The Ultimate Silver or Lead Conversion: A Strategic Shift in Transportation at Walmart

Posted on December 7, 2010

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In the I am from the government and I am here to help you and this is going to hurt me more than it is going to hurt you genre, and similar to the old story about two scuba divers who upon encountering a shark one diver stabs the other in the leg and swims for the surface, Walmart’s attempt to soft soap what amounts to a silver or lead proposition for its suppliers is at the very least entertaining.

I am of course talking about the video that was just released last month (see below) from the February 2010 RILA Logistics Conference in which Walmart’s Vice President for Corporate Transportation Kelly Abney discusses the giant retailer’s plans to “convert freight terms.”  By the way, this is the second interview in the past two weeks (SAP’s new Internet Radio Show was the first) in which the interviewer is earnest yet somewhat stiff as a board.  Come on guys loosen up, be energetic and have some fun with the interview.  It will come across as a sincere and informative discussion versus having the feel of being somewhat staged.

Before I digress too far off the intended path, the video was interesting in that there were what I would call several flash point comments made by Abney that ultimately comes down to a question of control in relation to in-bound shipments.

For example, Abney talked about the fact that at this point in time Walmart only has a 40 percent visibility into “tracking” in-bound transportation.  This presents a number of concerns that according to the VP requires immediate action.  In essence, and under the guise of ensuring better control in an attempt to fill potential service gaps, Walmart while making the effort to say that they are not in the transportation business are in fact in the control business.  Specifically, and I do not think that I am the only one to note that Abney is the VP for “Walmart Transportation,” if greater control means that Walmart has to be in the transportation business . . . Walmart will be in the transportation business and not just for greater visibility reasons.

The real issues are how to get from point A to point B without 1 – upsetting suppliers who are likely making up for the razor thin margins it takes to do business with Walmart through shipping charges and, 2 – alienating the major carriers to the extent that service levels become disrupted.

Not an easy task to be certain, but one that should be interesting to watch unfold over the next 6 to 12 months starting with their delivery time frame conversion standards.

You have to love the “conversion standard” approach because it is based on the oldie but a goodie we make you a better company mantra the retailer has been slinging at suppliers for many years.  Suppliers I might add in which research data shows that the more business they do with Walmart the lower their GP is in relation to their industry’s average.

So here is how it will probably work . . . Walmart will tell their suppliers that there is a new performance standard in terms of shipping and that if they fail to achieve it they, being the suppliers, will be penalized.  You have to respect the push me down and take my lunch money punitive measures of the big kid in the school yard.  Of course, Walmart will magnanimously suggest that suppliers, especially the smaller ones, should unburden themselves of the unnecessary responsibility associated with meeting the new shipping standards and focus their attention on doing what they do best which according to Abney is manufacture a high quality product.

Unfortunately for the suppliers, this surrender will eat even more into a dwindling profit margin which is already reminiscent of table scraps for the family dog.

Now the next hurdle, and I am talking about the large carriers with whom Walmart has to deal – and this is a key point in that the couriers do not have to deal with Walmart – achieving that balance between beating up the suppliers but not raising the ire of the big shippers is going to be critical.  At least at this point in time.  Who knows down the road we may one day see the tail fins of a fleet of airplanes with the Walmart logo.  Remember the Roots airline?

The fact remains that like the analogy Matt Hooper offered in terms of explaining the efficient mechanics of a great white in the movie Jaws when he states “Out there is a perfect engine, an eating machine that is a miracle of evolution – it swims and eats and that’s all,” a similar analogy can be used to describe Walmart’s business model evolution.

Like the great white in Jaws, Walmart is an incredible corporate predator in that it seeks profits the way that the great white seeks prey.  It was therefore only a matter of time before they would turn to the untapped or uncharted feeding ground that is shipping.

At this point, and even though you do not necessarily have to be a fan of the organization, you have to take an admiring step back to look at the great white of Bentonville, Arkansas and appreciate its very efficiency and unwavering pursuit of what it feels serves it best interests.

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Posted in: Commentary