B2B Payments

The Risks Of A Buyer-Supplier Power Struggle

Recent news from Walmart in Mexico put the spotlight on the retail giant’s rivalry with Amazon earlier this month, when Reuters reported that Walmart is demanding discounts from its food suppliers that also supply products to Amazon. The story emphasized the intense competition mega-retail endures today, and the impact lower prices from eRetailers have on the in-store market.

But the story also revealed the tension that such rivalries can have on corporates’ buyer-supplier relationships, and the possible consequences of a power imbalance.

Citing four unnamed sources, Reuters reported that because Amazon had lower prices than Walmart on products from the same vendors, Walmart has asked those vendors to offer the same discount to the retail chain. It’s reportedly led to some vendors to pull their products from Amazon entirely, choosing to lose the online platform rather than risk losing Walmart as a customer. Two food suppliers reportedly count Walmart for more than half of supermarket sales in the country, the publication said.

In a statement, Walmart Mexico eCommerce head Ignacio Caride told the news outlet that the company “could never tell anybody that they can’t sell to someone else.”

But suppliers reportedly told Walmart that they had no say in how much Amazon discounted their products, with two vendors speaking to the publication about the dispute.

They “said they were caught in the crossfire,” the report said. “They said their wholesale prices were the same for both retailers, but that Amazon chose to sell their products to consumers more cheaply than Walmart did.”

On source described Walmart’s strategy of demanding lower prices as “a threat, and it’s coercion.”

Beyond Late Payments

Late payments are often highlighted as a main source of tension between buyers and suppliers, and as a demonstration of large corporates buying power over smaller vendors. But as the Walmart-Amazon dispute shows, the buyer-supplier relationship has far more influence beyond late payments and cash flow challenges.

In this case, that tension can force suppliers to change their customer base and supply chains — even when a retail platform as big as Amazon is at stake.

Experts warn there are other consequences of corporates’ influence over their suppliers.

Last year, Nathan Wilmers, assistant professor of work and organization studies at the MIT Sloan School of Management, published a report on the potential consequences of corporates’ late and delayed payments to suppliers. Indeed, late payments can have a negative impact on vendor cash flow. But he correlates the issue to another trend: stagnating wages.

“When workers bargain over wages with employers, it is not just their cloud vis-a-vis their immediate employer that matters,” he wrote for The Hill last year. “A combination of rising outsourcing and consolidation of large buyers has left more and more workers employed at companies dependent on a few outside buyers for sales revenue.”

As a result, “These large buyers can effectively pressure suppliers to reduce wages,” he stated, explaining that if corporate buyers demand cost cuts, vendors are often forced to pass that squeeze onto their own employees.

Wilmers drew his conclusions from research he conducted, exploring the surge of professionals entering the workplace at B2B companies dependent on revenue from corporate customers. It’s a trend that first emerged in the 1970s, and correlates with stagnation in middle-income workers, he found.

His analysis found that reliance on corporate customers has contributed to 10 percent of wage stagnation since the 1970s.

By exploring data on vendor disclosures of sales to corporate customers worth at least 10 percent of suppliers’ annual revenue, Wilmers found that “a 10 percent increase in revenue reliance on large buyers is associated with suppliers’ wages decreasing by 1.2 percent.” Further, the longer the buyer-supplier relationship, the more wages are suppressed.

It’s unclear how (or if) Walmart’s dispute with Amazon — and the vendors caught in the middle — might impact supplier wages, cash flow and overall business performance down the supply chain.  But according to Wilmers, large corporations like Walmart should keep in mind the influence they have on the success of their supplier base, and its employees.

“These companies should explore extending codes of conduct to lessen wage pressure on suppliers, both domestic and international,” he argued.

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