Selling to Wal-Mart (2014)

This case focuses on strategy, organizing, organizational change and diversity.
Because of your company’s success, the end-of-the-year accounting review is usually an upbeat occasion, and this December is no different. Your company manufactures an innovative kickstand that reduces injuries by keeping a child’s bike from falling all the way to the ground. After the device was written up in a parents’ magazine recently, sales to specialty bike shops – your primary customers – have started to climb. Despite the increased demand, you can still make kickstands to order.
At a meeting with your management team, you remark that although sales are increasing at a slow but steady rate, the company still has a large amount of excess capacity. A colleague agrees and then enthusiastically announces, “I know how to take care of that. Let’s sell to Wal-Mart!” A hush falls over the meeting. Becoming a Wal-Mart supplier would mean honing your current distribution process into a finely tuned, perfect delivery operation. The retailing behemoth gives suppliers a 30-second window to deliver their goods to Wal-Mart distribution centers; you currently ship product via UPS ground. Wal-Mart requires severe price concessions from all its suppliers, a practice that has forced many American manufacturers to outsource production overseas in order to get their production costs low enough to meet Wal-Mart’s pricing mandates. Master Lock, Carolina Mills, Levi’s, and, a bit closer to home, Huffy Bicycle are a few examples. Your company uses local suppliers for metal, paint, plastics, and packaging, and it pays its 25 workers above-market wages. Thankfully, now your company is the only manufacturer of the kickstand, so you have more freedom to set a competitive price on that item. If you begin selling through Wal-Mart, however, imitators will soon follow, and that would definitely affect your already modest margins. Not to mention that Wal-Mart uses historical price data about a company and its competitors to drive prices down across industries. Suppliers are rarely if ever granted a price increase; on the contrary, they are asked for regular price decreases!
In addition, if vendors want their products on Wal-Mart’s shelves, they have to implement Wal-Mart’s “customized business plans.” Each year, the big retailer hands its suppliers detailed “strategic business planning packets.” Wal-Mart grades its suppliers with weekly, quarterly, and annual report cards. In addition, when it comes to discussion of price, there is no real negotiation even for household brands. In addition, Wal-Mart often requires its suppliers to underwrite the costs of the retailer’s supply-chain productivity initiatives, like using radio-frequency identification (RFID) tags on their products for inventory tracking, a system that can cost between $13 million and $23 million to put in place. Trying to meet Wal-Mart’s requirements has pushed many small- and medium- sized businesses into bankruptcy. Businesses that stay afloat have generally done so by outsourcing to China (in areas like shoes, housewares, and apparel, 80 to 90 percent of Wal-Mart’s inventory comes from China).
However, there are also benefits to selling to Wal-Mart. You have instant access to the world’s largest global retailing network. Doing things the “Wal-Mart way” inevitably leads to operations that are more efficient. You could sell exponentially more kickstands

through Wal-Mart than through the small specialty retailers to whom you currently sell. If doing business with Wal-Mart is so bad, why do Unilever, P&G, and Dial sell 6, 17, and 28 percent of their goods, respectively, to the giant retailer? A former president of Huffy Bicycle once said that Wal-Mart gives you “a chance to compete. If you can’t compete, that’s your problem.” You agree, to a point. Before you can voice any of the pros and cons, another manager expertly sums up the dilemma by saying, “The only thing worse than selling to Wal-Mart is not selling to Wal-Mart.”
Another key concern of yours is that Wal-Mart was sued for discrimination in 2001. In 2004 the lawsuit was approved for a class action case against Wal-Mart that could involve over 1 million employees. Wal-Mart is being accused of gender discrimination in pay and promotions.
Before you begin this management team decision, each team member will probably need to do some preliminary research on Wal-Mart’s business practices; go to the campus library to find articles on Wal-Mart’s business practices. A visit to the Wal-Mart stores can give you a wealth of information on how the company manages its suppliers. You may also wish to visit the PBS show Frontline’s web page “Is Wal-Mart Good for America?” http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets). Review “Largest Discrimination Case in History: Wal-Mart’s Appeal Denied” at http://diversityinc.com/content/1757/article/1256/.
Questions
1. What is the problem? Identify and summarize the problem recognizing the embedded and implicit aspects.
2. What are the decision criteria that should be used in this situation, and how should they be weighted? How much consideration should be given to the discrimination woes of Wal-Mart?
3. Under what conditions do you think it is acceptable for 3M to settle for a “good enough” decision?
4. What is the conclusion or decision? Make sure to include consequences of the decision. Do you apply to become a Wal-Mart supplier, with all that entails? Do you choose a risk seeking or risk avoiding strategy? Why or why not? When answering this question, consider the strategy making process, grand strategies, and reference point theory.
Sources: C. Fishman, “The Wal-Mart You Don’t Know,” Fast Company, December 2003, 68-80; M. Boyle, “Wal-Mart Keeps the Change,” Fortune, 10 November 2003, 46; C. Y. Chen, “Wal-Mart Drives a New Tech Boom,” Fortune, May 2004; “Is Wal-Mart Good for America?,” Frontline, http://www.pbs.org/wgbh/pages/frontline/shows/walmart, Largest Discrimination Case in History: Wal-Mart’s Appeal Denied, http://diversityinc.com/content/1757/article/1256/