Efficiencies in the supply chain
Wal-Mart puts the squeeze on food costs
Excerpt:
With gas, grain, and dairy prices exploding, you'd think the biggest seller of corn flakes and Cocoa Puffs would be getting hit by rising food costs. But Wal-Mart has temporarily rolled back prices on hundreds of food items by as much as 30% this year. How? By pressuring vendors to take costs out of the supply chain.
"When our grocery suppliers bring price increases, we don't just accept them," says Pamela Kohn, Wal-Mart's general merchandise manager for perishables. To be sure, Wal-Mart (WMT, Fortune 500) isn't the only retailer working to cut fat from the food chain, but as the largest grocer - Wal-Mart's food and consumables revenue is nearly $100 billion - it has a disproportionate amount of leverage. Here's how the retailer is throwing its weight around.
Comment: While many bash Wal-Mart, I'm a fan. Here's how they work for the consumer. Read the entire article.
Read the article carefully. The major "cost" that Wal-Mart is taking out of the supply chain is the profits of its vendors. I don't know that this is exactly a recipe for long term success. If you don't leave a little on the table, nobody says "let's do that again."
ReplyDeleteBut this is positive:
ReplyDeleteEver wonder why that cereal box is only two-thirds full? Foodmakers love big boxes because they serve as billboards on store shelves. Wal-Mart has been working to change that by promising suppliers that their shelf space won't shrink even if their boxes do. As a result, some of its vendors have reengineered their packaging. General Mills' (GIS, Fortune 500) Hamburger Helper is now made with denser pasta shapes, allowing the same amount of food to fit into a 20% smaller box at the same price. The change has saved 890,000 pounds of paper fiber and eliminated 500 trucks from the road, giving General Mills a cushion to absorb some of the rising costs.
I like cheap prices as much as anyone. But I read another article a long time ago that showed that the major strategy of Wal-mart has always been to keep prices low by squeezing profits from their suppliers. It's so necessary for many of their suppliers to keep their product at Wal-mart that they'll do just about anything to meet their demands. But it doesn't help them - only Wal-mart. And as much as we need lower prices, it doesn't help the economy as a whole.
ReplyDeleteFound the article again, much easier than I thought it would be! http://www.fastcompany.com/magazine/77/walmart.html
ReplyDeleteTobin,
ReplyDeleteThank you for your comments and the link. Much to think about there.
Bike Bubba. You too!
God bless
I liked the one on the cereal boxes, too; but given how "squeezing profits" came at the end, I'm (cynical me) going to have to guess that the big savings were in cutting vendor profits--and as much is noted as "smaller boxes allow them to absorb some of the rising costs."
ReplyDeleteAccepting lower profits is a time-honored way of dealing with slow economic times; I just don't know at what point General Mills and others play the role of "this isn't any fun anymore, you're paying our price now."