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I had one of the largest retailers to reach out to my company with an interesting problem. Given a weight and ingredients of packaged food they wanted to predic

by m_ke 2y ago

I had one of the largest retailers to reach out to my company with an interesting problem. Given a weight and ingredients of packaged food they wanted to predict the content of each ingredient so that they could calculate the suppliers COGS so that they could use it as negotiating leverage against the suppliers...

echelon 2y ago
That's diabolically clever. At scale, you can squeeze your merchants for every last penny. Should the DOJ be hearing about stuff like this?
- warkdarrior 2y ago
  How is this illegal in any way?
  - echelon 2y ago
    Amazon is 40% of online sales in the US, and is probably closer to 100% for some subsets of goods. They effectively have monopoly power and they're using Standard Oil tactics to shake down merchants. They can use COGS to squeeze margins and even decide which merchants and products they can compete with directly. When a trillion dollar company is stepping on ten million small merchants, that's robber barron behavior and calls for DOJ intervention.
    - DannyBee 2y ago
      I think the comment you are responding to means the GP comment, not the story. IE the retailer trying to estimate their supplier's COGS, not Amazon forcing people to just give it to them.
    - charles_f 2y ago
      DoJ would be right if it was illegal, which it probably ain't. (although maybe that's breaking some laws around monopolies, but I doubt it) The right governmental department is likely the FTC instead.
DannyBee 2y ago
Interesting - seems like you might just be able to throw an multi-ILP solver at it? (maximize individual ingredient weights given ordering on package must be in weight order, must add up to total end weight, and must be in the following rough proportions in order to be anything like the end product) Curious what you did.
- m_ke 2y ago
  We told them we didn't have time to work on something custom like that
AnthonyMouse 2y ago
Not very obvious how this is even helpful. You're getting an approximation at best, meanwhile most suppliers will have a net margin of something like 5% to begin with. If you're trying to figure out if it's currently 2% and you can't squeeze them anymore or they'll balk, or it's currently 7% and you can get some more, that kind of approximation doesn't tell you. Also, how's it better than the strategy of just putting it out for bids? If their margin is 7% at a bid that causes them to lose the contract then they'll lower it rather than lose to the other guy, and so will the other guy.
- delfinom 2y ago
  Because companies like Walmart already do this. The squeeze manufacturers hard on price, to the point manufacturers are forced to make lower cost versions of a good under the same brand label. Companies want the branded good because they think it will sell well, but they also don't care if the brand destroys the product. They just want the brand.
  - lupire 2y ago
    But they don't need to know the actual COGS, they just need to threaten to drop the vendor.
  - AnthonyMouse 2y ago
    But then they want the brand, so the seller gets to extract a premium for the brand even if you knew their COGS to the penny because it's actually worth that much in additional sales and they both know it. The thing where they make a worse version of the product isn't Walmart screwing the seller, it's the seller taking the short-term profit option by screwing the [Walmart] customer until the customer notices. And then the question is whether the customer notices whether the product is worse, or the customer notices that the product is worse from Walmart. Also, a lot of the store-specific SKUs aren't actually different whatsoever, they just put a different number on the box because it gets them out of MFN clauses with other retailers and the retailer likes it too because it gets them out of price match guarantees since nobody else has that SKU to match against.
  - 2y ago

by m_ke 2y ago

echelon 2y ago

That's diabolically clever. At scale, you can squeeze your merchants for every last penny. Should the DOJ be hearing about stuff like this?

warkdarrior 2y ago
How is this illegal in any way?
- echelon 2y ago
  Amazon is 40% of online sales in the US, and is probably closer to 100% for some subsets of goods. They effectively have monopoly power and they're using Standard Oil tactics to shake down merchants. They can use COGS to squeeze margins and even decide which merchants and products they can compete with directly. When a trillion dollar company is stepping on ten million small merchants, that's robber barron behavior and calls for DOJ intervention.
  - DannyBee 2y ago
    I think the comment you are responding to means the GP comment, not the story. IE the retailer trying to estimate their supplier's COGS, not Amazon forcing people to just give it to them.
  - charles_f 2y ago
    DoJ would be right if it was illegal, which it probably ain't. (although maybe that's breaking some laws around monopolies, but I doubt it) The right governmental department is likely the FTC instead.

DannyBee 2y ago

Interesting - seems like you might just be able to throw an multi-ILP solver at it? (maximize individual ingredient weights given ordering on package must be in weight order, must add up to total end weight, and must be in the following rough proportions in order to be anything like the end product) Curious what you did.

m_ke 2y ago
We told them we didn't have time to work on something custom like that

AnthonyMouse 2y ago

Not very obvious how this is even helpful. You're getting an approximation at best, meanwhile most suppliers will have a net margin of something like 5% to begin with. If you're trying to figure out if it's currently 2% and you can't squeeze them anymore or they'll balk, or it's currently 7% and you can get some more, that kind of approximation doesn't tell you. Also, how's it better than the strategy of just putting it out for bids? If their margin is 7% at a bid that causes them to lose the contract then they'll lower it rather than lose to the other guy, and so will the other guy.

delfinom 2y ago
Because companies like Walmart already do this. The squeeze manufacturers hard on price, to the point manufacturers are forced to make lower cost versions of a good under the same brand label. Companies want the branded good because they think it will sell well, but they also don't care if the brand destroys the product. They just want the brand.
- lupire 2y ago
  But they don't need to know the actual COGS, they just need to threaten to drop the vendor.
- AnthonyMouse 2y ago
  But then they want the brand, so the seller gets to extract a premium for the brand even if you knew their COGS to the penny because it's actually worth that much in additional sales and they both know it. The thing where they make a worse version of the product isn't Walmart screwing the seller, it's the seller taking the short-term profit option by screwing the [Walmart] customer until the customer notices. And then the question is whether the customer notices whether the product is worse, or the customer notices that the product is worse from Walmart. Also, a lot of the store-specific SKUs aren't actually different whatsoever, they just put a different number on the box because it gets them out of MFN clauses with other retailers and the retailer likes it too because it gets them out of price match guarantees since nobody else has that SKU to match against.
- 2y ago