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Wal-Mart’s Current Behavior

Jim Prevor’s Perishable Pundit, May 22, 2009

We have long covered the changes transforming Wal-Mart.

Recently we’ve run a series of articles discussing the current impact of Wal-Mart on the industry:

Did Wal-Mart Have A Role In Ballantine’s Fall?

Pundit’s Mailbag — Mike Stuart Of FFVA Speaks Out On Ballantine And Buyer/Seller Relations

Another Sea Change At Wal-Mart

Pundit’s Mailbag — Response To Ballantine’s Fall: ‘Just Say No’

Special Buys, Wal-Mart And The Meaning Of Loyalty

Pundit’s Mailbag — Wal-Mart’s Nature

Now one Wal-Mart vendor sees a portent of the future… and a problem for both Wal-Mart and vendors in the Behemoth-of-Bentonville’s current behavior:

Very good stuff about Wal-Mart lately.

Although there are always at least two sides to every story, the story that I see happening is a systematic retracting by Wal-Mart of the tools that the vender co-managing firms use to streamline the process of getting product to the Wal-Mart DCs.

Taking back transportation duties, eliminating DC assignments and instead giving a total “dollar” amount of product and putting an emphasis on regional and global procurement all point to chasing price and wanting to go back to doing it themselves.

Taken together it all points to a Sea Change, as you put it, away from partnerships and toward something that must resemble grocery or maybe the toxic UK ASDA-type relationship with the produce vender community.

They are also putting on an inconsequential minimum of something like 50 cases to their contracts so they can purchase off the open market off contract… and of course when they blow through the max number on the contract, the vender gets no credit (usually below the market) and is threatened with replacement if they can’t come up with the product.

We hear about this kind of conduct from many top-tier vendors of Wal-Mart and it has us bracing for the storm.

What Wal-Mart may or may not understand is they have hundreds of free staff working for them that are well paid and motivated by their vendors.

What I do know is that Wal-Mart doesn’t understand their own replenishment system, and never will unless they bring in produce people and learn to listen and trust their own vendors, not chase the low price with buyers with only a few months of experience.

We appreciate the note. The change in Wal-Mart’s behavior has been inching forward for some time. It was 14 months ago when we did a piece titled Wal-Mart Continues To Change Its Buying Practices, on a presentation by Tom Holbert, Opportunity Buyer at Wal-Mart gave at the Southeast Produce Council, and then we ran a follow-up interview we titled, Ron McCormick of Wal-Mart Elaborates On Its Procurement Reorganization, where Ron, then VP Of Produce at Wal-Mart, unveiled many of the changes whose impact is really being felt now.

Now, in this letter, our correspondent insightfully deduces the logical implication of Wal-Mart’s intention to buy cheaply.

Anything one does to constrain one’s supply chain raises the cost of product. This is why retail chains are loath to restrict procurement to those with particular certifications — even, as our Tesco piece showed — when the certifications are their own proprietary ones.

Now logically, the biggest single restriction on its supply chain is that Wal-Mart depends on vendors for much more than product. The whole notion of vendor-managed replenishment depends on, well, vendors. So you can’t use just any old vendor but rather vendors vetted, trained and experienced in the technology, techniques and philosophy that Wal-Mart wishes to use.

This program derives from what Bruce Peterson was inspired by at Wal-Mart when he started the system. And back then Bruce would have claimed that the thing to look at was not just cost of product, it was a larger number that included everything from costs of maintaining buying staff, to the costs of out of stocks to the cost of having produce that may not delight consumers as much as the best product would.

Now, though surely people at Wal-Mart would say they still care about cost viewed in this larger sense, they no longer seem persuaded that it is worth paying more to attract and sustain the best vendors.

So, the logic follows: “If we do all the replenishment ourselves, then we can just get bids for product at the cheapest price.”

Of course, it is easy to forget how much work the vendors are doing and how hard it is to maintain a seamless supply chain.

If it continues down this pathway, Wal-Mart may yet find out. It is easy to imagine Wal-Mart taking all the replenishmentin-house or hiring a company to handle replenishment with product selected by Wal-Mart buyers. This model would open up more opportunities to buy cheaply.

Yet, if they find that they have made a mistake it will be difficult to go back. This is a cost that it is not clear Wal-Mart’s current executives fully appreciate.

There are thousands and thousands of people who work for produce vendors who believe in Wal-Mart, believe as one might in a religion. They drank the Kool-Aid and have spent years of their lives believing the work they did was not merely profitable but worthy.

Years ago when they would visit Bentonville, they felt like they were visiting the branch of the family that lived in Arkansas. They felt like part of a team.

Now when they visit Bentonville, they get the cold shoulder.

We don’t actually blame the individuals. Much like doctors at cancer institutes are trained not to get close to their patients emotionally because many will die, so “that family feeling” between the staffs of buyers and vendors was only possible when Wal-Mart CEOs believed, as they once did, that Wal-Mart needs its vendors more than the vendors need Wal-Mart.

Once the CEO stopped speaking that way, there were just a few old timers left protecting produce vendors. Now that they are gone, whatever the season, it is chilly for produce vendors when they arrive in Bentonville.

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