Walmart’s Opportunity to Change the Game with Suppliers

LOGISTICS & TRANSPORTATION

by Paul Martyn

 

All the recent talk of Walmart’s renewed emphasis on “working with its suppliers to cut costs” –at essentially the same time it announced wage increases for its employees estimated at $1 billion– is resulting in a wave of new and naive criticism. Of course, pointing out the tradeoff Walmart is making is as old as the hills and therefore, to be expected. It won’t stop the negative chatter, but if it had a choice, it made the right one. Customer service is a hallmark of its brand, and frankly, it was slipping under the weight of its sub-standard “associate” wages. The money was going to have to come from somewhere.

From a supply chain perspective, Walmart’s opportunity is to do what it says it intends to do —to actually work with its suppliers— instead of indiscriminately beating them up. What’s the difference? It’s huge. It’s the difference between desperate threats delivered in supplier meeting rooms decorated with folding chairs, card tables and vending machines selling stale concessions, to investing in the supply chains of their most critical partners —teaching them how to cut their own costs. Companies like Procter and Gamble have been pushing advanced sourcing techniques into their Tier I suppliers for years, so it’s not like Wal-Mart doesn’t have a credible point of reference.
 
Dr. John Nash won a nobel price for his theory of Economic Equilibrium. The underlying “market clearing logic” that was theoretical then, has been put into practice by several of the more advanced tool vendors of today. Whether you call it scenario based analysis, trade-off analysis or contingency planning, the big data analytic capabilities of the most advanced sourcing tools available today not only provide its practitioners a way to explore the solution space in search of the right answers, but they enable a huge step forward in the kind of market interactions Walmart and its suppliers must have to make a meaningful difference.