What's Walmart's supply chain like?
One classic anecdote is that leading up to a hurricane, Walmart did some data mining and found that poptarts sold like crazy when hurricane watches were declared. Within hours they had dozens of trucks heading to the Florida coast filled with poptarts and they made a lot of money that way.
Unless you have a fast, flexible logistics system and the analytical smarts to back it up, you can't exploit changing circumstances like that.
Edit. Source of Walmart anecdote is here: http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.h...
And after the Brisbane floods, brooms, shovels and gloves were in short supply.
If they'd doubled the price, that would be another matter, but that's not what they did.
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Most people don't stock up on MREs and survival bars, nor even have a clue where to start. Under such circumstances, it's both expected and reasonable that they reach for a familiar, readily-available energy source.
I just looked into it and I the only information on their popularity I could find was that they are often sold on black-markets. Source: http://www.foreignpolicy.com/articles/2011/10/10/stuff_we_do...
The distribution centers mean they can purchase huge levels of inventory at discounted terms. Running their own logistics means that they can break up pallets into smaller shipments appropriate for each store. So stores need less space to carry inventory, and they can purchase and store huge amounts at lower cost per sq. ft.
The other thing the logistics does is gives them an advantage in transportation cost. Although (I've heard) the margins in ground transport are slim, running your own ground transport saves money, allowing for lower prices to the consumer.
Walmart's size also contributes to their "efficiency". They can buy in larger quantities than their competitors and try to exert downward pressure on suppliers' prices. They can also nab exclusives and put them on the shelves for less than competitors.
According to him, Wal-Mart's corporate relocation assistance consists of a Wal-Mart truck and some random employees from a local store packing and stuffing your possessions in a semi.
Their distribution centers have timeslots for incoming trucks measured in ten-minute increments. You miss your ten-minute window to park the truck, you're locked out until they can find a space to fit you in.
the sibling comment to mine references a huge volume of pop-tarts being shipped to florida in preparation for a hurricane. if during mid-shipment the weather changed, wal-mart would call up the supplier, cancel the order, and all the trucks would return the pop tarts to their suppliers at no cost to wal-mart. with pop tarts it isn't such a big deal because they don't spoil, but farmers who supply wal-mart will get shipments of spoiled produce returned to them if wal-mart decides they don't need quite as much volume that week. and they just have to deal with it, because they can make more money getting screwed by wal-mart than they can selling to ethical companies.
Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing.
This doesn't even get into exclusivity requirements for products, etc.
See Snapper lawn mowers, for some insight to this process.
Make a deal with the devil... and you'll end up at the behest of the devil.
They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.
That nationwide Wal-Mart "every day low price" cannibalized sales of smaller pickle units at other stores and Vlasic saw it's profits on pickles fall 25%.
In unrelated news, Vlasic filed for bankruptcy a few years later.
The entire tale is told in much better narrative by a 2003 Fats Company article: http://www.fastcompany.com/node/47593/print
The issue quickly becomes a "damned if you do, damned if you don't" issue. If you supply them, they quickly drive your margins to the point where you have to offshore to stay in business. If you don't supply them, you get cut out of the largest retailer in the US and lose that way. Either way, you are screwed.
As I mentioned earlier, if you replace your ERP system (or upgrade it past a certain dollar point), you have to modify it so that Walmart has direct access to the internals. This means that they're placing (and cancelling) orders directly in your system without intervention (if you aren't careful, this can foul up your staffing). This also means that they know your costs, expenses and margins. You aren't going to have any negotiating power when it comes time for them to lower your prices.
But any company making a deal with Walmart should know this by now, so who is really to blame?
Do a little research next time.
The only people who really hate walmart are unions. Both consumers and suppliers love them. Small businesses have mixed feeling - yes walmart eats some of their business, but having a store near a walmart is great for them.
And it's Walmart who hates unions. Their profit depends on exploiting human labor as much as possible, so they don't like anything that gives workers a fairer shake.
And if they "committed" to buying all the output, why weren't there repercussions from breaking that commitment?
Calling the idea of this "fiction" is a bit disingenuous, imho.
If you update or replace your ERP system, your contracts with Walmart require you to integrate the new system with Walmart's. If you weren't paying attention upfront, the required changes can quickly make your ERP implementation explode over-budget.