SCDigest Editorial Staff
Walmart this week announced a sweeping plan to consolidate its global procurement functions and reduce the use of intermediaries in its global sourcing processes, leading to savings of billions of dollars per year.
It turns out that Walmart, the world's largest importer, still relies on the use of sourcing intermediaries for the bulk of its global sourcing initiatives, buying less than 20% of its goods directly from offshore suppliers.
In addition, it often operates in a very decentralized mode, with each of the 15 countries where it operates buying goods from the same suppliers, esp. for its growing private label brands.
Eduardo Castro-Wright, Vice Chairman at Walmart, says the company's goal is to switch that ratio, so that within a few years it is buying direct from the manufacturer for 80% of its purchases.
If it can do that and gain additional benefits from centralized purchasing, Castro-Wright estimates the potential cost reduction from taking out the middleman mark-up of 5-15%, depending on the category, leading to billions in savings. (Walmart's global sales are about $400 billion.)
The move to more direct procurement will be facilitated by greater centralization of its sourcing operations.
Castro-Wright says Walmart has established four global merchandising centers for general goods and clothing, including an office in Mexico City focused on emerging markets. It is also planning to shift to direct purchasing of its fresh fruit and vegetables on a global basis, rather than working through import companies and agents.
(Global Supply Chain and Logistics Article - Continued Below)