A not so happy new year for Wal-Mart suppliers?

By: Dean Best - 4 January 2010 17:29

Despite raking in annual sales of more than US$400bn, US retail giant Wal-Mart is never one to rest on its laurels and is already mulling plans to make huge cost savings in 2010 by targeting it suppliers.

The firm plans to combine its store purchasing across the US in a bid to cut billions of dollars of costs from its supply chain.

The plans, originally announced at an analysts' conference in October, are part of a wider plan to increase the proportion of goods it buys directly from manufacturers, rather than through third-party procurement companies or suppliers, the Financial Times reported yesterday (3 January).

Eduardo Castro-Wright, the head of Wal-Mart’s US stores, told analysts that the retailer sees the opportunity to consolidate global sourcing as “a major source of leverage for the company in years to come”, estimating cost reductions of around 5-15% across the supply chain within five years. That’s a potential saving of around US$4bn-$12bn.

The firm said it will also shift to direct purchasing of its fresh fruit and vegetables on a global basis, rather than working through supplier companies. This is expected to be rolled out across stores in the US, Canada and Mexico.

Wal-Mart says it expects to expand the programme through other categories, including seafood, frozen food and dry packaged groceries, although a spokesman for the retail giant refused to comment further on any of the plans.

Even the biggest companies are constantly looking at how to improve their business - and these changes could have a huge impact on hundreds of small suppliers.

Michelle Russell, reporter.

Comments on this blog post

Does this surprise anyone? Walmart is obsessed with driving costs out of the business, and it is a double-edged sword. The consumer gains thru lower prices, but other parties lose something in the process. The lesson here may be that we all should be trying to charge all of our customers less rather than more. That being said, smart retailers can still benefit from this by partnering with local suppliers and avoiding the revitalised trend toward " global sourcing" which this action by Walmart will inevitably initiate.

Tony Schiano, United States