As the last farewell party for Bruce Peterson, — who has left Wal-Mart after being the visionary who built its produce operation — wound to its close, we published Wal-Mart Continues To Change Its Buying Practices.
Today we had a nice conversation with Ron McCormick, vice president of produce. Ron came to Wal-Mart from Food Lion, though he worked with Bruce when both were at Meijer, and for many years, Ron has run produce as Bruce went on to a broader perishables responsibility. Ron called today to elaborate on our article and, more generally, Wal-Mart’s buying structure and changes it is undergoing.
Ron wanted to correct a misperception that was drawn from a Wal-Mart representative’s presentation at the Southeast Produce Council regarding “Opportunity Buys.”
Opportunity Buyers handle what used to be called “Special Buys” — these are purchases made in addition to Wal-Mart’s planned and contracted purchases from its vendor base.
There are now four Opportunity Buyers working regionally out of offices in Texas, Utah, Illinois and Florida. Each Opportunity Buyer handles certain commodities on a national basis. So Tom Holbert, who spoke at the Southeast Produce Council that kicked off this discussion, is the senior buyer in the Winter Haven, Florida office. He handles Opportunity Buys nationally for tomatoes, citrus, grapes and tropical items.
Tom is both well liked and well respected. What he forgot to mention was the importance of having a Wal-Mart vendor number. Although Opportunity Buyers are there to, well, seize opportunities, they are somewhat restricted in who they can deal with.
At very least, Wal-Mart has its accounting rules, and the bottom line is nobody can get paid without a vendor number. And getting a vendor number can take time. There is paperwork, license review, food safety issues and other matters to resolve. So, generally speaking, if a supplier has never done business with Wal-Mart and doesn’t have a vendor number, the supplier can call Tom or the other Opportunity Buyers and even if there is a great deal to offer, the most likely response is going to be: “That is a great deal. Let us start working on getting you a vendor number so that we can do business next time around.”
There is one way around the system, though, if the offer is compelling and Wal-Mart really wants or needs the product, a vendor might be directed to one of Wal-Mart’s major vendors, who might buy the product and then resell it to Wal-Mart.
Of course, Wal-Mart Opportunity Buyers are generally restrained by the fact that Wal-Mart has vendor relationships and obligations to buy product, so a low price is not an opportunity if it will overload the system. Also, Wal-Mart is big, so a great deal on half a trailer of something probably isn’t significant enough to get involved with.
Theoretically, though, Opportunity Buys could allow Wal-Mart to help growers by taking surplus product off the market and getting it in to the hands of consumers. Assigning specialized Opportunity Buyers segmented by commodity should allow them to gain expertise and to be held accountable by Wal-Mart’s core procurement staff if the Opportunity Buys start to disturb the overall program.
The bigger event, though, is that Wal-Mart is not only switching from Distribution Center assignments to dollar volume assignments. It is also reclassifying its vendor relationships to better reflect reality.
When Wal-Mart was much smaller in produce — remember that when Bruce Peterson started there fifteen years ago it only had six supercenters — Wal-Mart adopted the policy of treating every vendor alike. So the largest and the smallest got access to the same information.
In truth it has been some years since Wal-Mart could actually treat every vendor alike. There are too many and they have wildly different capabilities and interests.
So the decision has been made to recognize the de facto reality by reorganizing the vendor base. Now some vendors have been classified as Strategic Suppliers and others have been deemed Tactical Suppliers.
In many ways it is just an acknowledgement of the obvious. Wal-Mart has been sharing strategic information on its growth plans with its major, multi-commodity, vendors such as C.H. Robinson and Del Monte Fresh (which acquired its place as a result of its acquisition of Standard Fruit and Vegetable Company) and not with every small vendor who had one DC assignment on one commodity.
Although being relegated to the role of Tactical Supplier may be bruising to the ego, it may have no influence on sales. As long as companies meet the metrics and do what they are supposed to, Tactical Suppliers can expect to keep selling Wal-Mart year after year.
And there are some advantages to being a Tactical Supplier. A long time problem for Wal-Mart is that vendors have moved to plan for what they think Wal-Mart will need. They build facilities, buy acreage, etc. Then if Wal-Mart changes its plans or reorganizes distribution systems, those facilities and acreage wind up being in the wrong place at the wrong time. Sometimes two vendors with a nearby DC assignment would build similar facilities 50 miles from each other, both to service Wal-Mart business, when it would have been more efficient to have one facility near the DC and another 500 miles away. Now Wal-Mart is specifically urging Tactical Suppliers to not invest in anticipation of what Wal-Mart will want — without first getting a written commitment from Wal-Mart as to what it actually wants.
In addition, many vendors have been forced over the years to get involved in running reports and studying customers and other things which they are not particularly competent in doing. A select few companies wound up thriving on it, they became much better, more sophisticated companies and were better able to sell and service not only Wal-Mart but other customers as well.
For many, however, it placed Wal-Mart business in the “unobtainable” category or sharply limited how much Wal-Mart business they could handle. Now, with the introduction of the Tactical Supplier category, many quality shippers can, for the first time, compete for Wal-Mart business without worrying about their abilities to decipher the mysteries of Retail Link.
Wal-Mart expects that between a third and 40% of its produce purchases will be through Strategic Suppliers, which leads the bulk of its business available for Tactical Suppliers.
Strategic Suppliers will have far greater influence than ever before. They will be shown more information than they had been shown previously and will work with Wal-Mart under a 5 year strategic plan.
Much of this reorganization has been made possible as Wal-Mart’s vaunted IT capabilities came to focus on produce. In the early years produce was working off of Wal-Mart’s general merchandise system and was dependent on vendors to produce a lot of information very helpful in running a produce department. For years the Monthly Executive Summary that each vendor was required to produce, was like the Bible in the way it ruled what could happen and what couldn’t. Now Wal-Mart can produce, internally, much of that data with the push of a button.
Ron was philosophical about Global Procurement. He acknowledged that for corporate reasons, as we elaborated on in our original piece, this was a vitally important initiative to Wal-Mart.
Yet he felt very optimistic about companies such as Pandol Bros. Co., whose investments and contacts outside the U.S. add real value. Many Wal-Mart vendors that had never been importers, became importers over the last decade as they attempted to provide 52 week sourcing on their items. The importance of that competency to Wal-Mart is fading as its Global Procurement operation picks up steam. Still, Ron spoke as one who has seen the “latest best thing” come and go a few times in his career and he seemed to expect that, one way or another, Wal-Mart would wind up buying quite a bit of imported produce from U.S. firms for a long time to come.
The move away from DC assignments requires, as Ron acknowledged, for them to work smart and to work cooperatively with vendors. If a Florida tomato grower gets assigned to deliver his business to California, it means someone messed up and it has to be rectified. Besides, it violates Wal-Mart’s sustainability initiative with its emphasis on food miles.
Still, one of the great appeals for a shipper of receiving DC assignments — steady 52 week-a-year business — is less likely to transpire.
Global Procurement is part of it, Opportunity Buys another part of it, and locally grown initiatives are still another issue. The Celery Vendor from California has to know that when Michigan Celery is shipping, stores in that region will carry it. When New Jersey celery is shipping, stores in that region will carry it as well. When Delaware potatoes ship, the Colorado product will be displaced in that region.
There is certainly inconvenience in this, but Ron believes that the answer is better planning and closer coordination so that whatever happens, nobody is surprised.
In fact, Wal-Mart utilizes a Management by Objective system, and this year one of the major objectives is to get everyone — Wal-Mart executives and vendor executives alike — to put things in writing. To clarify expectations, to avoid taking actions based on what individuals think or assume the other parties’ plans or needs might be.
Nobody in the world faces a produce job on the scale of running the Wal-Mart produce operation. One can disagree with Ron, have doubts, and long time vendors certainly can be uncomfortable with change. Yet nobody can deny he has it all thought out.
A word about Ron: He has long been underestimated in the trade. While Bruce built a great edifice that touched the sky, Ron has kept the electricity and water flowing to every floor Bruce built.
Ron’s burden has been that no man looks tall standing next to a giant and Bruce is a giant. Now that Bruce is on to new things, Ron seems strangely taller than before.
Many thanks to Ron for taking the time to help the industry understand better what lies ahead for the produce trade in dealing with Wal-Mart.