Supply Chain Costs and the Robinson-Patman Act
by Steve Banker
(Originally published on Forbes.com here)
There is a rarely litigated – but often irritating – antitrust and distribution law known as the Robinson-Patman Act. The Act prohibits sellers from setting different prices for competing purchasers of like commodities, except when justified based on differences in volumes or cost of sale.
In short, if a large supplier is selling the same product to Sam’s Club and a small grocer, the manufacturer may legitimately offer a lower cost to Sam’s Club if they can show that because the giant retailer orders in truckload quantities, they have lower transportation and production costs associated with serving Sam’s.
Interestingly, trends in supply chain management may make this supply chain defense much less viable:
- Demand driven supply chains need quicker turnarounds, so retailers are ordering more often in smaller quantities. Thus, the ability to claim lower cost production based on big orders decreases. This is because smaller orders mean smaller production runs, more change overs, and higher production costs.
- Large retailers are more apt to require special value added services, which drives up costs.
- Retailers with omni-channel initiatives are looking for drop shipments from suppliers, but the goods need to be packaged to look like they came from the retailer.
- E-commerce orders fulfilled by manufacturers on behalf of customers ordering through a retailer will be sent parcel, a much more expensive option.
On the other hand, total cost to serve modeling and analytics are becoming better and more prevalent. Network modeling, from suppliers like LLamasoft and JDA, can be used to make sure a supplier will not discriminate against the little guys when they change prices for a particular customer segment based on sourcing or flow path changes to the supply chain network. LLamasoft also sells supporting data services that allow modelers to quickly gain data on things like duties and taxes by product or benchmarked transportation truckload rates by lane.
LLamasoft Landed Cost by SKU Analysis
Meanwhile more execution oriented solutions from companies like Manhattan Associates, SAP, Oracle, and Acorn Systems, can be used to prove that no discrimination has occurred.
ARC has long been a proponent of understanding supply chain costs at a granular level. Legal compliance is just one more reason these kinds of solutions are so important. But, the main reason these solutions matter is so that companies can make smarter decisions day in and day out.
734-418-3119 ext 1400