Wal-Mart is amending supplier contracts to control costs

This week Wal-Mart Stores confirmed it began sending out amended agreements with approximately 10,000 of its suppliers in hopes of better controlling costs.

Cutting costs is a major agenda for Wal-Mart Stores because reducing product costs with its suppliers helps to fuel the retailer’s everyday low cost production wheel which is the basis for its everyday low price strategy.

Wal-Mart said the goal of the new agreement is to bring more simplicity and consistency to its supplier relationships.

Wal-Mart CEO Doug McMillon told supplier at the retailer’s year beginning meeting in February that it would demand the lowest prices from its suppliers this year. He reiterated the point to analysts on June 5 saying that loyalty programs don’t work long term and the only strategy that Wal-Mart is using is “everyday low price” because that does build trust overtime with consumers.

The retailer told the Arkansas Democrat Gazette that supplier agreements typically are renewed year to year. The contracts outline payment terms, when and how merchandise is supplied, supply chain details such as warehousing, relevant chemical information and other conditions of sale.

The new amended contracts focus on five areas according to Deisha Barnett, Wal-Mart corporate spokeswoman.

She said the new terms will "more closely align us (Walmart) to those offered by major retailers and companies in related industries."

Deadlines and specifics of the contracts will vary from supplier to supplier, according to Barnett.