Question

The buyer-seller dynamic at the industrial level is invisible to consumers; so for this Discussion, we’ll dip into recent history. Walmart (WM) is infamous for squeezing every penny out of their suppliers. They think doing so is essential if they’re going to give their customers “Everyday low prices,” and allow them to “Save money, live better,” while still making money. One of WM’s suppliers was an iconic 66-year-old American firm named Rubbermaid. In 1999, WM refused to accede to their request for a small price increase, and Rubbermaid was forced into bankruptcy. Enter the phrase “Walmart vs. Rubbermaid” into your browser app, and inform yourself about the affair. Then consider this. It seems that there are still situations in which supplier-customer cooperation is not needed to ensure the supplier’s survival and growth. After all, WM is still around, and richer than ever. What characterizes such situations? In other words, under what circumstances are “bullying” a supplier, or a customer, a sound business strategy? Or does it only seem to be a sound strategy? Explain.

Answer 1

Taking Walmart as an example, the growth of one-stop shopping destinations is actually leading to concentation of retail power to the big business houses. Though the local mom and pop store would not dissappear altogether due to some instrinsic benefits like availability and proximity, but super and hyper markets have led to establishment of companies and brands specifically selling their offering though these big stores. This business strategy leads to these new companies being dependent and exposed to the whims and profits targets of the hyperstore behemoths.

Such situations can be characterised as abuse of power by companies like Walmart in US, Coles in Australia, Patanjali in India and many others all over the world due to concentration of resources and bulk buying by a few in the market. The fine lines between the needs and wants of consumer behavior are also dissapearing fast due to the massive campaigns being run, which is also a reason of companies focussing on fast growth and selling value added products through massive spaces available and required to be filled in such hyperstores.

Bullying a supplier erodes not only the short term profits but also the long term opportunities for the supplier to invest in sourcing, research and development and offer better products for the consumers. Profit and margin driven supply chains also lead to sub-standard ingredients entering the system and with no funds to run a robust audit process of the sourcing, the same being served on the cosumer's table. Consequently, the consumer being the loser in the long run.

The supplier will feel the heat first, but the seller or the brand - retail chains in this case will have to take the responsibility of ensuring that every product that the customer buys from the shelf is safe and not a health hazard.

So bullying the supplier might sound like a sound strategy for profits in the short run, but it is no less than a ticking time bomb in the long run.