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OM in the News: Wal-Mart Squeezes Its Suppliers (Again)

June 24, 2015
 A Wal-Mart Stores company distribution center in Bentonville

A Wal-Mart Stores company distribution center in Bentonville

Wal-Mart Stores will begin charging fees to almost all vendors for stocking their items in new stores and for warehousing inventory, raising pressure on suppliers as the world’s largest retailer battles higher costs from wage hikes, reports msn.money (June 24, 2015). The company  just started informing suppliers about the fees and other changes to supplier agreements. The changes will affect 10,000 suppliers to its U.S. stores.

The changes are aimed at bringing “consistency to the collection of allowances related to the growth of our business and suppliers’ use of the Wal-Mart supply network,” it said in a letter to suppliers. The new agreements mean a larger number of vendors will likely start paying fees, passing some of the retailer’s costs onto suppliers. For instance, Wal-Mart is seeking to charge a food supplier 10% of the value of inventory shipped to new stores and to new warehouses, both one-time charges, and 1% to hold inventory in existing warehouses. Currently, the supplier is not charged anything.

The move marks a shift by Wal-Mart, which unlike other retailers has sought to limit such fees in return for demanding suppliers give it the lowest price. This approach suggests that it is seeking areas to offset its increased investment in wages. Charges like the new-store and warehouse fees are common in the retail industry, but their broad application across all suppliers is a new step for Wal-Mart. The fees for new stores and for warehousing goods are a way of sharing the costs of growth and keeping prices low, a Wal-Mart spokeswoman said: “The changes we have outlined will help us ensure that we are operating at everyday low costs that yield everyday low prices.”

Classroom discussion questions:

1. Why is Wal-Mart changing its supplier agreements?

2. How does this impact the supply chain?

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