Supplier, Buyer Relations Are Shifting Again as Pandemic Strains Ease

Date: Thursday, March 16, 2023
Source: Wall Street Journal

The commercial relationships between retailers and their suppliers that shifted under the strains of the Covid-19 pandemic are transforming again as companies cope with continuing changes in consumer spending and high costs across their supply chains.

Large companies including Walmart Inc. and Whole Foods Market are pressing suppliers to cut prices for goods while others have been canceling orders for products from clothing to appliances. That is a stark change from buying strategies as recently as a year ago when companies were looking to rush in merchandise to restock depleted store shelves.

Logistics experts say the retailers are looking to use their scale and buying power to gain greater control of their supply chains now that shortages have generally eased and supplier-buyer dynamics return to prepandemic norms.

“We’re starting to see the power shift a little bit back to buyers again,” said Rob Handfield, a supply-chain management professor at North Carolina State University. “They’re starting to become a little more competitive with their suppliers and putting more pressure on them.”

Retailers pressed their suppliers in 2020 and 2021 to increase production as consumers clamored for items that were in short supply from toilet paper to home fitness equipment, and as supply-chain disruptions slowed shipments.

Many retailers placed big orders early last year and rushed goods around transportation bottlenecks to ensure they had enough merchandise on hand for the fall, when consumer spending typically increases heading into the winter holidays. The result was that many retailers ended up with excess inventories and too many of the wrong items in the wrong places as Americans shifted spending to services rather than goods.

Now, many retailers are more cautious about ordering to avoid overstocking. That has left suppliers scrambling to adjust to decreased demand and requests for lower pricing as they deal with the impact of inflation on their own operations.

“The bargaining power is shifting,” said Ravi Anupindi, a supply-chain professor at the University of Michigan. “The over-inventory situation that started last year is really hurting the retailers, so they’re basically beginning to cancel orders.”

Some retailers have been asking their vendors to cut costs this year as they look to bring down prices for customers amid high inflation that has started to slow spending. The companies are pointing to falling transportation rates and declining commodities costs as they seek breaks on pricing.

Grocery giant Whole Foods, owned by Inc., recently asked its suppliers for help bringing down retail prices. Walmart late last year told its suppliers it would push back against efforts to raise prices as the country’s largest retailer returns to a position of flexing its muscle in its vendor relationships.

Target Corp. last month said it is paring inventory levels from last year’s peak, while targeting $2 billion to $3 billion in cost savings in the next few years.

The shifts are in some cases raising tensions in supply chains as suppliers seek to recover high raw-materials costs while retailers try to restrain higher prices at the checkout line that could dampen consumer demand.

An Amazon supplier sued the e-commerce giant in December, saying Amazon had backed away from promises it made early in the pandemic to support the vendor with millions of dollars in new purchases. Vietnamese warehouse equipment manufacturer Gilimex Inc. said it had dramatically expanded its operations to accommodate Amazon’s growing operations before Amazon halted its rapid logistics expansion last year. Amazon declined to comment on the case at the time.

Suppliers are vulnerable when companies pause new orders as they’re sometimes left holding raw materials or finished goods that no longer have a buyer, said Phillip Coles, a supply-chain professor at Lehigh University in Pennsylvania.

“You think about a supplier that went out of their way to make sure that you had everything, and it turns out you ordered way too much and now you go, ‘Oh sorry, I don’t need it now,’” Mr. Coles said. “What does the supplier do with that?”

Still, some companies are trying to maintain a spirit of collaboration after disruptions during the pandemic highlighted the fragile nature of supply chains and a need to manage risks to supply chains over the long term, said Mr. Handfield of North Carolina State University.

Constellation Brands Inc., which distributes beer, wine and spirits including Corona beer and Svedka vodka, started a supply-chain financing program for its vendors during its quarter ended Jan. 5 as it seeks to help suppliers manage their cash flows and ensure vendors can deliver goods and services on time.

Retailers want their suppliers “to be competitive but they will work collaboratively with them to try to identify ways to take down costs,” Mr. Handfield said. “They’ll share forecasts with them, they’ll do joint planning with them, and they’ll actually work with them to find ways that they can jointly reduce costs together.”

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