Wal-Mart Vendors Face New Challenges
Jim Prevor’s Perishable Pundit, November 29, 2006
The expansion of Wal-Mart’s global procurement operation to South Africa raises the larger question of what global procurement and other initiatives affecting procurement might imply for the future of Wal-Mart procurement.
In produce, Wal-Mart has worked on a division assignment system. Unlike most supermarkets that bought each day from whatever company they chose to buy from, Wal-Mart assigned each product category at each distribution center to a different vendor.
So one company might provid carrots, another citrus. These vendors are responsible for meeting various metrics 365 days a year. And these vendors take their responsibility seriously… or they are not vendors for long.
From time to time, especially when there are major crop failures or horrible weather, the Pundit gets calls from these vendors as they look, almost with panic in their voices, to make sure Wal-Mart has produce. We’ve helped people find pineapple in French West Africa, green beans from North Africa, citrus from Gaza, eggplant from the French Caribbean, all to meet their obligations to Wal-Mart.
Yet how the global procurement process can mesh with this is uncertain. If a citrus company has a DC assignment, it builds up an infrastructure of procurement personnel, facilities and overhead to meet Wal-Mart’s needs. What happens to all this if Wal-Mart calls and says they have their own buyer overseas and so they won’t need any product from you for the next ten weeks?
The trucks sit idle, the warehouse empty, the buyer staff has nothing to do. One wonders if this won’t add costs to the system rather than reduce them.
There are ways to deal with the subject. Wal-Mart could pay their DC vendors a set amount to handle the imported product through the system, but it won’t be easy to negotiate asset amounts.
And who will Wal-Mart hold responsible if there is a crop failure overseas for keeping its stores supplied?
To the vendors the Pundit has worked with for years, the whole global procurement system is unfathomable, as the vendors thought it was their job to make sure Wal-Mart always had produce from wherever it should be acquired.
To add insult to injury, global procurement isn’t the only change affecting Wal-Mart’s vendors. Wal-Mart recently set up a new system to do “Special Buys” and it has Wal-Mart vendors in an uproar.
We’ve dealt with the issue previously here. Now Wal-Mart has set up four regional buyers for the purpose of doing special buys. Special buys are purchases outside of the DC assignment system. In other words, a vendor has an agreement to provide and be responsible for a product at a fixed price. Then, all the sudden, the vendor is told that another party is going to provide product at a cheaper price.
Once again this means that assets that were dedicated to selling Wal-Mart are now underutilized. It means that the costs associated with unpredictable procurement are getting added back into the system.
Wal-Mart executives think they save money with the Special Buy system. The Pundit is not so sure. Vendors aren’t stupid. They know what costs they will have to carry and if dealing with the inefficiency of special buys is a cost, then the contract price is higher than it would have been had special buys not existed.
Today, with so many food safety concerns, buying from people outside one’s dedicated supply chain might be downright dangerous.
What is certain is that between Global Procurement, Special Buys and Store Level Procurement, the likelihood of vendors taking a “what is good for Wal-Mart is good for me” philosophy is far less than it was. If it loses the passion of its supplier base, Wal-Mart may lose a most valuable asset.