What does Walmart do best? Cut costs. So what is Walmart continuing to do? Cut costs even further. By analyzing its supply chain, the retail giant hopes to find savings through tactics such as keeping its trucks full more often instead of allowing them to make return trips with empty trailers.
As it pursues this cost-cutting method, Walmart has realized that in most cases, it can transport goods for less than the supplier can, and simultaneously realize its full-truck goals. By eliminating suppliers from this step in the supply chain, it can negotiate better prices with those suppliers, increase its gross margins, and ultimately pass on the savings to customers in the form of lower prices. In advertising, Walmart touts this cost-cutting plan to lower bills at the register and highlights its “productivity loop.”
The retailer’s 6,500 trucks and 55,000 trailers now pick up goods directly from manufacturers, rather than just traveling back and forth from stores to a distribution center (though they still make these trips, of course). In turn, its travel miles fell by 100 million in the last year—simply by reducing the number of trips and avoiding trucks on the move with empty trailers.
Walmart’s suppliers appear to have mixed emotions about this initiative. Most of them still have to transport their products to other buyers, so they cannot just eliminate their transportation department. Thus, even without the responsibility for shipping products to Walmart, the supplier could face price crunches with other buyers.
1. Why is Walmart taking over the transportation of its suppliers’ goods to its stores?
2. Is it in the best interest of the suppliers to have Walmart handle the transportation costs of the goods they buy?
Chris Burritt, Carol Wolf, and Matthew Boyle, “Wal-Mart Asks Suppliers to Cede Control of Deliveries (Update2),” Bloomberg Businessweek, June 1, 2010.