Walmart prides itself on being a low price leader with its Every Day Low Price (EDLP) philosophy. In order to achieve EDLP, Walmart challenges its suppliers to keep costs low and pass the savings along to the customer.
Suppliers get hit with challenges each year that impact their supply chain and cost of manufacturing. The result is having to raise the cost of their products to Walmart. Before approaching the Walmart buyer, there are ways to prepare for the cost increase conversation:
1. Collect Data to Support the Increase
Walmart will not like the idea of a cost increase. However, if it’s justified by the numbers a supplier can present, the buyer will understand the business need. Suppliers need to be prepared with all the numbers and data to support the cost increase. Without good data, Walmart will push back.
One tactic to make the conversation smoother is showing that the increase is only temporary. If it is a commodity that can suddenly go down as quickly as it went up, Walmart can be more flexible at taking the cost increase. Suppliers need to expect the request of bringing the cost back down at an agreed-upon time.
2. Monitor Competitors and Industry Impacts
Suppliers should consider if their competitors are experiencing similar issues (because Walmart will!).
Walmart will be reluctant to accept a cost increase from one supplier if others are not facing similar issues. Problems that impact multiple suppliers in one category are understandable, but one supplier having issues will find it difficult to increase their cost to Walmart.
3. Provide Accurate Numbers and Times
As with any Walmart negotiation, communication is key. In the case of requesting a cost increase, Walmart will not accept vague numbers or flexible timeframes.
Suppliers have to be very specific about the dollar amount of the cost increase. Likewise, when the cost increase hits and for how long needs a precise date. Simply telling the buyer “we may be looking at cost increases sometime next year” will not suffice.
4. Inform Walmart 60 days in Advance
All suppliers sign a Vendor Agreement with Walmart. Part of that agreement deals directly with cost increases. Specifically, Walmart requires written notification at least 60 days prior to any cost increase.
This can be an email to the buyer. Walmart will not accept verbal notification or any cost increase without the minimum 60-day notification.
5. Enter Increases in the Cost Change Scenario App
Once Walmart has accepted the cost increase, it is time to communicate the increase in Retail Link®. The Cost Change Scenario app in Retail Link® is how suppliers communicate new costs by item.
The Walmart buyer will typically not want scenarios entered here until they have given approval. Once approved, this information needs to be entered into the app to be executed in the system.
Conclusion
Negotiating a cost increase with Walmart can be a difficult sell. Suppliers need to examine all aspects of their business to ensure a cost increase is necessary before taking steps to approach the buyer.
8th & Walton helps Walmart suppliers find ways to lower their cost of doing business. Through penalty reduction, deductions management, and better supply chain practices, our team can make the cost increase easier or not necessary at all! Contact us for a free consultation.
