Supplier Power (and Energy) at Wal-Mart
According to Porter's Five Forces, a firm's supplier has power over it to the degree that the following conditions are met:
a) It is dominated by a few companies is & more concentrated than the industry it sells to
b) It is not obliged to contend with other substitute products for sale to the industry
c) The industry is not an important customer of the supplier group
d) The supplier group’s products are differentiated or it has built up switching costs
e) The supplier group poses a credible threat of forward integration
Accordingly, to protect their bottom lines, strategically-managed firms like Wal-Mart take a variety of measures to offset supplier power. A recent Reuters article entitled "Wal-Mart to look at suppliers' energy efficiency" provides a new twist on this idea in part because of the way this aspect of market strategy is linked to a non-market issue- climate change:
Wal-Mart Stores Inc has formed a partnership with the Carbon Disclosure Project to look for ways for its suppliers to better manage their energy efficiency, as part of its environmental push, the company said on Monday. Under the partnership with the not-for-profit organization, which collects greenhouse gas emissions data from large companies, Wal-Mart will measure the amount of energy used throughout its supply chain, and use the method on a group of its suppliers to look for ways to make procurement, manufacturing and distribution more energy efficient.The world's largest retailer said it will kick-start the plan with a pilot group of seven commonly used products: DVDs, toothpaste, soap, milk, beer, vacuum cleaners and soda. Suppliers will be encouraged to monitor and manage their greenhouse gas emissions and reduce Wal-Mart's "total carbon footprint, John Fleming, Wal-Mart's chief merchandising officer, said in a statement. "This is an important first step toward reaching our goal of removing nonrenewable energy from products that Wal-Mart sells," Fleming said. Wal-Mart, under the Sustainability 360 plan, which it unveiled earlier this year, has set a goal of one day using only renewable energy and creating no waste, challenging its suppliers, customers and employees to do the same. As part of the plan, it has constructed experimental stores to test ways to conserve water or electricity, and will ask its electronics suppliers to fill a scorecard to evaluate their products based on energy efficiency and durability, starting next year.
No word on how the Behemoth of Bentonville will reward the highest-scoring suppliers for helping it become the Green Giant get a greener bottom line. Nor does the article reveal how it might punish suppliers who fare poorly. Chances are, however, that if suppliers want to remain plugged in to Wal-Mart value network, they'll remember who has the power.
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