What's Walmart's supply chain like?

They've often been considered one of the best supply chain operations in the world, and aggressively drive their suppliers to lower prices and increase volume.

One classic anecdote is that leading up to a hurricane, Walmart did some data mining and found that poptarts sold like crazy when hurricane watches were declared. Within hours they had dozens of trucks heading to the Florida coast filled with poptarts and they made a lot of money that way.

Unless you have a fast, flexible logistics system and the analytical smarts to back it up, you can't exploit changing circumstances like that.

Edit. Source of Walmart anecdote is here: http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.h...

Funny how quaint the excerpt on data seems now. "Walmart has 460 tb of data, experts suggest Internet has half that."

Bottled water always runs out when there is an impending disaster.

And after the Brisbane floods, brooms, shovels and gloves were in short supply.

I agree that exploit is the right word here, but probably not for the reason you chose it.

Either opportunistic or exploitive are appropriate -those words are not always negative, to me they also have a descriptive meaning. If they saw a trend and they took steps to fulfill the foreseen demand, it's all good. I'm sure people were happy WalMart had that in stock, rather than think 'this WalMart, they're using this hurricane in an underhanded way to sell me more poptarts'.

There's plenty to dislike about Wal-Mart, but there is absolutely nothing wrong with predicting a sudden shortage of a product in a particular area, and trucking in a bunch.

If they'd doubled the price, that would be another matter, but that's not what they did.

Pop-Tarts are a cheap, readily-accessible, easily-consumed source of calories with a long shelf life that most people will at least tolerate. They're nutritionally incomplete, but they will help keep you alive and functional in the short term.

Most people don't stock up on MREs and survival bars, nor even have a clue where to start. Under such circumstances, it's both expected and reasonable that they reach for a familiar, readily-available energy source.

I remember hearing an anecdote many years ago that when food supplies where being dropped over Afghanistan it was the pop-tarts and peanut-butter that were the most popular.

I just looked into it and I the only information on their popularity I could find was that they are often sold on black-markets. Source: http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_do...

This is anecdotal evidence from them coming to speak at my college, but... Walmart controls almost all of it's logistics. Whereas its competitors use other shipping companies, and have inventory sit in 3rd party warehouses, Walmart builds huge distribution centers that service multiple Walmart stores.

The distribution centers mean they can purchase huge levels of inventory at discounted terms. Running their own logistics means that they can break up pallets into smaller shipments appropriate for each store. So stores need less space to carry inventory, and they can purchase and store huge amounts at lower cost per sq. ft.

The other thing the logistics does is gives them an advantage in transportation cost. Although (I've heard) the margins in ground transport are slim, running your own ground transport saves money, allowing for lower prices to the consumer.

Walmart's size also contributes to their "efficiency". They can buy in larger quantities than their competitors and try to exert downward pressure on suppliers' prices. They can also nab exclusives and put them on the shelves for less than competitors.

To toss some info on the cost-cutting logistics pile, a friend of my dad was a buyer for Wal-Mart for a while.

According to him, Wal-Mart's corporate relocation assistance consists of a Wal-Mart truck and some random employees from a local store packing and stuffing your possessions in a semi.

That's neat, if true. The long-haul truck drive is by far the most expensive part of a cross-country move; movers themselves are very cheap.

Brilliant - I love it. If you're going to compete with a lowest-cost strategy, that's just how far you can take it.

My brother worked logistics for a large company that supplied product to WalMart.

Their distribution centers have timeslots for incoming trucks measured in ten-minute increments. You miss your ten-minute window to park the truck, you're locked out until they can find a space to fit you in.

Also , by doing logistics for manufacturers and not the other way around, they make logistics for other retailers cost more(because of less scale), which increase the price of the competition.

ruthless. they handle so much more volume than any other retailer that suppliers are willing to sign anything just to be a part of it. all losses are passed back to the suppliers, which enables wal-mart to take huge risks.

the sibling comment to mine references a huge volume of pop-tarts being shipped to florida in preparation for a hurricane. if during mid-shipment the weather changed, wal-mart would call up the supplier, cancel the order, and all the trucks would return the pop tarts to their suppliers at no cost to wal-mart. with pop tarts it isn't such a big deal because they don't spoil, but farmers who supply wal-mart will get shipments of spoiled produce returned to them if wal-mart decides they don't need quite as much volume that week. and they just have to deal with it, because they can make more money getting screwed by wal-mart than they can selling to ethical companies.

If they make more money this way why are they getting screwed?

I'm not a Walmart hater, but as I understand, the company requires their suppliers to open their books for the inventory they sell to Walmart. If the company "makes more money", Walmart will squeeze them to lower their wholesale cost, but that won't necessarily be passed to the consumer.

Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing.

This doesn't even get into exclusivity requirements for products, etc.

See Snapper lawn mowers, for some insight to this process.

Make a deal with the devil... and you'll end up at the behest of the devil.

>the company requires their suppliers to open their books for the inventory they sell to Walmart.

They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.

See what? I can't find what you're referring to.

It's referring to the anecdote of Vlasic, a pickle manufacturer, and it's woes of being a supplier to Wal-Mart. Basically, Wal-Mart negotiated hard with Vlasic to provide gallon(!) jars of pickles at at much lower margins than the company was used to.

That nationwide Wal-Mart "every day low price" cannibalized sales of smaller pickle units at other stores and Vlasic saw it's profits on pickles fall 25%.

In unrelated news, Vlasic filed for bankruptcy a few years later.

The entire tale is told in much better narrative by a 2003 Fats Company article: http://www.fastcompany.com/node/47593/print

One story that I think can help explain why many companies are stuck selling to Walmart is this one: http://www.fastcompany.com/node/47593/print

The issue quickly becomes a "damned if you do, damned if you don't" issue. If you supply them, they quickly drive your margins to the point where you have to offshore to stay in business. If you don't supply them, you get cut out of the largest retailer in the US and lose that way. Either way, you are screwed.

As I mentioned earlier, if you replace your ERP system (or upgrade it past a certain dollar point), you have to modify it so that Walmart has direct access to the internals. This means that they're placing (and cancelling) orders directly in your system without intervention (if you aren't careful, this can foul up your staffing). This also means that they know your costs, expenses and margins. You aren't going to have any negotiating power when it comes time for them to lower your prices.

In other words, Wal-Mart requires that you use efficient, modern production techniques and they will help you implement them. But if you don't, they will find a competitor who will. Brilliant.

Generally what happens is that the company wants the volume from Walmart, and thinks it will lead to lots of profit, but Walmart ends up making most of the profit, and the company spends a lot of money and then is overextended and can't even stop selling to Walmart without taking a big loss, since there is no replacement volume out there.

But any company making a deal with Walmart should know this by now, so who is really to blame?

Your comment is fiction. Suppliers love walmart because walmart doesn't play those games with them, and walmart pays immediately, not after 90 or more days.

Do a little research next time.

The only people who really hate walmart are unions. Both consumers and suppliers love them. Small businesses have mixed feeling - yes walmart eats some of their business, but having a store near a walmart is great for them.

You make a post this ignorant and then tell others to do research? Amazing. I worked at Walmart head office for years and I can tell you that vendors deal with Walmart because they have no choice. Walmart is a horrible place to do business with and various vendors quit them because of their behavior (e.g. Snapper).

And it's Walmart who hates unions. Their profit depends on exploiting human labor as much as possible, so they don't like anything that gives workers a fairer shake.

I read from the fingers of a farm owner about Wal-Mart regularly doing things like committing to buy all of a farm's output of some crop, setting a pickup date, then being days late and refusing to pay for what spoiled in the crates waiting for the truck that didn't come.

How can this be "regularly" happening? Wouldn't farmers stop selling to walmart if this happened even once?

And if they "committed" to buying all the output, why weren't there repercussions from breaking that commitment?

It's not like huge customers for your crop are necessarily easy to get. And Walmart did buy all the non-spoiled output; they probably had the contract well-written to let them get away with what they did.

I certainly don't know for sure, but I've seen several documentaries with convincing footage, and read several forum posts, with corroborating replies from a variety of people, that indicate that WalMart does in fact screw over its suppliers, at least sometimes.

Calling the idea of this "fiction" is a bit disingenuous, imho.

The employees never seem happy to me, and as far as customers go, I think most of them see Wal-Mart like the phone company or Facebook--the offering is too good to refuse, but "happy" doesn't really describe the experience.

That's the kicker for me with any store. Walmart employees seem dispirited and miserable. Trader joe, target, whole foods, costco, all seem to have pretty happy employees.

Walmart pays faster, but they are just as aggressive at having their hooks into your financials as Apple and pressuring your margins down.

If you update or replace your ERP system, your contracts with Walmart require you to integrate the new system with Walmart's. If you weren't paying attention upfront, the required changes can quickly make your ERP implementation explode over-budget.

This article from 2003 is still relevant http://www.fastcompany.com/magazine/77/walmart.html

I was thinking the same thing. Aggressive negotiation with suppliers is a feature of monopsonies.

Edit: I've thought about it some more. There are parallels but important differences.

The main one is products. Apple design the products themselves, have a very limited product range, and are more intimately involved in manufacturing than Walmart is.

Walmart has a much more complex supply chain problem. Thousands of products, with a changing mix based on seasons and perishability, taken from far more sources and distributed to far more locations.

For the ones (such as me) who went "mono-what?", a monopsony is the situation where one unique buyer buys from different sellers. It's the opposite of a monopoly, where an unique seller sells to different buyers.

http://en.wikipedia.org/wiki/Monopsony

Thanks for teaching me something Jacques :)

Je t'en prie.