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Some context may be needed. Walmart is known in MBA circles for being one of the first companies to have used detailed data on products to negotiate new terms w

Some context may be needed. Walmart is known in MBA circles for being one of the first companies to have used detailed data on products to negotiate new terms with suppliers ( usually to suppliers detriment ). Information asymmetry with main goal to increase a chance for an increased leverage is what it is all about.

avmich 3y ago
I wonder if the supplier can similarly have the detailed data on the customer and how that helps in negotiating both ways.
- steveBK123 3y ago
  It's asymmetrical for the most part on a lot of stuff Was listening to Bloomberg the other day and they were talking about how Walmart is the biggest grocer in US. They have pricing power because for example they constitute something over 5% of all Heinz sales. Similar for paper products from one of the big companies like Procter & Gamble. The inverse is not true, as you are unlikely to find any vendor who Walmart makes 5%+ of all their sales dollars off of. So Walmart can generally turn to any of these vendors and say - we will evaporate 5% of your sales overnight if you don't give into demand, and send all our orders to some competitor.
  - carlosjobim 3y ago
    I've never understood this. If you're not making enough profit - or even loosing money - selling to a large client, you are better off without them. Profit should come before everything else, including growth.
    - collaborative 3y ago
      Then you wouldn't exist. Even the smallest business goes through years of losses before it (hopefully) reaches profitability. Pay to sell is the only way nearly 100% of incumbents have to simply exist. If they don't do it, someone else will Traditionally, businesses build a reputation and customers learn where to find them (a physical location). They then become and stay profitable. Anyone depending on a monopolist for its pay-to-sell strategy won't usually reach profitability. The monopolist might be as small as a greedy feudal lord in the middle ages. Today we have Apple/Google etc
      - A4ET8a8uTh0 3y ago
        There is a real difference between starting a business and running it at a loss before reaching profitability and consciously entering a contract, where you know you are producing at a loss ( and your contract partner benefits ) that only furthers your profitability gap. If this is the opening bid, it is highly unlikely it will get better. If anything, it will only get worse. You don't make it up in volume when you sell at a loss already. << If they don't do it, someone else will That is the interesting part. The pressure is so high that people are willing to forego their own self-interest and basic critical thinking skills, because someone will do it at or below cost anyway. It is great for Walmart, but it would explain why so many businesses fail so hard. They are way too nice to the other party.
    - frozenport 3y ago
      Not enough profit is different from loosing money. Here the vendors are simply making less money because their product is part of a highly competitive marketplace.
      - carlosjobim 3y ago
        Not enough profit is the main reason to shut down a business, unless you have a good and realistic plan on how to reverse that. All that effort and all that risk can be put into more lucrative ventures.
    - frozenport 3y ago
      Not enough profit is different from loosing money. Here the vendors are simply making less money because their product is part of a highly competitive marketplace. Furthermore, their position is weakened because they are poorly differentiated from their competition.
mbesto 3y ago
Ok, so what do people expect the alternative route is? It's a known strategy, that works, and increases profit if implemented correctly.
- thatguy0900 3y ago
  The alternative route people would prefer is for people in charge of these companies to act ethically and not try to squeeze everyone around them for every cent of profit possible. Especially if you're already one of the richest companies to ever exist. That's not very realistic, though, since sociopathy is essentially taught in business schools now.
  - phone8675309 3y ago
    If you work full time at federal minimum wage then you qualify for food stamps and other government assistance. Walmart took it a step further - they have information for their employees on how to do that efficiently, rather than paying a living wage.
  - HollywoodZro 3y ago
    > people in charge of these companies to act ethically and not try to squeeze everyone around them for every cent of profit possible That's our stock market though. If Walmart isn't squeezing on costs, then it needs to make that up in gross revenue otherwise the stock will suffer. Is it possible to be "ethical" in how you define it, when the financial market performance of the company is largely dependent on this?
  - smabie 3y ago
    Everyone is trying to squeeze everyone else, including you. This isn't about sociopathy, this is just the human condition.
    - thatguy0900 3y ago
      And yet somehow, not too long ago before the sociopaths were allowed to squeeze people, it was possible to buy a house and have a family on one income and your local grocery store could make that happen for it's employees. Now Walmart will literally openly admit full time employees cannot make enough to survive and teach their own full time employees how to beg the government for enough resources to live.
fatbird 3y ago
This is part of it, but a bigger part is simply that Walmart approached suppliers with a proposed volume that would require the company to rebuild themselves as an operation in order to meet that demand and the required service levels, at the price Walmart was willing to pay. If they succeeded (many didn't, ending in bankruptcy), the supplier was now trapped: no one could offer Walmart levels of volume, which the supplier now had to operate at to make a profit. Walmart could come back next year and demand lower prices. They famously joked amongst themselves that their goal was to drive out all profit for their suppliers. Vlassic Pickles is the classic example of a company that took the offer, rebuilt themselves, and became massively larger than they were before. I worked at a manufacturer for several years in IT. Walmart was a customer, but only in a limited way (i.e., without requiring huge volumes and service levels[0]). Our main competitor, Rubbermaid, was a tier 1 supplier. When Rubbermaid's main factory in the segment burned down, Rubbermaid withdrew from Walmart as a supplier, citing low profit margins. We got the call to come to Bentonville, where they offered us the chance to replace Rubbermaid, which would mean a fundamental restructuring of our entire operation to service them. We (wisely) declined. [0] An example of the service level required: Walmart would send an order by EDI that would include a two hour window for delivery, 24 hours out, for a store. That meant you had to have inventory and drivers within a certain distance from every Walmart location so that you could immediately pick the order, get it on a truck, and arrive at the store within that two hour window.
- ska 3y ago
  I remember a claim (from Vlassic itself?) also that Walmart pushed them into producing larger volume SKU's, against their (Vlassic's) detailed data on usage, shelf life, etc. Result: more mouldy pickles in peoples refrigerators. Hurt Vlassic as a brand, not really in consumer interest, but Walmart could advertize a $/volume nobody could match. I met an independent trucker who said he sometimes did pressure relief for a large logistics company but would refuse any Walmart deliveries (not to the stores, to central warehouses). He claimed they gave you a 15 min delivery slot on a cross country route, they only way to avoid penalties was to aim to be there hours early and wait on your slot. He said it basically added 3-6 unpaid hours for every trip, and wasn't worth it.
ska 3y ago
I suspect the information asymmetry is as big a factor as the scale difference. In most negotiations, Walmart can fundamentally affect the bottom line of the counter party in a way that just isn't true in the other direction. They are more than happy to use this to the counter party's detriment, and even sometimes the consumers.

avmich 3y ago

I wonder if the supplier can similarly have the detailed data on the customer and how that helps in negotiating both ways.

steveBK123 3y ago
It's asymmetrical for the most part on a lot of stuff Was listening to Bloomberg the other day and they were talking about how Walmart is the biggest grocer in US. They have pricing power because for example they constitute something over 5% of all Heinz sales. Similar for paper products from one of the big companies like Procter & Gamble. The inverse is not true, as you are unlikely to find any vendor who Walmart makes 5%+ of all their sales dollars off of. So Walmart can generally turn to any of these vendors and say - we will evaporate 5% of your sales overnight if you don't give into demand, and send all our orders to some competitor.
- carlosjobim 3y ago
  I've never understood this. If you're not making enough profit - or even loosing money - selling to a large client, you are better off without them. Profit should come before everything else, including growth.
  - collaborative 3y ago
    Then you wouldn't exist. Even the smallest business goes through years of losses before it (hopefully) reaches profitability. Pay to sell is the only way nearly 100% of incumbents have to simply exist. If they don't do it, someone else will Traditionally, businesses build a reputation and customers learn where to find them (a physical location). They then become and stay profitable. Anyone depending on a monopolist for its pay-to-sell strategy won't usually reach profitability. The monopolist might be as small as a greedy feudal lord in the middle ages. Today we have Apple/Google etc
    - A4ET8a8uTh0 3y ago
      There is a real difference between starting a business and running it at a loss before reaching profitability and consciously entering a contract, where you know you are producing at a loss ( and your contract partner benefits ) that only furthers your profitability gap. If this is the opening bid, it is highly unlikely it will get better. If anything, it will only get worse. You don't make it up in volume when you sell at a loss already. << If they don't do it, someone else will That is the interesting part. The pressure is so high that people are willing to forego their own self-interest and basic critical thinking skills, because someone will do it at or below cost anyway. It is great for Walmart, but it would explain why so many businesses fail so hard. They are way too nice to the other party.
  - frozenport 3y ago
    Not enough profit is different from loosing money. Here the vendors are simply making less money because their product is part of a highly competitive marketplace.
    - carlosjobim 3y ago
      Not enough profit is the main reason to shut down a business, unless you have a good and realistic plan on how to reverse that. All that effort and all that risk can be put into more lucrative ventures.
  - frozenport 3y ago
    Not enough profit is different from loosing money. Here the vendors are simply making less money because their product is part of a highly competitive marketplace. Furthermore, their position is weakened because they are poorly differentiated from their competition.

mbesto 3y ago

Ok, so what do people expect the alternative route is? It's a known strategy, that works, and increases profit if implemented correctly.

thatguy0900 3y ago
The alternative route people would prefer is for people in charge of these companies to act ethically and not try to squeeze everyone around them for every cent of profit possible. Especially if you're already one of the richest companies to ever exist. That's not very realistic, though, since sociopathy is essentially taught in business schools now.
- phone8675309 3y ago
  If you work full time at federal minimum wage then you qualify for food stamps and other government assistance. Walmart took it a step further - they have information for their employees on how to do that efficiently, rather than paying a living wage.
- HollywoodZro 3y ago
  > people in charge of these companies to act ethically and not try to squeeze everyone around them for every cent of profit possible That's our stock market though. If Walmart isn't squeezing on costs, then it needs to make that up in gross revenue otherwise the stock will suffer. Is it possible to be "ethical" in how you define it, when the financial market performance of the company is largely dependent on this?
- smabie 3y ago
  Everyone is trying to squeeze everyone else, including you. This isn't about sociopathy, this is just the human condition.
  - thatguy0900 3y ago
    And yet somehow, not too long ago before the sociopaths were allowed to squeeze people, it was possible to buy a house and have a family on one income and your local grocery store could make that happen for it's employees. Now Walmart will literally openly admit full time employees cannot make enough to survive and teach their own full time employees how to beg the government for enough resources to live.

fatbird 3y ago

This is part of it, but a bigger part is simply that Walmart approached suppliers with a proposed volume that would require the company to rebuild themselves as an operation in order to meet that demand and the required service levels, at the price Walmart was willing to pay. If they succeeded (many didn't, ending in bankruptcy), the supplier was now trapped: no one could offer Walmart levels of volume, which the supplier now had to operate at to make a profit. Walmart could come back next year and demand lower prices. They famously joked amongst themselves that their goal was to drive out all profit for their suppliers. Vlassic Pickles is the classic example of a company that took the offer, rebuilt themselves, and became massively larger than they were before. I worked at a manufacturer for several years in IT. Walmart was a customer, but only in a limited way (i.e., without requiring huge volumes and service levels[0]). Our main competitor, Rubbermaid, was a tier 1 supplier. When Rubbermaid's main factory in the segment burned down, Rubbermaid withdrew from Walmart as a supplier, citing low profit margins. We got the call to come to Bentonville, where they offered us the chance to replace Rubbermaid, which would mean a fundamental restructuring of our entire operation to service them. We (wisely) declined. [0] An example of the service level required: Walmart would send an order by EDI that would include a two hour window for delivery, 24 hours out, for a store. That meant you had to have inventory and drivers within a certain distance from every Walmart location so that you could immediately pick the order, get it on a truck, and arrive at the store within that two hour window.

ska 3y ago
I remember a claim (from Vlassic itself?) also that Walmart pushed them into producing larger volume SKU's, against their (Vlassic's) detailed data on usage, shelf life, etc. Result: more mouldy pickles in peoples refrigerators. Hurt Vlassic as a brand, not really in consumer interest, but Walmart could advertize a $/volume nobody could match. I met an independent trucker who said he sometimes did pressure relief for a large logistics company but would refuse any Walmart deliveries (not to the stores, to central warehouses). He claimed they gave you a 15 min delivery slot on a cross country route, they only way to avoid penalties was to aim to be there hours early and wait on your slot. He said it basically added 3-6 unpaid hours for every trip, and wasn't worth it.

ska 3y ago

I suspect the information asymmetry is as big a factor as the scale difference. In most negotiations, Walmart can fundamentally affect the bottom line of the counter party in a way that just isn't true in the other direction. They are more than happy to use this to the counter party's detriment, and even sometimes the consumers.