End-of-Topic Case: Too Big to Trust? Walmart's Quest for Tough but Fair

Gary Severson, Senior Vice President of Merchandising at Walmart, sat perplexed. He had just agreed to an interview with a writer from the Wall Street Journal. She wanted to discuss Walmart's "alleged" practice of squeezing the lifeblood out of suppliers. He shook his head. He didn't understand how people could twist Walmart's supplier management philosophy of "tough, but fair" in such a pejorative way. Such accusations weren't fair! Every big-box retailer was tough. Why was Walmart always the one that was singled out as abusive?

For just a moment, Gary reflected on better days. Throughout the 1990s, Walmart had reliably grown both its sales and its stock price, becoming a darling of Wall Street. More important to Gary, Walmart had been the champion of everyday consumersthe ones overlooked and underserved by Walmart's rivals. Walmart's EDLP (everyday low price) strategy had lowered the cost of living for people around the world, bringing millions out of poverty. Gary glanced down at a highlighted quote by columnist George F. Will that he kept on his desk:

A McKinsey company study concluded that Wal-Mart accounted for 13 percent of the nation's productivity gains in the second half of the 1990s, which probably made Wal-Mart about as important as the Federal Reserve in holding down inflation. Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps ($28.6 billion) and the earned-income tax credit ($34.6 billion).

As Gary returned to the moment, his eyes riveted on one bullet point on the question list the WSJ reporter had sent him:

Mr. Severson, Walmart's critics say Walmart is too big. They argue that Walmart uses its enormous size to strong arm suppliers in order to drive prices down and rivals out of business. How would you respond to the following witticism circulating among your critics? "There is only one way to go out of business faster than NOT selling to Walmart. What is it? Answer: Selling to Walmart."

Whenever Gary heard such nonsense, he didn't know whether he should sigh deeply or growl furiously. There had to be a way to dispel such ugly criticism.

Buyer-Supplier Relations: The Walmart Way

To prepare for the interview, Gary started to jot down some thoughts. He asked himself two questions:

1. What are my key talking points?

2. Why am I proud of the Walmart way of working with suppliers?

The second question seemed to provide a proactiveand natural approachto meeting the criticism head on. As Gary thought, "This is easy," he began to build a bullet-point list.

1. We Help Our Suppliers Grow. Walmart and its suppliers had grown the business together. As Walmart grows, its suppliers grow with it. More importantly, Walmart invests time and money helping suppliers get up to speed on technology systems and logistics practices.

Gary reached into his desk. Searching through a couple of file folders, Gary found what he was looking for: A file with letters from suppliers. A quote leapt off the page.

Gary, you guys are the only customer we have who's willing to have the collaborative discussion. About a year ago, our production costs were up. We were going to deliver a price advance. You suggested we start a "What if" discussion. The outcome was good for everyone. . . It was a triple wingood for us, good for Walmart, and good for the consumer.

2. We Share Information to Empower Suppliers. Walmart built Retail Link to share key decision-making information with suppliers. Via Retail Link a supplier could tell exactly what is selling anywhere in Walmart's networkon a real-time, store-by-store basis. Nobody else trusted suppliers with this kind of information. In a very real way, Walmart gave suppliers the information they needed to control their own destiny.

3. We Offer Win-Win Pricing. When suppliers lower their price to us, they know that we are going to pass the savings on to customers. We don't squeeze suppliers to fatten our margins. We roll back prices to keep customers coming through the door. If customers have confidence that they are really getting the lowest price every day, they will keep coming back. We really can't afford to give them a reason to check prices anywhere else.

4. We Believe in an Open Door Policy. Walmart buyers don't always get things right. It's easy for a buyer who wields a pen that can sign a multi-hundred-million-dollar contract to get a little carried away. But, if a buyer abuses that market power, we invite suppliers to come and talk to us. Our doors are always open, and we always listen. Our suppliers know this!

As Gary reviewed his bullet points, he mumbled, "I've been in this business almost 25 years. I don't know any other major retailer that invests this much or goes this far to assure positive, proactive relationships with suppliers." After a brief pause, Gary acknowledged vocally, "Yes, we're tough. You have to be if you want to survive in this business. But, we are fair. What do we have to do in today's world of 'gotcha' journalism and reality TV to make 'tough, but fair' work?"

Questions:

1. In what ways does Walmart's quest for excellence make Walmart a desired ally but also a demanding and difficult partner?

2. Assess both sides of Gary's "tough, but fair." Is Walmart's approach really balanced? Why do outside observers focus so much on the "tough" to the exclusion of the "fair"?

3. If you were Gary, what specifically could you/would you do to further safeguard the fair dimensions of "tough, but fair" and earn supplier trust?

I need help with those three questions above please.