To help explain the process, Wal-Mart, sent along with the letter a handy Wal-Mart Stores Product Removal Processing Fee Guide:
The following product removal processing fees apply to the withdrawal, removal, or recall of any product from Wal-Mart stores and distribution centers that is the result of quality concerns, labeling errors, possible contamination or threat of illness, packaging errors, regulatory requirements, adulteration, purported infringement or other legal claim or concern, or any other reason that is the result of a supplier-controlled product issue. These fees will not apply if the product removal is the result of Wal-Mart’s improper handling of the item.
$20 minimum per store per item number/UPC withdrawn — Every item (each item number or UPC) removed from sale will be subject to this assessment to offset store labor and associated administrative expenses incurred as a result of the removal. An additional assessment may apply for increased costs in unusual situations.
Item disposal fees — Wal-Mart prefers that all non-hazardous/non-chemical items be returned to the Supplier for proper management or disposal. Any item disposed of at store level would be subject to the following additional minimum charges:
$50 Minimum per store for non-hazardous/non-chemical items disposed of at store level in compactors.
$200 Minimum charge per store for any item that must be disposed of through our hazardous/chemical waste management process. Depending upon the volume and weight of the item(s), this charge may vary and alternative methods of managing proper disposal may be required.
Additional charges for any unusual processing or burdens may be assessed.
Suppliers are responsible for all shipping costs.
Shipments to and consolidations by the Return Center will include a handling fee as provided for in the Supplier Agreement.
Items that are subject to a “Pull and Hold” will not incur any fees unless and until the “Pull and Hold” results in an actual removal of the item.
Additional costs related to any special handling requirement or burdens will be addressed as circumstances warrant. To be clear, the fees as provided in this guide are the minimum fees, and do not limit Wal-Mart’s right to recover any costs (whether at store, DC or Return Center) of a product removal greater than the guideline amounts.
The following are examples of how Wal-Mart will assess Product Removal Processing Fees.
Example 1 — A supplier has three items in 1,100 stores that are removed from sale and returned to the supplier for management and disposal.
Example 2 — Same scenario as first example, except the Supplier opts to have the non-hazardous items disposed of at the stores.
Note that, in any case, the Supplier will be obligated to bear any shipping costs and any Return Center handling fees.
We suppose there is some rationality to the idea of imposing fees on vendors. There are expenses. Presumably the vendor could have prevented them — and, anyway, they might be covered by insurance. Although in the spinach crisis of 2006, there never was an actual recall and the insurance situation was dicey.
Yet we also sense an argument beyond this. Maybe we hear the voice of the Poppa Pundit teaching us that you don’t kick a guy when he is down.
After all, the letter mentions the “partnership” Wal-Mart has with its vendors. A partnership presumes good faith dealing, so Wal-Mart knows that its “partners” did all they could. Nobody is questioning charging the vendors for the cost of product, transportation, dumping costs, etc. Is it really necessary to heap insult upon injury and ask one’s “partner” to compensate for employees in the stores anyway who throw some produce in a box or fill out some paperwork?
It is also notable that Wal-Mart is not going to actually prove before a neutral party that it cost them anything at all — they are just going to take the money from unpaid invoices.
Maybe this is thinking too far out of the box for Wal-Mart or other buyers to contemplate, but here is a theory: We will have better food safety in the industry if buyers suffer when there is a recall.
One of the basic food safety issues for the industry is how to encourage a culture of food safety. When Costco had a recall on carrots, we were a little shocked to find a premier player such as Costco buying from anyone other than the premier name in the business.
It was indicative of an industry-wide cultural problem in which buyers buy to spec but have no incentive to go beyond spec. This can make sense in terms of product quality: If Wal-Mart’s snack bar has a market for a cheap hot dog but the hot dog buyer is offered an all beef, kosher hot dog at a much higher price, it makes no sense to buy it, even if the higher price is a “bargain”.
Yet food safety is more problematic. Because there is no absolute food safety, we can only judge based on procedures. Yet if Vendor A significantly exceeds the retailer’s requirements on food safety, the retail buyer has no incentive to pay more for this product.
In other words, regardless of the CEO and the VP issuing pronouncements about food safety being the top priority — it is never the top priority in any individual procurement transactions.
Imagine the sea change in culture it would cause if instead of issuing the memos we reprinted above, Wal-Mart issued this memo to its own buyers:
Food safety is the Number One priority here at Wal-Mart. There is nothing more important to us than ensuring the health and safety of our customers.
QA has done a great job of pre-qualifying vendors, but as the buyer, you are the closest to the field. We are happy to pay more for product that exceeds our food safety standards.
We view our vendors as partners. As such, though we will continue to charge for actual losses such as product and transportation in the event of a recall, we are going to eat the cost of our own staff time in the event of a recall.
Partly this is because our vendors are our partners, and we are not going to kick a partner when he is down.
Also, though, this is because we want you, as our associate, to realize that we consider food safety a shared responsibility. Sometimes by pushing prices down too far, we can put pressure on vendors not to follow the optimum food safety procedures.
Occasionally we recognize that there is a superior vendor who follows better food safety policies, but we buy somewhere else for price. Sometimes we demand continuity of supply when no available area meets the highest standards.
Once in awhile, we use subterfuge to get around our own systems, so we may require QA to sign off on a vendor, but then we ask a vendor to act as a broker and buy some product for us from someone not fully vetted.
Perhaps we waive our food safety standards to accomplish other goals such as locally grown programs.
In all these cases and more, we are to blame for a food safety outbreak as much as the actual producer of the product.
We hope the knowledge that we are going to charge the fees that we would have charged the vendors to the specific department that has the recall will serve as a powerful reminder of your role in executing Wal-Mart’s responsibilities toward food safety.
A memo like this would change a lot of attitudes toward food safety and the notion of partnering with vendors. Unfortunately, we wouldn’t hold our breath waiting to receive it.
As for Richard from HEB, we really appreciate the letter and certainly invite the industry, as per Richard’s request, to weigh in on the matter.
We’ve done our best to present what others are doing, but we would caution that just doing what others do is the path to mediocrity. Maybe HEB can rise above the short term maximization of profit and set a policy that strives for a true partnership with vendors.