Wal-Mart Gets Truckin’
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
"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."
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."
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
According to Mr. Abney, he has already had conversations
with over 100 suppliers and a number have already turned deliveries over to
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.
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?
- Wal-Mart Asks Suppliers to Cede
Control of Deliveries – Bloomberg News/BusinessWeek
- Wal-Mart to control more of its freight – eTrucker
- Walmart Asking Their Suppliers For Shipping & Backhaul Opportunity –
It’s Smart! – Gehrson Lehman Group