Is Walmart Good For America (1)

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Is Walmart Good for America? Case Summary Walmart is one of the largest companies in America, founded in 1962 by Sam Walton. His value proposition? Low-price products. Over the course of three decades, Walmart expanded nationwide given their ability to acquire low-cost products directly from Asia and regulate product prices from their manufacturers. As a result, Walton’s company was the first to report over a trillion dollars in sales, while managing to retain a total of two billion in profit from the first-of-a-kind report. Over the years Walmart has encountered some supply chain issues, but with an elite management team and savvy negotiators, they have always managed to stay one step ahead. Even going as far as to supply their manufacturers with opportunities that would allow them to sell their products at an even lower price. Problem There were a several supply chain issues that were presented in the documentary. One in particular was in reference to the plastic ware company, Rubbermaid. In the early rise of the Walmart brand many companies were eager to partner with the company in light of the size and frequency of their orders. Rubbermaid was slow to act. Despite, other manufacturers seeing increased profits across the board. Months later, Rubbermaid eventually agreed to a partnership. Their business model was simply high-quality products. This business model combined with Walmart’s earned the company a considerable amount of gains towards their reputation and profit margins among other things. After some time, Rubbermaid reported that they would have to increase their product price due to a price hike in resin, a core ingredient needed to create their products. Walmart seemingly had no regard for this, declining to purchase anything from Rubbermaid at their new price point. The falling out of these two companies ultimately resulted in Rubbermaid going out of business considering their main customer was Walmart. They were forced into a merger and are now owned by Newell, a previous competitor. In this particular instance, Walmart managed the issue by simply declining to continue doing business with the manufacturer and opted to find another. There are similar less drastic reports of this phenomenon with Walmart. Several individuals who had interactions with Walmart

Is Walmart Good for America? representatives state that Walmart tells the manufacturer their price, not the other way around. Despite this, manufacturers were growing more and more aware that losing Walmart as a customer was not the thing to do if they wanted to maintain their profit margins. Another issue presented in the documentary was that in 1991 Walmart encountered a revenue/sales decline due to a collapsing economy. About a year later their founder died. Following, their stocks began to plummet. Walmart’s new management team combated this by facilitating a huge product surge to their shelves. These products were purchased at an insanely cheap price rebutted with a high mark up once on Walmart shelves. The company saw a turn-around almost immediately. Interestingly, eighty percent of the products had been imported from Asia. Walmart continued to seize the benefits of receiving their product supply from Asia. They also began to take advantage of the fact that production overall was cheaper in Asia due to lower wage and supply costs. Even going as far as to persuade their manufacturers to relocate overseas to accommodate the price they would like to purchase at. A huge domino effect issued. Americans began to lose their jobs and job opportunities, while the Asian economy saw an expedited growth. ‘ Rubbermaid: Alternatives 1. Negotiate a product price that satisfies both companies 2. Agree to the new price, but only buy in limited amounts. 3. Decline the requested purchase point amount and identify another manufacturer Criteria 1. Maintains low product price 2. Satisfies consumer need 3. Encourages a desirable profit margin 4. Positively impacts brand reputation To honor Walmart’s business strategy, the criteria for the decision should at minimum encompass all of the points above. If the company were to decide to negotiate a product price with Rubbermaid the end result would be that both companies would be satisfied with the product price and profit

Is Walmart Good for America? margin. This would also avoid any negative feedback that Walmart would receive if they chose an alternate route. Satisfying all decision criteria. They could also choose to agree to the price increase, buy only buy in limited amounts. However, they may not be able to keep prices at the preferred amount, and may run into some issues with consumer demand. Resulting, in reputation damage and/or forcing their hand to renegotiate and/or increase their supply orders. This option does not satisfy criteria points one through three but does honor point four. Lastly, they could decline the requested purchase point and identify another manufacturer. This has been recorded as meeting criteria points one through three, but would cause brand damage. Analysis Supply chain conflict can be positive and/or negative. In Walmart’s case supply chain conflict had negative impacts upfront but they were able to capitalize on the issues and make them positive. For example, in the 90’s the company saw a decline in sales relative to a decreasing stock price. Management responded aggressively by acquiring a large amount of low-cost products from Asia. The company saw a quick recovery following. In light of the gains, Walmart capitalized even further by continuing to acquire products from Asia in larger amounts and a wider variety. They even went as far as to push their US-based manufacturers to move their production to Asia to give them to ability to sell their products lower than before. The shift to Asia has promoted economic growth in China, and the culture’s eagerness to work for pennies on the dollar further ensures that product prices remain low. Alleviating the possibility of some supply chain issue risks for Walmart and other companies alike. In contrast, the conflict created a negative domino effect on the US economy. With companies moving production to Asia. United States citizens either suffered job loss or were not provided with job opportunities that would have arisen had manufacturers not jumped ship. Certain manufacturers also saw a decline in profits. Walmart was now in control of their products given that Walmart

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Is Walmart Good for America? provides the largest amount of profit for several manufacturers. They may have a consistent orders/cash flow, but they may not necessarily receiving the profit margin they would have been had Walmart not been in a position of power. Strategy vs. Channel Decisions As mentioned above, Walmart’s business strategy is low-cost products. To maintain this business strategy and make a profit Walmart has to make decisions that provide them with the lowest cost of goods possible. This need was the catalyst for the company acquiring goods in Asia. As well as persuading other companies to follow suit. Walmart knew that if their suppliers spent less on wages and materials it would enable them to enhance their fit into the Walmart criteria. A fact that ultimately resulted in the demise of Rubbermaid. Despite Walmart making the channel decision that catered to their business model. Their morale comes into question. Some think that their decision with Rubbermaid was not a necessary, just proof that the company is relentless and a bully. Some even begin to question how genuine their mission is, and if they were/are “Good or America”. Highlighting the fact that even though the company remains a powerhouse their reputation arrived at a loss due to the situation. Decision Considering the negative effects Walmart’s decision has caused, I believe they should choose to negotiate a price point that would satisfy both companies. Studies show that damage to a brand’s reputation ultimately results in reduced revenue and profits over time. This is not to say without doubt that Walmart did not make an attempt to resolve it in this way or that their company is at any risk. However, based on the facts presented in this case and proven statistics this is the reasonable assumption. Implementation The implementation of this decision is very cost efficient. The company would not be required to release funds for anything other than the wages that already exist, as they are simply paying for their employees to commit time to the negotiation. Once a final decision is made, they may see increased

Is Walmart Good for America? costs on Rubbermaid products, which could cost them an exponential amount over time, but not without profit. In order to implement, Walmart should designate assigned personnel to this project and cease releasing any orders to Rubbermaid until deliberations are done. Deliberations could take anywhere from a few days to months.

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