Retail giant Wal-Mart Stores is pushing an innovative approach to supply chain management whereby the company’s private fleet will take over delivery of goods from suppliers to its distribution centers wherever it is cost-effective to do so.
“It has allowed our suppliers to focus on what they do best, manufacturing products for us,” Kelly Abney, Wal-Mart vp of corporate transportation, told Bloomberg News. “With lower costs usually come increased sales.”
According to the Bloomberg report, Abney said Wal-Mart is in the processing of contacting manufacturers about this approach with the goal being to lower costs for the suppliers, which in turn would lower the cost of goods to the retailer.
A Wal-Mart spokesperson told Fleet Owner that some manufacturers have accepted the plan.
Wal-Mart’s truck fleet has 6,891 tractors and over 55,000 trailers. It is the 22nd largest private fleet in the U.S., according to the Fleet Owner 500. The company hopes leveraging the sheer volume of its, fleet along with employing independent contractors when necessary, in this way will further reduce costs. In 2009, Wal-Mart trucks traveled nearly 750 million miles, almost 100 million less than in 2008, company spokesman Lorenzo Lopez told Bloomberg.
The supply-chain plan could have a ripple effect throughout Wal-Mart’s supply chain, according to an analysis by John Schulz of the Gerson Lehrman Group. “If Wal-Mart were to pull that freight off common carriage--or even threaten to pull it--that would result in tons of excess capacity at a time when the U.S. trucking industry is just recovering from a three-year freight recession,” Schulz wrote. “The extra capacity in the industry is just now starting to fill with freight, but Wal-Mart could exacerbate that recovery with a shift of freight capacity.
“If nothing else,” he continued, “the mere threat of this is likely to cause a cascade of discounting from its for-hire network of carriers, which fear a loss of Wal-Mart freight could drastically throw off its freight flow and balance among its remaining customers.”
A separate analysis by Gerson suggests the impact may be even more widespread than that: “The suppliers today use Wal-Mart’s volumes to keep their own logistical costs down, so if they lose control of that volume to Wal-Mart, they are in a weakened negotiating position that will likely result in [the costs of] their non Wal-Mart shipments becoming higher.
“In addition,” Gershon added, “the suppliers will have to initially deal with additional transport service providers that Wal-Mart selects to move their goods, causing potential inefficiencies at distribution centers as they become congested with trucks not being able to get to loading and unloading doors. This will be solved over time, but there will be inefficiencies.”
Schulz contended the bottom line is that “Aall in all, this is not good news for the for-hire trucking industry. It likely means one of two things: a) Wal-Mart pulls some freight from its for-hire partners or b) if it keeps that freight with those carriers, it gets a greater discounted rate for doing so.”
Swift Transportation, Con-way Freight and Greatwide Logistics are among Wal-Mart’s customers.
Wal-Mart reported first-quarter sales and earnings last week of $99.1 billion, a 6% increase from first quarter 2009.