Depending on your perspective Wal-Mart is either a god-send or the bane of society. On one hand their volume and lower costs are in effect a larger social welfare program than even the government’s, making it easier for lower income families to afford many necessities while employing hundreds of thousands of people who may not have been able to find any employment. On the other hand they have helped put many small stores out of business and have procured much of their products from overseas, in particular China. This has hurt prices and profits from many domestic suppliers, thereby hurting the people that work for (or used to work for) those companies.
Wal-Mart is unfortunately one of those companies that looks almost purely at cost without much regard to value. A product’s cost is predominantly labor-driven, and of course it’s easy to find cheap labor in China. But according to this week’s issue of Business Week, Wal-Mart just learned a lesson on value.
[Wal-Mart Chief Merchandising Officer, John E.] Fleming may be America’s most powerful merchant, but a timely solution is beyond him even so. Wal-Mart failed to order enough of these China-made T-shirts last year, and so they and other George-brand basics will remain in short supply in most of its 3,443 U.S. stores until 2007’s second half, depriving the retailer of tens of millions of dollars a week it sorely needs. "The issue with apparel is long lead times," says the quietly intense Fleming.
As the kid down the street likes to say, "sucks to be you!" But seriously, if Wal-Mart understood value, and also knew that they could get more value for almost the same cost, they wouldn’t be in this pickle. I wonder if they know that out on the west coast American Apparel is making low-cost t-shirts, with very short lead times and workers with full benefits, at prices that are comparable to Chinese or other Asian sweatshops.
Long distance supply chains have another effect… they create the desire for "safety inventory" to buffer problems like what was described above. And those of us in the lean world know what inventory can do…
A dubious milestone was reached in 2005 as inventories rose even faster than sales. "You’d see these big storage containers behind stores, but what was more amazing was that [local] managers were going outside Wal-Mart’s distribution network to subcontract their own warehouse space," says Bill Dreher, a U.S. retailing analyst for Deutsche Bank.
I wonder how much it’s costing to hold that inventory. How much non-performing cash is tied up. How many containers of clothing that could go out of style. How many containers of plastic parts getting brittle in the cold winter just to soften during the summer heat.
For all the good… or bad depending on your perspective… Wal-Mart does, it could stand to learn a thing or two about value and cost. But I guess I better watch what I say about them…
What began as an attempt by Wal-Mart’s Threat Research and Assessment Group to detect theft and pro-union sympathies among store workers grew into surveillance of certain outside critics, consultants, stockholders, and even Wal-Mart’s board.
Uh… ok… "Wal-Mart is a great company!" Wink wink.