Editorial by Bill Bittner, President, BWH Consulting
I had a recent phone call from a regional manufacturer who has seen his transportation costs skyrocket with the Wal-Mart Remix program. Wal-Mart’s stated goal for the remix program is to improve the in-stock position at the stores by increasing the delivery frequency and better aligning the loads with the store selling area. This will reduce the amount of labor units required at store level and improve revenues by reducing out-of-stocks.
The twist here is that, in order to carry products at more DC’s without increasing on-hand inventories, Wal-Mart had to reduce the cycle inventory (often to zero) by reducing the supplier order size and increasing the order frequency. This has driven the cost of implementing the Remix program upstream to the suppliers. Suppliers have to either ship LTL to each Wal-Mart DC or use a consolidator to merge their truckload deliveries with other supplier’s products destined for Wal-Mart.
This reminds me of a great quote: “There is nothing less efficient than doing that which is completely unnecessary as efficiently as possible.” By offloading their cycle inventory to the consolidators and moving the inventory carrying costs from their expense sheet to the manufacturer’s, Wal-Mart has reduced their stocking costs in the store while also transferring the inventory carrying expense to suppliers.
Moderator’s Comment: Is it wise for Wal-Mart and other major chains to force expenses back up the supply chain? Are they forcing efficiencies or just
I am an IT guy, but having been around logistics users for many years, I know the second most important factor, far behind travel distance, is handling
time. It doesn’t make sense to me that putting an additional handling step in a process can reduce the total cost. But an additional step can be used to transfer the “ownership”
of costs. That seems to be what Wal-Mart has done.
In Wal-Mart’s defense, there is one “holistic perspective” of this initiative. If product sales are increased because of fewer out-of-stocks then the additional
revenue for the supplier may justify the cost. This goes back to the old “how much does an out-of-stock cost” question and the impact of substitute purchases on the supplier’s
consumer franchise. –
Bill Bittner – Moderator