Punch line: Walmart is starting to pick-up merchandiser at suppliers docks — rather than have the stuff shipped to WMT distribution centers for subsequent redistribution to stores. Three reasons:
(1) WMT can usually move the stuff cheaper because deals in economical full truck loads and has highly productive logistic processes in place
(2) WMT has the clout to command price reductions that may exceed the suppliers cost cuts
(3) For sure, suppliers will allocate more of their fixed costs to WMT competitors who don’t have the scale, interest or capability to do their own picck-ups
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Excerpted from BBW: Why Wal-Mart Wants to Take the Driver’s Seat, May 27, 2010
Wal-Mart, the world’s largest retailer, has become famous — and at times infamous — for the power it wields over its suppliers … to create environmentally friendly packaging and exclusive product sizes, and to participate in joint advertising promotions.
Now, Wal-Mart wants to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods.
The goal: to handle suppliers’ deliveries in instances where Wal-Mart can do the same job for less, then use those savings to reduce prices in stores.
Wal-Mart believes it has the scale to allow it to ship everything from dog food to lawn chairs more efficiently than the companies that produce the goods.
Manufacturers would compensate Wal-Mart by giving the retailer lower wholesale prices for the goods it transports.
Until now, suppliers made most deliveries to Wal-Mart’s distribution centers. The retailer then used its fleet of 6,500 trucks and 55,000 trailers to ferry goods between the regional centers and individual stores. Under the new program Wal-Mart will pick up products directly from manufacturers’ facilities.
That will allow Wal-Mart to carry more per truck and improve on-time delivery rates … and give it more sway in negotiating fuel prices, thanks to its larger purchasing volume.
The price cuts Wal-Mart is seeking are twice as much as the cost of transporting goods in some cases. In two instances, Wal-Mart asked for a 6 percent reduction in the price it pays for products based on its own cost calculation, while suppliers estimated the actual expense was equal to about 3 percent, the people say.
One side effect of the Wal-Mart plan is that consumer-product manufacturers may face increased transportation costs on deliveries to other retailers as they lose economies of scale on their own delivery fleets.
Suppliers may have to go along with the plan even if their other remaining transport expenses rise because Wal-Mart is so big.
The bottom line: By attempting to take over the transportation from its suppliers, Wal-Mart hopes to achieve efficiencies to cut its own prices.
Full article:
http://www.businessweek.com/magazine/content/10_23/b4181017589330.htm?chan=magazine+channel_news+-+companies+%2B+industries
The Homa Files 
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