WalMart has created quite a stir in its vendor community as it moves forwards with plans to take over inbound transportation management for most vendor shipments to its distribution centers and stores.
Currently, nearly all vendor shipments to WalMart are managed by the vendor, in some cases as part of a “total delivered price,” in other cases under a “Collect” arrangement where WalMart selects the carrier and pays for the freight, but the vendor works with the designated carrier to execute the shipment.
In other cases, Wal-Mart does arrange backhaul pick-ups at vendors after one of its trucks makes a delivery to its DCs or stores, but these are thought to represent a small portion of the total inbound moves.
A growing number of retailers manage inbound freight dynamically, requiring suppliers to submit planned shipments receiving routing instructions back from the retailer – but usually using common carriers for the freight movements to the retail DC.
Under its program, WalMart will largely use its fleet of some 6500 trucks to plan and execute the inbound vendor moves. While details are not completely clear, it is assumed many current Collect freight vendors will increasingly have their pick-ups scheduled by WalMart, and many Prepaid customers will now have WalMart completely control their outbound transportation.
Of course, this brings up the question of how the transition will be made for those customers currently selling to WalMart on a total delivered price that includes transportation to WalMart DCs.
In that case, WalMart will ask for “allowances,” as it does currently when it arranges a backhaul, to offset the transportation cost of the total delivered price. Those allowances become deductions against the invoice for that shipment.
According to BusinessWeek, in some cases WalMart has been asking for allowances in the range of 6% of the invoice – as much as twice as large as the actual cost for transportation, meaning the vendor’s current profit margin would be reduced by 3 percentage points – quite a financial beating.
“There may be a disconnect when we walk into the room on what that cost might be,” Kelly Abney, WalMart’s vice president of corporate transportation, recently told BusinessWeek magazine. “But we work collaboratively. As soon as a supplier shares the data, almost always those differences are quickly resolved.”
A former logistics executive at a major food company said that for large companies, transportation costs for WalMart shipments were under its overall average of 3%.
“The truckload costs for the larger accounts, certainly including WalMart, was more effective than our average,” he said. “6% cost allowance requests, if this is accurate, is dreaming.”
Impact on Current Volumes
For WalMart vendors that use total delivered pricing, one potential impact will be that they will lose some current transportation advantages.
With WalMart representing 20-30% of many vendors’ total sales volumes, losing the ability to leverage those volumes if they move from prepaid and add to WalMart pick-up could result in higher rates on its other shipments due to a loss in total freight they can offer to truckers.
(Transportation Management Article - Continued Below)