Walmart Insistent on Efficiency; Charging Suppliers for Late, Early or Incomplete Orders

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The Toronto Star

July 14, 2017

Long known for squeezing its vast network of suppliers, Wal-Mart Stores Inc. is about to step up the pressure. The focus this time is delivery scheduling, and the company’s not messing around.

Two days late? That’ll earn you a fine. One day early? That’s a fine, too. Right on-time but goods aren’t packed properly? You guessed it—fined.

The program, labelled “On-Time, In-Full,” aims to add $1 billion to revenue by improving product availability at stores, according to slides from a presentation obtained by Bloomberg, and it underscores the urgency Walmart feels as it raises wages, cuts prices and confronts a powerhouse rival in that’s poised to grow with its planned purchase of Whole Foods Markets.

“Walmart has to find efficiencies wherever it can,’’ says Laura Kennedy, an analyst at Kantar Retail.

“They’re trying to squeeze and squeeze and squeeze.”

The initiative builds on progress Walmart has made in reducing inventory and tidying its 4,700 U.S. stores after the back rooms became so cluttered it often stored surplus products in cargo trailers parked out back.

Walmart isn’t the first big retailer to tighten the deadline for vendor deliveries. Target Corp. implemented a similar policy last year as part of a broader supply-chain overhaul.

But Walmart’s vast logistics network of more than 150 U.S. distribution centers dwarfs that of any other retailer, and the company typically accounts for a sizable chunk of its suppliers’ sales: 27% for bleach-maker Clorox Co., for instance.

The new rules begin in August, and the company said they will require full-truckload suppliers of fast-turning items—groceries, paper towels—to “deliver what we ordered 100% in full, on the must-arrive-by date 75% of the time.”

Items that are late or missing during a one-month period will incur a fine of 3% of their value. Early shipments get dinged, too, because they create overstocks.

By February, Walmart wants these deliveries to be on-time and in-full (known as “OTIF”) 95% of the time. Its previous target was 90% hitting a more lenient four-day window.

“Variability is the No. 1 killer of the supply chain,” said Kendall Trainor, a Walmart senior director of operations support and supplier collaboration, in a presentation to vendors earlier this year.

Those variations can be extreme: OTIF scores for Walmart’s top 75 suppliers—including Procter Gamble Co. and Unilever—had been as low as 10%, according to Trainor’s presentation. And not one had reached the 95% long-term target.

Unilever declined to comment.

Damon Jones, a spokesperson for PG, said his company and Walmart “share a joint commitment to superior consumer service—including on-shelf availability.”

“The goals are aggressive and will require new ways of working,” warned a slide at another Walmart presentation to suppliers.

A company spokesperson was more sanguine, saying the retailer is “working closely with our vendors to help reach these targets. We know that when products we’ve ordered arrive on time, it results in happier customers.”

That’s been a challenge, though. Under previous chief executive officer Mike Duke, stores suffered from a lack of manpower to keep shelves stocked and missing products drove customers to rivals including Dollar General Corp., Walgreens Boots Alliance Inc. and German discounter Aldi.

When Doug McMillon became CEO in 2014, one of his goals was to improve what the company calls “on-shelf availability.” It has gotten better, although Walmart declined to provide specific figures.

While big suppliers should be able to invest in fancy inventory-management systems to get up to speed with the new rules, smaller businesses will feel more pain. Some don’t even know what “OTIF” stands for, according to Colby Beland, vice-president of sales at CaseStack, a logistics provider that bundles supplier shipments for delivery to retailers’ warehouses.

That confusion has created a brisk business for consultants, who are busy crisscrossing the country delivering tutorials on the program.

“OTIF is the hottest subject out there right now,” according to 8th and Walton, a consultant based in Walmart’s hometown of Bentonville, AK, which has conducted OTIF seminars in New York, Portland, Ontario and other places.

“Everybody has come to the stark realization that OTIF is here and it’s real and they better get ready for August,” Beland says.

Original headline: Walmart suppliers walk a fine line; Charging suppliers for late, early or incomplete orders latest in efficiency squeeze

Copyright 2017 Toronto Star Newspapers Limited.

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