Over on Supply Chain Matters, Bob Ferrari recently described how Wal-Mart is putting its supplier development money where its mouth is for apparel suppliers, the group most likely impacted by CIT's bankruptcy filing (which you can read expert opinion on here and here). According to Bob's analysis, eligible suppliers in the program "will be able to get payment on their shipment invoices to Wal-Mart in ten to fifteen days vs. Wal-Mart's typical 60 to 90 day payment cycle, by having the ability to factor their receivable invoice with a select group of banks including Wells Fargo & Company and Citigroup Inc."
The operative word here is "factor". Invoice factoring and trade finance, two cornerstones of CIT's business model, proved a highly lucrative niche, especially for suppliers that did not have A-rated investment trade paper, but who were not quite high risk (a great place to be as a lender in a rising market, but a dangerous one during a contraction). In other words, by acting as an intermediary to facilitate their supplier's factoring of invoices, Wal-Mart is in essence acting out of its own selfless interest (how selfless will depend on the APR their banking partners extend). If it's anything like CIT's typical deal, it will most likely be close to 10%. In contrast, as Bob points out, Kohl's "launched a supply chain finance program in July, offering a 3.5% rate of factoring interest to certain of its supplier base," a very low rate of interest.
Earlier this fall, I wrote about some of the more questionable supplier management techniques to come out of Bentonville. These ranged from the nearly absurd, such as a rumor requiring hotel manifest / check-in data from preferred Bentonville hotel partners, to the nitpicky. Consider, for example, how Wal-Mart's "procurement team will routinely comment on the state of supplier's offices and facilities in Bentonville. They'll nitpick something as little as the type of tile on the floor as a justification for reducing prices further (linoleum = good, marble or ceramic = bad). After all, if a supplier can afford such an expensive floor covering, they should be giving more back to Wal-Mart in savings. The same philosophy carries through to other items in supplier facilities -- lobbies, age of office space, etc. The cheaper and shabbier, the less likely Wal-Mart is to beat you up."
Given this historic behavior, I remain circumspect that Wal-Mart would do anything with its supply base from an alliance perspective that was not acting in its own self-interest first. Methinks the financing rate that they are offering will vary from supplier to supplier, but I'm sure it will be closer to 10% than Kohl's 3.5%. And I would not discount the potential that Wal-Mart is sharing in some of the spoils with its banking partners.