Walmarts' Operations and Activities Purchasing and Vendor Relationships

The size of Walmart's purchases and its negotiating ability made it both desired and feared by suppliers. As a Walmart vendor, a manufacturer gained unparalleled access to the US retail market. At the same time, Walmart's buying power and costcutting fervor means razorthin margins for most suppliers. Purchasing is centralized. All dealings with US suppliers take place at Walmart's Bentonville headquarters. Wouldbe suppliers were escorted to one of the spartan cubicles on "Vendor Row" where they prepared themselves for an intimidating and grueling encounter: "Expect a steely eye across the table and be prepared to cut your price," counseled one supplier.12 To avoid dependence on individual suppliers, Walmart limited the total purchases it obtained from any one supplier. The result was an 9 asymmetry of bargaining power: Walmart's biggest supplier, Procter & Gamble, accounted for about 3% of Walmart's sales, but this represented 18% of P&G's revenues.

However, Walmart's relationships with its suppliers are anything but arm'slength. Walmart's Standards for Suppliers Manual is a 38page document that covers suppliers' hiring and employment practices, environmental policies, health and safety, provision of canteen facilities for workers, and financial integrity.13 Collaboration involves a constant quest for efficiencies through enhanced cooperation though Walmart receives a disproportionate share of the resulting cost savings. Walmart's arrangements with P&G were a model for these relationships. Electronic data interchange (EDI) began in the early 1990s and within two years there were 70 P&G employees based at Bentonville to manage sales and deliveries to Walmart.14 EDI was extended to almost all Walmart's US vendors. Through Walmart's "Retail Link," suppliers could log onto the Walmart database for realtime storebystore information on sales and inventory for their products. This collaboration allows suppliers and manufacturers within the supply chain to synchronize their demand projections under a collaborative planning, forecasting, and replenishment scheme, resulting in Walmart achieving faster replenishment, lower inventory, and a product mix more closely tuned to local customer needs.

In 2017, Walmart increased its synchronization with suppliers through its "ontime, infull" initiative. From January 2018, suppliers were obliged to deliver full orders within a specified one or twoday window 85% of the time or be fined 3% of the cost of the delayed goods.

What does it say about the power Walmart has over its vendors? What did it mean for the distribution center and warehouse operations? How was this competitive advantage?