Question

Discussion Prompt: Vendor Pressure

The purchasing power of some customers is such that they can exert pressure on suppliers to go beyond the suppliers' customary allowances. For example, Wal-Mart represents more than 10 percent of annual sales for many suppliers, including Fruit of the Loom, Sunbeam, Rubbermaid, and Coleman. Forbes magazine reports that while many of these suppliers allow a 2 percent discount if bills are paid within 15 days, "Wal-Mart routinely pays its bills closer to 30 days and takes the 2 percent discount anyway on the gross amount of the invoice, not the net amount, which deducts for [trade] discounts and things like freight costs." (Matthew Schifrin, "The Big Squeeze", Forbes, March 11, 1996).

Identify two ways in which Wal-Mart's practice benefits Wal-Mart.

Do you think this practice is unethical, or is it just good cash management on the part of Wal-Mart?

Are the suppliers harmed by it?

What biblical themes can/do apply to this situation?

Answer 1

Two benefits that Walmart gain from this practice:

1)Late payment of cash to the supplier will have impact on working capital as there will more cash at the time of need, less cost of capital and a discount with it will be a combo for Walmart.

2)As there is less cost of Capital and discount,Walmart can give more offers on their product that can attract it's consumers.

I think this is not Unethical as the Supplier continue to supply its product to Walmart that means Walmart is buying them in bulk and it's purchasing power is forcing the supplier to offer discount.However, Walmart must not continue to do such act as it may have negative impact on Supplier working capital.

Here,we must say that it harm Supplier as the discount may be offered to Walmart due to its high purchasing power but it is acceptable once in a while but not everytime and with it many other buyers from such supplier may ask for such discounts.

Although Walmart is their major customer to such supplier it would be difficult for such supplier to offer discounts at delayed paymet days.Hence,The only way available that won't make us to lose such potential consumer is to Decrease the percentage of discount offered and make such agreement with that Walmart as the Supplier is also getting an advantage here that there won't be any bad debts for these 10% of sales and also their brand image will be increased due to Walmart and also Walmart are regular purchaser of goods.