Supplier Stakeholder Ethics

An integral part of Walmart’s operational efficiency is its ability to partner with suppliers in order to purchase merchandise and reduce costs of packaging and shipping. Review the Walmart Case Study in our text book (pages 408-409) and identify at least 2 issues that may negatively impact relationships with supplier stakeholders. Be specific.

Here’s the Case Study:

Relationships with Supplier Stakeholders

Walmart achieves its “everyday low prices” (EDLPs) by streamlining the company. Well known for operational excellence in its ability to handle, move, and track merchandise, Walmart expects its suppliers to continually improve their systems as well. Walmart typically works with suppliers to reduce packaging and shipping costs, which lowers prices for consumers. Since 2009, the company has worked with The Sustainability Consortium, an association of businesses that helps its members achieve sustainability goals, to develop a 

measurement and reporting system known as the Walmart Sustainability Index (discussed in further detail later in this case). Among its many goals, Walmart desires to use the Sustainability Index to increase the sustainability of its products and create a more efficient, sustainable supply chain.

In 2008 Walmart introduced its “Global Responsible Sourcing Initiative,” a list pro- viding details of the policies and requirements included in new supplier agreements. In 2012 then-CEO Mike Duke expanded upon these initiatives to set improved goals for increasing the sustainability of the company’s supply chain. He highlighted four main sustainability goals: (1) by 2017, purchase 70 percent of merchandise sold in U.S. Walmart stores and Sam’s Clubs from global suppliers that use the Sustainability Index to assess and share information about their products; (2) use the Sustainability Index as a model for U.S. private brands; (3) apply new evaluative criteria for key sourcing merchants to encourage sustainability to become a more important consideration in buyers’ daily jobs; and (4) donate $2 million to fund The Sustainability Consortium.1*If fully achieved, these goals will increase the sustainability of Walmart suppliers significantly. Company leaders stated Walmart was moving into “phase three” of its sustainability plan, which will involve “reshaping] entire systems” toward achieving sustainability goals. Further details have not yet been revealed.

Some critics of Walmart’s approach note that pressure to achieve its standards will shift more of the cost burden onto suppliers. When a supplier does not meet Walmart’s demands, the company may cease to carry that supplier’s product or, often, will be able to find another willing supplier of the product at the desired price.

Walmart’s power over its suppliers stems from its size and the volume of products it requires. Many companies depend on Walmart for much of their business. This type of relationship allows Walmart to significantly influence terms with its vendors. For example, Walmart generally refuses to sign long-term supply contracts, giving it the power to easily and quickly change suppliers at its discretion. Despite this, suppliers will invest significantly into long-term strategic and business commitments to meet Walmart demands, even without any guarantee that Walmart will continue to buy from them. There are cor- responding benefits to being a Walmart supplier; by having to become more efficient and streamlined for Walmart, companies develop competitive advantages and are able to serve their other customers better as well. Numerous companies believe supplying Walmart has been the best thing that has ever happened to their businesses. However, many others find the amount of power Walmart wields to be disconcerting.

The constant drive by Walmart for lower prices can negatively affect suppliers. Many have been forced to move production from the United States to less expensive locations in Asia. In fact, Walmart is considered to have been one of the major driving forces behind the “offshoring” trend of the past several decades. Companies such as Master Lock, Fruit of the Loom, and Levi’s, as well as many other Walmart suppliers, moved production overseas at the expense of U.S. jobs. Some experts now estimate as much as 80 percent of Walmart’s global suppliers are stationed in China. The challenges and ethical issues associated with managing a vast network of overseas suppliers will be discussed later in this case.

This offshoring trend was not founder Sam Walton’s original intention. In the 1980s, after learning his stores were putting other American companies out of business, Walton started his “Buy American” campaign. More recently, Walmart launched a “Made in America” initiative, pledging to increase the amount of U.S.-made goods it buys by $50 billion over the next 10 years and developing agreements with many suppliers to move their pro- duction back to the states. Critics argue Walmart is merely putting a public relations spin on the fact that rising wages in Asian countries and other international economic changes have actually made local production more cost-efficient than outsourcing for many industries. They also point out that $50 billion is a veritable “drop in the bucket” considering Walmart’s size. Still, the symbolic effect of Walmart throwing its considerable influence behind “Made in America” is likely to spur many suppliers to freshly consider or speed up plans to bring production back to the United States.

Ethical Issues Involving Employee Stakeholders

EMPLOYEE BENEFITS Much of the Walmart controversy over the years has focused on the way the company treats its employees, or “associates” as Walmart refers to them. Although Walmart is the largest retail employer in the world, it has been roundly criticized for paying low wages and offering minimal benefits. Walmart has been accused of failing to provide health insurance for more than 60 percent of its employees. In a memo sent to the board of directors by Susan Chambers, Walmart’s executive vice president for benefits, she suggested Walmart could slow the rise of benefits costs by hiring “healthier, more productive employees,” as well as more part-time workers (who are less likely to be eligible for health care benefits). After this bad publicity, between 2000 and 2005 Walmart’s stock decreased 27 percent.

As a result of the deluge of bad press, Walmart took action to improve relations with its employee stakeholders. In 2006 Walmart raised pay tied to performance in about one- third of its stores. The company also improved its health benefits package by offering lower deductibles and implementing a generic prescription plan estimated to save employees $25 million. Walmart estimates over 75 percent of its employees have insurance (though not always through Walmart). Walmart is quick to point out that the company’s health care benefits are competitive in the retail industry.

Despite these improvements, a Walmart policy eliminated health care coverage for new hires working less than 30 hours a week. Walmart also stated that it reserves the right to cut health care coverage of workers whose work week falls below 30 hours. Some analysts claim that Walmart might be attempting to shift the burden of health care coverage onto the federal government, as some employees make so little that they qualify for Medicaid under the new Affordable Care Act. It is important to note that Walmart is not alone in this practice; many firms are moving more of their workforces to part time, and cutting benefits to part-time workers, to avoid having to pay health care costs. However, as such a large employer, Walmart’s actions are expected to have more of a ripple effect on the economy.

Another criticism levied against Walmart is that it decreased its workforce at the same time it expanded. In the United States, Walmart decreased its workforce by 1.4 percent while increasing its number of retail stores by 13 percent. Employee dissatisfaction often translates to customer dissatisfaction. With fewer employees it is harder to provide quality customer service. This led some customers to complain of longer lines and fewer items on shelves. In the 2014 American Customer Satisfaction Index, Walmart tied for lowest among discount stores and department stores. Walmart claims the dissatisfaction expressed by some customers is not reflective of the shopping experience of customers as a whole.