Wal-Mart: Using Spend Management to Redefine an Ecosystem

There's no doubt that many North American Spend Matters readers have already read about Wal-Mart's new program to sell generic prescription drugs for $4.00 -- a discount of 60-80% off of competing pharmacies. This move is already putting pressure on competitors such as Target, who have matched the offer in competing markets. By lowering prices to such a degree, Wal-Mart will change the competitive dynamics of an industry where over 50% of prescriptions -- in many markets -- are filled with generic formularies.

But they're not just pursuing this strategy as a lost-leader to drive other sales. Rather, Wal-Mart is relying on its overall Spend Management approach that dictates forcing concessions from its own supply base and passing along savings to customers in the form of lower prices. Of course this model is in marked contrast to more collaborative Spend Management approaches practiced by such retailers as Target who remains famously closed-lip about what they’re up to. Yet Wal-Mart's recent move and overall sourcing prowess prove that leverage and buying power alone can transform an entire market. Still, I can't help but wonder if Wal-Mart will end up becoming the GM of the retail world -- but without the legacy union issues to deal with -- as Target becomes the more innovative Honda or Toyota, as it pursues more advanced supplier relationship models, balancing competition and collaboration to foster innovation and better customer loyalty.

Jason Busch

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