Wal-Mart: Trading Made Simple
https://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart
In class we have discussed trading networks. From the general seller-to-buyer graphs, to including a middle man trader between the sellers and buyers. However, when in class we have only really looked at a basic level of these graphs, with typically only one level of traders (perhaps to simplify all of the trading), but in reality, the trading game is a large web of traders interacting, becoming buyers and sellers repeatedly over and over again themselves. As we see in class, every time an item makes its way “through” a trader, it goes in one price, and it comes out at a higher price. Now, imagine this in real life, with a multitude of traders interacting with one object. Before this object makes it to its eventual final buyer, it has gone through several traders, which each one effectively increasing the price of the object. This problem was recognized in the 1980’s by Sam Walton, the founder of Wal-Mart.
Upon its founding, Walton had Wal-Mart begin working with suppliers more directly, and ship merchandise himself, getting rid of the middle trader whom traditionally took care of shipping. After gaining traction, Wal-Mart branched out to more sellers, searching for the best price for the desired merchandise. Once establishing a relationship with sellers, Walton would make deals with them. He would offer them long-term deals, always buying in large, bulk quantities, in exchange for lower prices. Sellers accepted these deals even with lower prices, because they know now that they would sell more of their product, making more money in the end for themself, while keeping the unit price of merchandise lower than usual. In turn, since Wal-Mart was trading directly to buyers, there was no inflation of the prices. Buyers found their products at Wal-Mart for extraordinarily low prices.
Over the years Wal-Mart has expanded their supply chain management to one of the largest and best managed in the world. This bypassing of others in the trading web and making themselves a singular middleman has allowed Wal-Mart to grow to become a dominant trader, since they provide both the sellers and buyers with what they want. Wal-Mart is ok with giving their buyers very low asking prices (low balling the competition), because they know that they will move enough volume to overcome the low price. Wal-Mart effectively found the problem with the extensive trading market and web, and used it to their advantage to become the largest merchandise trader on the globe.