The Financial Times is reporting that Walmart is now aiming
to cut supply chain costs by moving to a direct purchasing model.
The consolidation of its purchasing operations is a global initiative to cut billions of dollars in costs from its supply chain.
Walmart is suggesting that this move could reduce costs by 5 to 15 percent within five years - or a savings of 4 to 12 billion dollars.
So how will this latest move potentially affect branded manufacturers?
Here are my thoughts:
As a retailer who is already known to squeeze suppliers for every last penny, expect even more pressure. Manufacturers who do not comply with new cost requirements could find themselves out in the cold. This is business-as-usual for Walmart, but the stakes are now much higher.
As Walmart continues to drive costs out of the system and passes the savings on to consumers via lower prices, other retailers will find it increasingly difficult to remain competitive. Regional and local grocery chains (like Basha's Supermarkets in Arizona) are particularly susceptible, as they simply cannot compete with Walmart's purchasing volume.
Grocery chains that cannot complete will be driven out of business, leaving branded manufacturers with fewer retail options. It will become more and more difficult for branded manufacturers to reach the consumer.
Consolidated global purchasing will allow Walmart to purchase private label products at a lower cost. This lower cost, combined with Walmart's pressure on private label manufacturers to rival branded products on quality, will put even more competitive pressure on branded manufacturers.
What are your thoughts on this?
What will the retail landscape look like in 10 years?
How should branded manufacturers respond competitively?
Original Article: Walmart aims to cut supply chain cost
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