The closed circle of Wal Mart economics

[unblock]

60. you have no idea how many companies go OUT OF BUSINESS when they get wal-mart as a customer.

wal-mart is the undisputed heavyweight king of bankrupting suppliers.

here's what they do:

- they find a small supplier that makes cute teddy bears or whatever, then place an order for triple the supplier's usual volume.
- the supplier pops open the champagne and toasts to their own success and the prospect of easy street just around the corner.
- they borrow money to pay employees overtime to fulfill wal-mart's huge order. often they even shell out for more equipment.
- they make and ship nice those cute teddy bears that wal-mart ordered.
- wal-mart pops open their infamous 3-ring binders of deductions and charge-backs and ticks off every order fulfillment mistake the supplier made -- down to docking not only for the truck arriving 15 minutes late, but also docking for the truck arriving 15 minutes EARLY (their argument is that their just-in-time inventory system can't handle this; they have to unload and put it off to the side, then take it and put it where it belongs later -- so they effectively charge the supplier for this inconvenience); they even deduct for things being on the truck in the wrong order -- again, they want to unload things efficiently.
- by the time these deductions are added up, wal-mart is paying a fraction on their first few orders, until either the supplier goes bankrupt or learns how to fulfill wal-mart's orders in the precise way wal-mart wants.

- MANY, MANY suppliers have gone belly-up because they lost too much to wal-mart's demands. those who survive usually do so by having the foresight to immediately hire wal-mart logistics specialists who take a big cut for knowing how to avoid the wal-mart landmines.


- this is the real secret as to how wal-mart makes its money. it's not by taking a huge amount from customers (although there are some pricier items once you get away from the teaser products) it's mostly from short-changing their suppliers. remember that these deductions are AFTER having negotiated a big discount for wal-mart's size and visibility.