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As Wal-Mart continues to push suppliers to the brink of death, more and more suppliers are opening up about their relationships with Wal-Mart.  The stories all contain one common denominator:  “It’s always hard to make money from Wal-Mart orders.” And while big brands like Proctor and Gamble can supply Wal-Mart at cost, smaller suppliers do so and “wait to die”.  In an article from Sinotoys.net, “Bo Lin” (an alias), a toy supplier for Wal-Mart, describes the woes of working with the giant.  Aside from Wal-Mart’s low cost bargaining tactics, Bo Lin also describes being bribed by Wal-Mart factory inspection officials to pass inspection, regardless of the circumstances in his factories.

“We’re a small enterprise.  Life and death can happen in a split second,” Bo Lin said great anguish.

Last month, a business owned by a friend of Bo Lin’s closed down.  That was a stationery processing plant with sales that surpassed 400 million [RMB].  Almost all the goods were supplied to Wal-Mart.  Bo Lin’s factory is also a Wal-Mart supplier.  “We all used to do business with Wal-Mart for the glory,” Bo Lin said describing the initial excitement of becoming a Wal-Mart supplier.

During our interview, Bo Lin repeated that sentence 5 times. 

But after 4 years of struggle within Wal-Mart’s supply chain, Bo Lin is determined to withdraw. “Four years is the cycle of death and rebirth”.  This is “established law” for all of Wal-Mart’s suppliers.  The difference is only whether to die or withdraw.

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Maybe Wal-Mart doesn’t understand how products are made.

In Wal-Mart’s world, suppliers make products for Wal-Mart because the pleasure of working with Wal-Mart is so great.  In fact, the less profit a supplier makes from working with Wal-Mart, the greater pleasure!  That must be why when Wal-Mart demanded suppliers improve their “sustainability” and “safety”, Wal-Mart said it will not pay for these increased costs.  Rather, Wal-Mart said it would reward compliant factories with longer contracts of the same low-priced orders.

But in the real world - where people have responsibilities outside of their contracts with Wal-Mart (like feeding their families) - suppliers are ailing.  Many report that Wal-Mart has failed to take into consideration reality - that costs of raw materials and manufacturing have increased substantially. Many suppliers are being forced to “either supply Wal-Mart goods while not raising prices and wait to die or raise the prices and court death.”

To make reality just a little more grim, Wal-Mart is now demanding that suppliers implement radio frequency identification (RFID) to replace bar codes.  According to reports, implementing RFID will increase the cost burden on suppliers by 20 times the cost of the currently used bar code.  While the suppliers are left to figure out how to pay for the increased cost, Wal-Mart is expected to save $8.35 BILLION each year. 

As we’ve seen, coercing suppliers to produce at below cost forces suppliers to abuse labor and use inferior materials - thus creating Wal-Mart’s real need to increase sustainability and safety.

If Wal-Mart wants real, sustainable change, Wal-Mart needs to put the money behind it.  Until then, we all lose.

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Back in July, we told you about Procter and Gamble price increases of up to 16%.  We could see where P&G was coming from, with the increasing prices of raw materials and all, but we still wondered whether Wal-Mart would be able to see it the same way.  It turns out that Wal-Mart refused the price increase.  According to an article from the China Standards Information Consulting Service, P&G will supply Wal-Mart with “basically no profit”.  While a huge company like P&G might be able to weather Wal-Mart’s unreasonable demands, the article further explains that small suppliers don’t stand a chance.  “Some suppliers will have no choice: either supply Wal-Mart goods while not raising prices and wait to die or raise the prices and court death.”

Wal-Mart Raises Quality Standards, Supply Chain Profitless [China Standards Information Consulting Service via HC360]

The world’s largest retailer, Wal-Mart, announced on October 22 that it will raise China’s supply trade quality standards.  Starting November, the process will begin with clothing and will ultimately cover all goods. 

With greater concern on food safety and product quality, Wal-Mart can no doubt gain consumer confidence.  But even with the appreciation of raw materials and labor costs on the supply trade side, Wal-Mart has raised prices very little – it’s always been requested that the costs of raising standards be dealt with “in house”.  Under these circumstances, the supply trade will become even more depressed.  Some suppliers will have no choice: either supply Wal-Mart goods while not raising prices and wait to die or raise the prices and court death.

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So, every few months Wal-Mart holds a meeting to crack down its suppliers for one reason or another. What makes this one different enough to earn coverage in every major newspaper in the country? We’re not sure, but it definitely gave Lee Scott an international podium to further shift ethical responsibilty away from Wal-Mart and tell all of China to “do as I say, not as I do.”

Women’s Wear Daily gives what is definitely one of the most absurd quotes we’ve heard from Lee Scott in a long time (links added by me, but he might as well have put them in himself ):

“I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts — will ultimately cheat on the quality of its products,” said Scott. “And cheating on the quality of products is the same as cheating on customers. We will not tolerate that at Wal-Mart.”

That sounds like someone I know, I just can’t put my finger on it…

A couple other interesting bits. The Financial Times quotes a grumbling supplier:

“It’s going to make things a lot worse,” said one manufacturer at the meeting, who asked not to be identified. Others were more relaxed. “If they don’t like it, they are not going to be doing business with Wal-Mart,” said one US-based Wal-Mart supplier who sources components from China.

The New York Times’ Dot Earth Blog asks what might be the fundamental question:

Wal-Mart has been working to improve its image and lighten its environmental impact for several years now. Of course, as some campaigners against over-consumption have pointed out, Wal-Mart is still selling consumerism even as it pledges to cut the social and environmental costs of making the stuff in its stores. Can we have it all? Can we have cheap shirts and disposable batteries in a world heading toward 9 billion people seeking a decent life? I guess we’ll find out one way or the other.

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Wal-Mart has already acknowledged (PDF) the fact that illegal logging goes on in its wood supply chain. A new investigation by The New Yorker follows lumber from the forests of Russia to the toilet seat aisle of Wal-Mart stores.

Taking six years to eliminate illegal logging from its supply seems like a long time for a company that can get Procter and Gamble to sell concentrated laundry detergent in a matter of months, don’t you think?

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U.K. dairy farmers are outraged over the latest price war between Wal-Mart owned Asda and rival Tesco.  Last week, the grocers announced price cuts on milk, which farmers argue will devastate their industry.  For farmers coping with escalating production costs, the price cuts arrive at a most inopportune moment.  Asda, however, is applauding itself for its efforts, relishing in the fact that the prices are the lowest they have been since 2001.

Asda claims that the move is an investment for its customers and that it will not affect the dairy farmers.  But farmers justly harbor immense skepticism, noting that the average selling price has increased from 41.2p to 51.6p per liter (a 22% rise) since 1995, while their profit margins have decreased from 24.5p to 18p per liter (a 27% decline).

According the British National Farmer’s Union, this brutal monopsony has contributed to the sharp decline in farmers – down to 2,000 from 5,000 – over the past 10 years.  Ironically, while farmers have suffered, Asda’s own profit margins on milk have actually risen from 1.3p to 15.6p per liter (a 1200% increase since 1995).

Given Asda’s history of milking farmers for their profits, NFU frustrations are merited, especially in a tough economy that leaves no further room to bend to Asda and Wal-Mart’s monopsony.  Traditionally, when suppliers have resisted the retail giant’s price demands, the corporation has threatened suppliers, increased the shelf space of its own brands, and discontinued the stocking of a product, which has driven suppliers out of business.

But in this case, can Asda really begin producing its own milk?  Considering the steadily decreasing profit margins for the milk industry, it wouldn’t be surprising if Asda’s long term strategy included a buyout of milk farms for its own gain.  Who knows?  In the mean time, however, some farmers are considering protesting.