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Bloomberg Business Week reports that Walmart, in its never-ending pursuit of lower prices and greater efficiencies, is looking to work with some of its suppliers in the purchase of certain raw materials, believing that combined buying power will add up to reduced costs.

According to the story, “Products already being purchased with suppliers include sugar, which goes into the company's store-brand soda and five-pound bags, and paper, used in Wal-Mart's back-office printers.”

"Around the world, we found we were buying the same raw materials" that Wal-Mart suppliers buy,” Hernan Muntaner, Walmart’s vice-president for international purchase leverage, tells Bloomberg . "When you put the volume together of what we bought and what [suppliers] bought, and buy from just one supplier, you can reduce the cost."

To this point, however, “only makers of private label goods sold under Wal-Mart's house brands have joined in its so-called collaborative sourcing program. Manufacturers of branded products have taken a pass because they're loath to share pricing data and product formulas, say executives at three companies approached by Wal-Mart.”

Among those companies: PepsiCo. Bloomberg Business Week reports that Walmart has floated the notion that they could partner to buy potatoes that would be used in their respective chips, but that Pepsi is resisting.

And, the story says, “This is just the company's latest attempt at slowing expense growth. Wal-Mart is already consolidating its roster of suppliers, eliminating distribution middlemen in nations such as Japan, and taking over the U.S. trucking operations from some of its suppliers in a bid to haul goods more cheaply. International chief Doug McMillon says the company is saving hundreds of millions of dollars a year from such changes—and wants savings of over a billion dollars eventually.”
KC's View:
I’m shocked. Shocked. I cannot believe that manufacturers would be concerned that, given access to certain recipes and formulas, Walmart might be tempted to replicate them as closely as possible so that they could compete with these manufacturers.

Where has trust gone?

Of course, it seems entirely possible that Walmart could at some point tell its suppliers that they will get preferred status if they combine their buying functions, and that if they do not, selling product into Walmart will be a little more complicated. And expensive.

If we know one thing about Walmart, it is that the Bentonville Behemoth likes to start with a carrot. But there’s always a stick available, just in case...