Walmart Goes Direct and Doubles Down on Direct Savings

There's been plenty of coverage describing Wal-Mart's new procurement strategy to avoid middlemen and cut $12 billion in spend in recent weeks. Surely, savings is a significant motivation behind this recent action, as it is with anything Wal-Mart does. As Procurement Leaders opined, "The establishment of four global merchandising centres [as part of this initiative] certainly has significant implications for the company's ability to reach local producers and integrate direct and indirect procurement processes to reduce costs." But I can't help but think there's more to it than this. Consider, for example, Wal-Mart's continued challenges with recalled products, not to mention the product risks to which it exposes itself as it expands even deeper into food and related areas.

Just this week, it came out that Wal-Mart was one of the retailers selling children's jewelry that contained cadmium. According to the Washington Post, "U.S. product safety authorities say they are launching an investigation into the presence of the toxic metal cadmium in children's jewelry imported from China after disclosure of lab tests showing that some pieces consisted primarily of the dangerous substance." Cadmium is in many ways even more insidious than lead -- the prohibited metal it replaced in children's jewelry applications -- because its carcinogenic properties can be just as deadly while its symptoms take longer to manifest.

Clearly, Wal-Mart's outsourced-product sourcing teams have failed time and time again to reduce the dangers of the items they stock on Wal-Mart's shelves. Granted, when it comes to branded merchandise, it can often be more difficult to manage quality and specifications directly with suppliers, but even in these cases, Wal-Mart is still ultimately responsible. For this reason, I have no doubt that taking more direct control of the direct-supply chain is not only Wal-Mart's attempt to further reduce costs but also to potentially head off negative PR, new regulations, litigation, and other challenges that could result from maintaining the status quo of having less control over certain direct suppliers.

Jason Busch

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