SELLING TO WALMART

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 Walmart!” A hush falls over the meeting. Becoming a Walmart 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 Walmart distribution centres; you currently ship product via UPS ground. Walmart requires severe price concessions from all its suppliers, a practice that has forced many North American manufacturers to outsource production overseas in order to get their production costs low enough to meet Walmart’s pricing mandates. Master Lock, Carolina Mills, Levis, and, a bit closer to home, Huffy Bicycle are a few examples. Your company uses local suppliers for metal, paint, plastics, and packaging, and it 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 Walmart, however, imitators will soon follow, and that would definitely affect your already modest margins. Not to mention that Walmart uses historical price data about a company and its competitors to drive down prices 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 Walmart’s shelves, they have to implement Walmart’s “customized business plans.” Each year, the big retailer hands its suppliers detailed “strategic business planning packets.” Walmart 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, Walmart 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 Walmart’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, housewares, and apparel, 80 to 90 percent of Walmart’s inventory comes from China).

But there are also benefits to selling to Walmart. You have instant access to the world’s largest global retailing network. Doing things the “Walmart way” inevitably leads to more efficient operations. And the volume! You could sell exponentially more kickstands through Walmart than through the small specialty retailers to whom you currently sell. If doing business with Walmart 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 Walmart 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 Walmart is not selling to Walmart.”

Question

As a team, use this exercise to practise one of the group decision-making techniques discussed in the chapter. Work together to decide which technique to use. State the method you used here:

1.   Do you apply to become a Walmart supplier, with all that entails? Why or why not?

Word limit 300-400 words