For many companies, the opportunity to sell to
Wal-Mart is the equivalent of winning the PowerBall lottery. For other
companies, however, selling to Wal-Mart is perhaps not the best strategy.
Although some companies, like Procter & Gamble, are able to successfully
navigate Wal-Mart’s demands, others find that it causes them tremendous
problems (even to the point of pushing them out of business). Regardless of the
ultimate outcome, making the commitment to sell (or not to sell) through
Wal-Mart is a decision as big as the retailing behemoth itself and one often
made by management teams rather than by a single manager.
Read the case. You should reconsider the facts of
the case and work to answer the questions. Along with answer the questions
below in a paper format, also explain the process you went through to reach
each decision you made. Also, conduct
some baseline information about selling to Wal-Mart. The supplier relation’s
page on the company’s Web site will give you access to a supplier application
(yes, companies must apply to become a Wal-Mart supplier) and the parameters
Wal-Mart establishes for doing business with the company. Research the business
press to uncover some Wal-Mart success stories and failures. All of that
groundwork will make for more fruitful papers and learning material for
you. Remember that a more successful
case solution can be built through the use of background information collected
through outside research. The paper
should be in APA format. No
Because of your company’s success, the
end-of-the-year accounting review is usually an upbeat occasion, and this
December is no different. Your company manufactures an innovative kickstand
that reduces injuries by keeping a child’s bike from falling all the way to the
ground. After the device was written up in a parents’ magazine recently, sales
to specialty bike shops—your primary customers—have started to climb. Despite
the increased demand, you can still make kickstands to order.
At a meeting with
your management team, you remark that although sales are increasing at a slow
but steady rate, the company still has a large amount of excess capacity. A
colleague agrees and then enthusiastically announces, “I know how to take care
of that. Let’s sell to Wal-Mart!” A hush falls over the meeting. Becoming a
Wal-Mart supplier would mean honing your current distribution process into a
finely tuned, perfect delivery operation. The retailing behemoth gives
suppliers a 30-second window to deliver their goods to Wal-Mart distribution
centers; you currently ship product via UPS ground. Wal-Mart requires severe
price concessions from all its suppliers, a practice that has forced many American
manufacturers to outsource production overseas in order to get their production
costs low enough to meet Wal-Mart’s pricing mandates. Master Lock, Carolina
Mills, Levi’s, and, a bit closer to home, Huffy Bicycle are a few examples.
Your company uses local suppliers for metal, paint, plastics, and packaging and
pays its 25 workers above-market wages. Thankfully, at the moment your company
is the only manufacturer of the kickstand, so you have more freedom to set a
competitive price on that item. If you begin selling through Wal-Mart, however,
imitators will soon follow, and that would definitely affect your already
modest margins. Not to mention that Wal-Mart uses historical price data about a
company and its competitors to drive prices down across industries. Suppliers
are rarely if ever granted a price increase; on the contrary, they are asked
for regular price decreases!
In addition, if
vendors want their products on Wal-Mart’s shelves, they have to implement
Wal-Mart’s “customized business plans.” Each year, the big retailer hands its
suppliers detailed “strategic business planning packets.” Wal-Mart grades its
suppliers with weekly, quarterly, and annual report cards. And, when it comes
to discussion of price, there is no real negotiation even for household brands.
Plus, Wal-Mart often requires its suppliers to underwrite the costs of the
retailer’s supply-chain productivity initiatives, like using radio-frequency
identification (RFID) tags on their products for inventory tracking, a system
that can cost between $13 million and $23 million to put in place. Trying to
meet Wal-Mart’s requirements has pushed many small- and medium-sized businesses
into bankruptcy. Businesses that stay afloat have generally done so by
outsourcing to China (in areas like shoes, house wares, and apparel, 80 to 90
percent of Wal-Mart’s inventory comes from China).
But there are also
benefits to selling to Wal-Mart. You have instant access to the world’s largest
global retailing network. Doing things the “Wal-Mart way” inevitably leads to
more efficient operations. And the volume! You could sell exponentially more
kickstands through Wal-Mart than through the small specialty retailers to whom
you currently sell. If doing business with Wal-Mart is so bad, why do Unilever,
P&G, and Dial sell 6, 17, and 28 percent of their goods, respectively, to
the giant retailer? A former president of Huffy Bicycle once said that Wal-Mart
gives you “a chance to compete. If you can’t compete, that’s your problem.” You
agree, to a point. Before you can voice any of the pros and cons, another
manager expertly sums up the dilemma by saying, “The only thing worse than
selling to Wal-Mart is not selling to Wal-Mart.”
Before you begin
this you will probably need to do some preliminary research on Wal-Mart’s business
practices; go to the campus library to find articles on topics like
productivity, inventory management, and even Wal-Mart’s business practices. A
visit to the Wal-Mart stores website (http://www.walmartstores.com) can
give you a wealth of information on how the company manages its suppliers. You
may also wish to visit the PBS show Frontline’s web page “Is Wal-Mart Good for
Sources:C. Fishman, “The Wal-Mart You Don’t Know,” Fast
Company, December 2003, 68–80; M. Boyle, “Wal-Mart Keeps the Change,” Fortune,
10 November 2003, 46; C. Y. Chen, “Wal-Mart Drives a New Tech Boom,” Fortune,
May 2004; “Is Wal-Mart Good for America?,” Frontline, http://www.pbs.org/wgbh/pages/frontline/shows/walmart.
1. Do you apply to become a Wal-Mart supplier,
with all that entails? Why or why not?
2. If you become a Wal-Mart supplier, what key
areas of your operations will need to change and how?
3. What decision-making technique would you use
and how could that choice affect the outcome of your decision.
4. If this was your decision, would you apply to be a supplier? Would it depend on the type of industry you
are in? What research did you find which
would support or deny your opinions?
*FYI: Project #1 ‘Selling to
Wall-Mart’ General Grading Rubric
Organization of the paper (flows,
Explanation of answers (Use of
Outside research (specific
APA, grammar, punctuation
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