-Mart plan (totally depending on your
vantage point) is that manufacturers may lose some economy of scale, forcing
them to pass along higher transportation costs to other retailers.

Randy Huffman,
a former Wal-Mart executive who runs a supplier consulting firm, GBD 360, told Bloomberg, "That
aligns with Wal-Mart’s taking
cost out of the supply chain for their benefit and not their competitors. Suppliers
are going to have to apply that increased freight cost somewhere, so it’s
more than likely it will be passed onto other retailers."

Discussion Question: What do you think will be the effect of Wal-Mart taking
over deliveries from manufacturers? How do you see this
affecting Wal-Mart’s vendor selection process?

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20 Comments on "Wal-Mart Gets Truckin’"


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Dr. Stephen Needel
Guest
10 years 11 months ago

For me, this is a simple equation. If Wal-Mart can reduce their costs by picking up their own products from their large suppliers, and that means I benefit as a shopper, that’s great.

Mr. Huffmann’s comments are relevant only to the extent that suppliers are shipping partial truckloads to Wal-Mart and those trucks can’t go elsewhere full. I would have expected WM’s major suppliers to be shipping full truckloads of product, which would mean no freight increase for other retailers.

Carol Spieckerman
Guest
10 years 11 months ago
Walmart is positioning this as allowing suppliers to focus on what they do best (manufacturing products); however, retailers’ definition of what suppliers do best has shifted dramatically in a relatively short period of time and no two have the same point of view. Not that long ago, it was assumed that suppliers were better at marketing, manufacturing and sourcing; now, retailers are picking and choosing which suppliers will participate and where. In all fairness, though, Walmart is walking the talk internally as well. Last year, when John Fleming, Walmart’s Chief Merchandising Officer outlined Walmart’s phased sustainability index, he and defined the “merchant (buyer) of the future.” Whereas the merchant of the past focused on products and how well they sold, the merchant of the future will be laser focused on “total product lifecycle management.” To me, that means that buyers will have greater accountability to factor in everything from human rights to traceability, transportation and packaging usage when making supplier and product decisions. If executed properly, price will be an outcome of this scrutiny so… Read more »
Alison Chaltas
Guest
Alison Chaltas
10 years 11 months ago

Walmart’s been doing this with many suppliers with great success in reducing Walmart’s costs–the suppliers’ cost to serve Walmart. Both great things. From a supplier standpoint, the watchout is that cost to serve other retailers can go up as transit negotiating leverage goes down. Suppliers that own their own trucks will be particularly challenged to rethink their distribution systems. Overall a smart and bold move by Walmart that other retailers will need to meet or get creative to beat. The winners will be Walmart and third party distribution companies that can fill the efficiency gap with other retailers.

Dick Seesel
Guest
10 years 11 months ago

Backhauling has always been a smart supply-chain strategy, and Walmart is taking it to the next level. It makes sense, with an armada of their own semi-trailers delivering goods from their distribution centers to their stores all over the country, not to allow these trucks to return “empty-handed” to their DCs. It will require a lot of sophisticated logistics planning to deploy trailers to vendors’ warehouses, but if anybody can figure this out, Walmart can. It’s interesting to see that they are currently running a marketing campaign around the cost-saving benefits of good supply chain management…and the direct benefits to the consumer.

Gene Hoffman
Guest
Gene Hoffman
10 years 11 months ago

There are no vultures like greed or desperation. While W-M is a global giant and deservedly doing exceedingly well in most places, sales in the U.S. aren’t increasing as they would wish. For Wal-Mart to accomplish their current goal of taking deliveries away from manufacturers will mean “others” will have to bare part of the tab. So as Wal-Mart gets “truckin'” the playing field continues to slant.

Roger Saunders
Guest
10 years 11 months ago

Smart move to continuously seek ways in which to take costs out of the system. If Walmart doesn’t do it, someone else will. However, working with manufacturers on the distribution transportation leg is a prudent step. Make them part of the solution.

If Walmart takes a ‘Cortez approach–and, burns all the boats’, they will have some other challenges to deal with down the road. The transportation industry has never stayed exactly the same in this country.

Evan Schuman
Guest
Evan Schuman
10 years 11 months ago

Well, SOMEBODY has to bring up the IT implications here. Or at least inventory location awareness. Beyond all of the traditional cost and related issues already discussed, with Wal-Mart employees directly and physically handling merchandise at a much earlier stage–and therefore handling it for a much longer overall period–this has significant potential for it being able to know much more precisely what’s coming and when.

Granted, this is a rather expensive and intrusive way to accomplish this goal so it’s unlikely to be an option for that many chains, but as Wal-Mart IT gets more sophisticated about where products are in its chain, this will make things a lot easier.

Rick Moss
Guest
10 years 11 months ago

One possible ramification, it seems to me, is that this could make it even tougher for smaller suppliers to stay on Wal-Mart’s vendor list. To an even greater extent than in the past, the economies of scale will work to the advantage of the biggest brands. Wal-Mart will not see a cost benefit in picking up trucking for the smaller vendors. So now these companies will be trying to compete at Wal-Mart’s highly efficient cost level. Seems like an impossible challenge for the small guys.

George Anderson
Guest
George Anderson
10 years 11 months ago

In the past, Wal-Mart has said it would share its knowledge and even work with other retailers to reduce waste and improve the environment. If that’s truly the case, shouldn’t it be figuring out how it can do it in this case? According to the Union of Concerned Scientists, large trucks represent about four percent of all vehicles on the road in the U.S. but they use more than 20 percent of the fuel.

David Biernbaum
Guest
10 years 11 months ago

Walmart and other retailers too are pursuing a more aggressive push to pick up merchandise from vendors, and I think this is terrific for cutting out unnecessary costs. However, what concerns me is the usual propensity to also cut out small brands and innovative newer vendors where the quantities don’t justify backhauling or pick up. Consumers want innovation and choices. Often the most attractive specialties and niche products are not necessarily large volume items.

Anne Bieler
Guest
Anne Bieler
10 years 11 months ago

Taking inventory “management” to the next level has been on the horizon for quite awhile. For some suppliers, this will be a small relief, due the types of products, particularly refrigerated and frozen foods, or a huge challenge to maintain shelf life through shipping and handling.

Scheduling pick ups by your customer also requires some finesse, as optimizing staging, loading, etc, requires trust, coordination, and planning to make these operations routine. Glitches, weather, travel delays, etc, create continuing challenges. However, with Walmart’s expertise and commitment, backhauling should lower costs and reduce GHG as fewer trucks with more efficient loading are deployed–definitely an important step forward.

Sandy Miller
Guest
Sandy Miller
10 years 11 months ago

Walmart will benefit from challenging all major (and minor) suppliers to break down their cost of transportation and find ways to both reduce cost and speed to stores.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 11 months ago

As the article states, Wal-Mart expects to cut costs out of the supply chain with this move. At the same time, it will more than likely increase costs for other retailers since manufacturers still need to have trucks on the road making delivers.

Another win for the consumer, short term.

Doug Fleener
Guest
10 years 11 months ago

It is amazing how Walmart continues to find ways to drive costs down. I find David Biernbaum’s comments quite interesting. So yes this could cause niche products to possibly be shut out of Walmart, but it might also make it easier for them to get traction in specialty retailers and even Target.

W. Frank Dell II
Guest
10 years 11 months ago

Wal-Mart has the economy of scale and wide store distribution to support an aggressive backhaul program. The question is why now? Their store base has not changed that much in one or two years. Backhaul became legal in 1980. Some of the things Wal-Mart may find: they will encounter a volume imbalance; require more over-the-road truckers and thus sleeper cabs; and saving less than they think. On the other side, manufacturers have negotiated their shipping rates based on the Wal-Mart volume. All their trucking contracts will reflect this lower volume at contract renewal. Thus, the manufacturers will again have some margin reduction due to Wal-Mart.

Ed Rosenbaum
Guest
10 years 11 months ago
Let’s face the facts here, friends. Walmart is the 800 pound Gorilla in the industry. They want and are trying something new and unheard of in retail and grocery marketplaces. They are the company experimenting with it. You can bet it is going to work. Some of the bumps in the road will be eliminated by their experiences. If it works for Wal Mart and they can pass a savings to the consumer, are we going to say no to that? Not me. I am all for savings. Aren’t you? Do you think Target and others are not looking at it now that the word is out? I give them credit for trying new and innovative experiments. Saving money with trucks returning filled is great. I don’t see some of the downfalls voiced in earlier comments as necessarily a problem. I believe they will be corrected before too much time passes. Walmart does not enter a program with any thought of losing money. If only Sam Walton was able to see the result of what… Read more »
Carlos Arambula
Guest
10 years 11 months ago

I’m sure this will save money, but I fear that unless a system is in place to ensure every retail location can cater to their unique retail trading areas, Walmart sales will suffer. There is a point where the efforts to save money start offering diminishing returns.

What are the long term effects? What is the impact on the customer?

Craig Sundstrom
Guest
10 years 11 months ago

The finance guy in me (yes I really have a job other than blogging) kept screaming “where are the details?!” Details such as what shipping method(s) is(are) being used now, is it in-house or common carrier, and–more to the point–is it a profit center for the manufacturer (i.e. are they tacking on a handling charge)? If it isn’t, then this would seem like the proverbial “win-win.”

Kai Clarke
Guest
10 years 11 months ago

Wal-Mart has always had this option, since they have their own fleet of trucks. However, now it appears that it will take an edict from management to make this a “rule” for everyone to follow. This is critical for Wal-Mart to excel at logistics management.

Ben Ball
Guest
10 years 11 months ago

Back haul is back haul. It has been with us for years.

The only difference is that the manufacturer used to establish the “pick-up allowance.” Now Walmart will.

And that–is a VERY big difference.

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