The news this week that Wal-Mart would be breaking with its procurement companies to buy direct from suppliers, with the aim of achieving up to $12bn savings over the next five years, could hardly escape Procurement Leaders' notice. The company has incredible purchasing power and has consistently led the way on initiatives to improve its purchasing strategy and drive down costs. Yet this isn't simply removing the middle-man: the whole relationship of grower and retailer will have changed.

The establishment of four global merchandising centres certainly has significant implications for the company's ability to reach local producers and integrate direct and indirect procurement processes to reduce costs. The revamping of its procurement strategy seems in character with Wal-Mart’s legacy of leveraging its size to squeeze costs out of its supply arrangements and make the supply chain as cost efficient as possible. Back in November, the company cut its global procurement headcount by over 250 so obviously means business.

On the other side of the deal, Wal-Mart suppliers have found themselves in a bind, and the removal of a third party from the supply chain will have consequences that could well be detrimental to the relationship. Suppliers, frequently relatively small companies, are faced with the challenges of coming to a face-to-face agreement with Wal-Mart, a company that isn’t exactly known for generosity in its purchasing deals.

Though it could hardly be called surprising when you account for the potential savings involved, given the group’s commitments in 2008 to local sourcing, this move is an interesting one. The statement made back then was that ‘offering local produce has been a Wal-Mart priority for years’. Wal-Mart remains the largest purchaser of locally grown US produce, however the aggressive nature with which supply-chain costs are being reduced has led to further concerns for growers, according to industry analysts.  The simple question is: where do suppliers go if they are squeezed? And if they decide not to sell to Wal-Mart, where will Wal-Mart turn next?

With its exceptional size and influence, the trickle-down effect of its policies is well known. It seems inevitable that other major purchasers will be taking notice of the exceptional savings across the global supply chain. The outcome for suppliers is less predictable. The handling of these relationships could be key to avoiding lending weight to the view that left to deal with industry mammoths head on, suppliers get a poor deal.