From SCDigest's On-Target e-Magazine
- Nov. 17, 2015 -
Supply Chain News: Companies Putting Squeeze on Suppliers, in Possible Sign of Further Economic Slowdown
Tata Steel Orders Suppliers to Cut Prices 10 Percent Immediately; Walmart has had Series of Supplier Moves Throughout 2015
SDigest Editorial Staff
Maybe it's the real sign that the global economy is indeed slowing, as many believe - companies are starting to beat up on vendors, a page from a familiar playbook as profits get squeezed.
Times are especially tough in the metals sector generally and the steel manufacturing industry specifically, as prices have dropped dramatically as a result of a major slowdown in demand from China combined with extreme overcapacity worldwide and low prices from Chinese producers.
SCDigest Says: |
 |
The spate of actions this year seems almost desperate and very connected to a challenging financial environment in many sectors. |
|
What Do You Say?
|
|
|
|
So much so that India's Tata Steel, Europe's second-largest steel producer, has written to its suppliers asking for an immediate 10% reduction in their prices and demanding deeper cuts over the longer term.
"We are seeking a long-term price reduction of 30 percent ... on all purchases. As a first step we would appreciate an immediate price reduction of 10 %," the letter said, according to the Sunday Telegraph newspaper.
We have no doubt Tata really would appreciate that gesture of supplier good will. We'll see.
The letter also said that "We greatly appreciate your support but also want to stress that we require contribution from all of our suppliers. Should you - for any reason - be unable to support us in our efforts, we will need to fully consider other options."
A Tata spokesman later added that the company had been in discussions with its suppliers for more than a month and had received "an excellent response with positive and innovative ways we can work together." We think that what suppliers are telling Tata is a euphemism for "we'll do about anything we can to avoid cutting prices 10%."
Of course, oil prices are also in the dumpster, causing energy giant BP and oil services firm Schlumberger to also put pressure on their suppliers to lower prices in recent months.
Walmart, which has seen its stock price take a big hit recently in the face of shrinking profits, has been going at this same basic strategy several ways in 2015.
First in April, buyers at Walmart's Sam's Club summoned major vendors to meetings and told them a "cost gap analysis" showed they should be delivering at a lower price, and demanded millions of dollars in discounts on future purchases, according to emails reviewed by Reuters and interviews with suppliers and consultants involved in the talks.
Then early this summer came word that Walmart was changing several vendor policies, including greatly extending its payment terms and saying many vendors will be charged a fee for moving their products through Walmart's distribution network - a sort of handling fee in perhaps a first for the retail industry.
The policy changes were detailed in a letter sent to some 10,000 of Walmart's suppliers beginning June 17, and vendors were asked to agree to the new terms by July 1. It is not clear how successful these Walmart initiatives have been. (See Walmart Greatly Extending Payment Terms, Asking Some Vendors to Pay DC Handling Fee.)
(Sourcing and Procurement Article Continues Below)
|
CNBC reported that Walmart managers had contacted more than 10,000 suppliers in various countries, all of which have manufacturing facilities in China, seeking cost cuts of 2-6% on mainly general merchandise including home furnishings, apparel, health and beauty products, appliances, electronics and toys,
