Wal-Mart’s ‘Opportunity Buy’ Policy
Reveals Much About The Company
Jim Prevor’s Perishable Pundit, June 5, 2007
For those who need a review of our latest coverage of Wal-Mart and its changing relationship with vendors, here’s a brief roundup of articles published since March:
We began by addressing the change from DC assignments to dollar-value assignments, plus looked at the growth of “opportunity buys” in our piece Wal-Mart Continues To Change Its Buying Practices.
Ron McCormick, Vice President/Director of Produce and Floral for Wal-Mart, then pointed out Wal-Mart’s reorganization of procurement, including distinguishing between strategic and tactical vendors. We entitled that article Ron McCormick Of Wal-Mart Elaborates On Its Procurement Reorganization.
Wal-Mart’s Changing Treatment Of Suppliers was built around a letter sent from a supply-side member of the industry decrying how vendors on the fruit side of the business felt they were being treated.
We then received many calls from Wal-Mart vendors that differed in specifics, but all seemed to feel things had changed for vendors at Wal-Mart and in a negative way. We named this piece, Calls On Wal-Mart Point To More Vendor Negativity.
Our next piece was called ‘Anyone But Wal-Mart’, and we pointed out the enormous psychic switch in which Wal-Mart, once the preferred customer, has suddenly been the one everyone wants to diversify away from.
Then we asked whether Wal-Mart’s thirst for lower prices on produce is symptomatic of a value-shift. We called this piece, Has Wal-Mart’s Desire To Buy Cheaper Changed Its Values?
Now, as we analyze the bitterness in the vendor community toward Wal-Mart’s evolving procurement policies, we see that it often revolves around so-called “opportunity buys.” Some of this is anger at a change in policy whereby Wal-Mart is no longer using opportunity buys (formerly called Special Buys) as a supplement to contracted weekly volume but as a replacement for contracted weekly volume when markets are weak.
Some of the bitterness is also a sense that there is not an “even playing field” between expectations made of vendors supplying the opportunity-buy product and normal Wal-Mart contracted vendors. One of Wal-Mart’s vendors sent us this note:
Most of the time when Opportunity Buys are offered to Wal-Mart, it is because excess volume is imminently expected, already being harvested, or possibly already on the floor.
Shippers and/or brokers approaching the Opportunity Buy will desire investing as few additional dollars as possible into this excess product thus, at the minimum, the RPC compliance won’t be a part of the picture, let alone who knows what else?
Usually the reason an opportunity buy is offered in the first place is because the shipper realizes his other options are to probably disc or dump the offered product if a CHEAP sale can’t be made.
Not really a win/win situation.
Over the years, Wal-Mart’s insistence on RPCs has brought it many advantages — including better quality produce. After all, most buyers didn’t want RPCs so if you were going to pack in RPCs for Wal-Mart, you surely wanted to make sure the quality was more than high enough to avoid a rejection.
The growth in the use of opportunity buys, however, is basically raising the question of what Wal-Mart really wants. Does it want everything in RPCs? Or does it want shippers to offer the lowest price?
In our opinion, RPCs are the least of it. We raised the question of the mysterious loss of Joan Menke-Schaenzer as head of Wal-Mart’s food safety team. Is Wal-Mart prepared to assert that everyone it does an “opportunity buy” from has been verified by Wal-Mart to function to the same food safety standards as regular contracted vendors? Including suppliers without Wal-Mart vendor numbers whose product Wal-Mart asks contracted vendors to buy and resell for a small brokerage?
One interesting thing about the whole Wal-Mart procurement reorganization is that in encouraging looser, more episodic ties with vendors, Wal-Mart is moving away from the trend to a more integrated supply chain. It is a throwback really to the traditional produce industry in which transactional deals ruled the day.
Wal-Mart and other sophisticated buyers had abandoned that model because they came to believe that the adversarial relationship intrinsic in daily jostling for price did not add value to the supply chain.
This meant that on a range of issues, from RPC to RFID to Food Safety, Wal-Mart executives thought that more value was added by working together in a committed relationship with vendors — the word “partnership” was frequently used — than could be gained by saving a few pennies on price through daily haggling.
Yet buying an opportunity buy and not insisting it be in an RPC is just another way of saying that Wal-Mart executives are changing their minds about what is important.
This has implications for the entire trade.