Walmart Rules

I heard about this about six months ago from a friend who works for a company that supplies a lot of paper to Walmart and I was shocked then. But here it is in black and white pixels on Businessweek.com.

Walmart is asking its suppliers to provide them with the names of their raw materials suppliers so they can consolidate buying, increase their clout and reduce the cost of raw materials going into the products they sell.

Now, since Walmart's sworn mission is to offer the lowest prices always, this seems logical. Help our "partners" lower their costs so we can offer lower prices to our customers. Great.

Actually, maybe not. Lets use their potato scenario as an example. Lays (Pepsico) decides to go in with them and negotiate with a single supplier for cheaper potatoes. That leaves two options for the potato grower that Lays was using:

1. Cut their operating expenses by reducing their workforce, reducing wages, reducing benefits, cutting corners or all of the above, while somehow increasing output.
2. Don't cut expenses and go out of business because they lose their largest customer.

In addition to that, Lays loses some control of the quality of the raw materials they buy, so customers see less difference between their product and the Walmart store brand. Lays' sales suffer, not just in Walmart, but in every grocery store and mass retailer. 

Now if that happens with all Pepsico products sold at Walmart (Doritos, Pepsi, Mt. Dew, etc) pretty soon, analysts are issuing warnings about Pepsico, their stock falls, production facilities close, there are layoffs at headquarters and we're all eating Walmart brand potato chips.

Frankly, that's not a future I'm looking forward to.