Monday, February 1, 2010

Walmart to Centralize Global Sourcing, Reduce Use of Middlemen

Walmart announced a sweeping plan to consolidate its global procurement functions and reduce the use of intermediaries in its global sourcing processes, leading to savings of billions of dollars per year.

It turns out that Walmart, the world's largest importer, still relies on the use of sourcing intermediaries for the bulk of its global sourcing initiatives, buying less than 20% of its goods directly from offshore suppliers.

In addition, it often operates in a very decentralized mode, with each of the 15 countries where it operates buying goods from the same suppliers, esp. for its growing private label brands.

see the silobreaker column for more content..

The program has already been piloted over the past year. A test on combining the purchase of fresh apples across the US, Mexico and Canada resulted in savings of 10%. As a result, Walmart intends to accelerate centralized North American procurement for all fresh fruits and vegetables.

By the end of 2010, Walmart also plans move to direct procurement of linens and towels for its North American stores, as well as its clothing for its Faded Glory line and for licensed Disney character clothing.

It plans to expand the procurement strategy to other categories, including seafood, frozen food and dry packaged groceries, and to set up direct buying offices in such countries as Brazil, Chile, South Africa and New Zealand.

In 1999, Walmart acquired the grocery chain Asda in the UK, and still operates there under that banner. Castro-Wright told the Financial Times that Asda had expertise in direct sourcing, which Walmart was now planning to leverage across the globe.

The move might not only lead to reduce cost of purchased goods, but other supply chain efficiencies. It may enable Walmart to better plans and consolidate incoming shipments through improved visibility to the entire PO lifecycle.

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