Aug 24, 2007

Wal-Mart Sets Limits on Low Cost Supply Chain

It's the strategic reality quietly lurking in Wal-Mart's closet for many years. Never a matter of if, only a matter of when. It seems we're seeing the beginning of a correction in Wal-Mart's supply chain as the company begins an expensive investment in product assurance activity.
Planet Retail reports that following a series of recalls of Chinese made toys over hazards to children, Wal-Mart Stores has announced that it is stepping up testing and safety reviews of its toy ranges. The retailer will require manufacturers to resubmit testing documentation for toys already on the shelves or in shipment, so that Wal-Mart can double-check the results and is also increasing the number of toys tested at independent labs by about 25% to 50%, or an average of 200 additional items daily. "Reassurance is really our key point," according to Laura Phillips, Wal-Mart's merchandise manager of toys, "We've heard parents' concerns over recent recalls and we're working hard to be their advocate, ensuring everyone involved in the toy business plays their part in improving standards"
Situations like this are on a rampant escalation and it points to a serious flaw in dominant retailers' strategic moves in backward integration. Product manufacturing and sourcing is a very complex and high-cost activity. Retailers are beginning to awaken to the harsh downsides of "buyers gone wild". We'll be seeing far fewer middle-level procurement teams doing their $4 billion buying trips through Asia.
Better that Wal-mart and other dominant retailers get back to the core retailing challenge - Customer Experiences! Let branded product companies deal with the downsides and hassles of supply chain management.

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