Walmart Escalates War on US Manufacturers

Walmart's business model has long been biased against American manufacturers.  They have forced American companies to compete on Asian producers' terms.  Now they just made it tougher.  It is difficult to see how any American company can - or would even want to try to - sell to them.

Over the years, Walmart has poured billions of dollars into its vaunted logistics system.  They have vast distribution centers loaded with automated equipment and whiz bang technology, employ thousands of people, and own a fleet of trucks.  All of that represents a very big fixed cost that was put in place to handle massive amounts of inventory.  They do not order quantities a single store needs for a short period of time.  They order quantities a region full of stores will need for a long period of time.  They order by the truckload - or lucky for the Asians - by the container load.  They then dump those mountains of product into the distribution system that slices, dices, sorts and otherwise whips it around to where it needs to be.

That works out real well for the Asians.  They don't have to meet anything close to 'just in time' to meet true customer demand.  An American manufacturer who heads down the lean path has always found that their short cycle time, small quantity capabilities are of little value to Walmart.  Since Walmart already has their great big fixed cost in place, they don't want small lot, short interval deliveries - they want big quantity, long lead time deliveries.  After all, that is what their system is designed to handle.

But Walmart has caught the JIT fever.  They now want short lead times from their suppliers - but only from their American suppliers.  P&G, Clorox, Spectrum Brands, Kellogg's and Playtex are a few of the big American manufacturers crazy enough to try to make money selling to Walmart.  They are the ones now under the gun to deliver with short cycle times to the Walmart DC's in the US.  The Asians, who are rapidly approaching half of all of Walmart's purchases, are under no such pressure.  Despite the fact that most of Walmart's stores are in the U.S., and this is where most of the goods Walmart buys in Asia are sold, it is still OK for Walmart's Asian suppliers to deliver to Walmart's great distribution system in China - not in the US.  The month of inventory Walmart carries while the Chinese goods are on the boat and clearing customs, then jockeying around in the US is OK by Walmart.  No penalty there.  It is only American made inventory they don't want.

By laying in such a huge pipeline and a huge fixed expense for it, Walmart has made the incremental cost for buying in Asia, rather than the US, negligible.  American companies have had to compete solely on purchase price with little penalty to the Asians for hauling their stuff halfway around the globe.  Now Walmart demands that the US companies to carry the inventory, as well.

There is no company lean enough to do business with someone who places no value on time or logistics savings - doing all of their buying based solely on the price at the manufacturer's shipping dock.  It is even worse when that customer puts a cost on your inventory, but not on your competitor's.

The companies I mentioned sell great American brands.  Walmart is big - they account for 20 or 30% of some of these outfit's business - but if the Americans can't make money selling to Walmart, staggering volumes won't help.  They ought to tell Walmart to pound salt.  If Walmart wants to tilt the playing field so radically in favor of the Asian suppliers they have come to know and love so well, let them become nothing more than a retailer of Chinese goods.

I bet that, when Crest toothpaste, Clorox, Rayovac batteries and Remington shavers - or any other great American made products - are no longer on the Walmart shelves, replaced with brands no one has heard of from some place no one can find on a map, even Walmart's NASCAR customer base will abandon them.  I know I'm done with them.  I'm too selfish to be much of a 'Buy American' crusader, but I have my limits.  And I won't buy from someone who is blatantly anti-American.

Comments

[John Hunter]

Bring on Tesco USA - http://evop.blogspot.com/2006/02/lean-retailing.html

[Mark Graban]

From today's WSJ:

Wal-Mart is striving to bolster its returns by buying more goods directly from overseas and paring its inventory costs by billions of dollars.

They're going to buy MORE from overseas? Not good for American manufacturers. If Wal-Mart wants to hold LESS inventory (at their massive distribution centers), shouldn't they buy from American manufacturers with shorter lead times? Shorter lead times clearly means less inventory.

Nope, they're too far down the China path.

I have an earlier post on my blog with a link to a good article, "The Man Who Said NO To Wal-Mart", discusses the negative impact Wal-Mart has on American manufacturers