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[Suresh]

Financial Times: Walmart reveals strategic sourcing deal

Walmart, the world’s largest retailer, has made another step in its drive to take direct control of its annual purchasing of $100bn in private-label goods by announcing a strategic partnership with Li & Fung, a Hong Kong sourcing company.
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As part of the strategy, Walmart is consolidating some of its existing sourcing business with a new unit of L&F, which acts as a middle man between factories in China and around the world and European and US retailers and brands.

But Walmart has an option to take control of the unit in 2016, as it shifts towards more direct relationships with manufacturers – in effect subcontracting to L&F the creation of what will become part of its own global sourcing operation.

Its approach contrasts with other US retailers and brands that have moved away from direct control of their sourcing to cut costs. Liz Claiborne, the clothing company that was one of the first US brand companies to turn to global manufacturers in the 1990s, signed a deal last year with L&F to handle its global sourcing.
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Walmart spends about $100bn on purchasing private-label products such as its Faded Glory and George branded clothing, or its Great Value food and home products. But it currently acquires less than a fifth of these goods directly from the manufacturers, instead using third party agents such as L&F.
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In October, [Eduardo Castro-Wright, head of Walmart’s US stores] ... estimated that a shift to direct purchasing could reduce costs by 5-15 per cent across the supply chain within five years – suggesting potential savings of $4bn-$12bn if the retailer were to meet its long-term goal of shifting to sourcing about 80 per cent of purchases directly.
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Suresh

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