Walmart and Costco: Quality Regulations and Supply Chain Control

SLP 3
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SLP 3
The need for large retail corporations such as Walmart and Costco to observe quality regulations and control the supply chain has pushed them to implement new production strategies that have come as a harsh reality to dairy farmers. This is no surprise in a world where corporate entities are taking over business activities from small businesses. With their financial resources, big corporate organizations have the ability to own the supply chain process right from production to final delivery to customers. It is quite depressing to see dairy farmers express their sadness over losing contracts with companies such as Dean Foods. Although the situation is saddening for the farmers and their families, it appears that there is nothing that can be done to salvage the farming traditions that have stood for decades.
The elimination of middlemen and some farmers is certainly a massive big step for retailers like Walmart and Costco. One of the key goals of a business corporation is to make profits. With the move to control the milk production process by setting up plants, companies such as Costco and Walmart are setting themselves for increased profits courtesy of reduced production costs. As shown in the article by Guebert (2019), Costco managed to eliminate suppliers like Pilgrim’s Pride and Tyson Foods as it sought to implement vertical integration in its supply chain. This meant that the company could now access profits that the middlemen were making. On the other hand, Walmart managed to own the production, transport, supply, and retail of its milk product (Guebert, 2019). The control of the supply chain process means lower transportation costs, economies of scale, and most importantly, improved profitability for the retailers. It also means that the companies control the quality of products, and they can effectively guarantee a specific level of quality of products to customers. Customers are also likely to experience consistent quality products from the retailers. This is a positive thing for retailers because one of the goals of a business entity is to ensure customer satisfaction. In addition, according to Guebert (2019), chicken and milk are traditional “loss leaders,” meaning they are sold cheaply to attract customers to the stores who would thereafter purchase other products that are profitable to the retailers. The move to control the supply chain thus saves the companies significant costs. Therefore, when viewed from the perspective of the retailers and their shareholders, the move to own and control the supply is a positive one. However, the same cannot be said for the farmers.
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