Walmart Inc.’s delivery requirements for its suppliers got even stricter April 1 when new metrics took effect.
In 2016, Walmart announced it would implement an On Time, In Full delivery policy — OTIF — imposing fines for suppliers who deliver goods too early, too late or poorly packaged. The fines, Walmart said, would be 3 percent of the shipment’s value.
The policy originally went into effect in August 2017, and full truckload deliveries had to be OTIF at least 75 percent of the time to avoid fines. Less-than-truckload deliveries had to be OTIF 33 percent of the time to avoid penalties.
As of April 1, FTL deliveries, which had been set to increase to 95 percent OTIF, were given a 85-percent standard, while LTL requirements were bumped to 36 percent.
The OTIF policy is Walmart’s attempt to improve its efficiency and sales by getting and keeping store shelves stocked. This recognizes that a consumer who goes to a Walmart store and can’t find an item is likely to go to a Target or a Dollar General or order the item online.
“It’s a flow initiative at Walmart,” said Colby Beland, vice president of sales at CaseStack in Fayetteville, a logistical provider for packaged goods companies. “How do they get product through their distribution centers and onto their shelves for the consumer to buy without having a lot of bottlenecks in the supply chain? Walmart’s primary goal is when the consumer comes into a store that the product is on the shelf.”
Walmart competitors such as Target, Kroger and Walgreens have similar policies, so this isn’t a case of Walmart playing the bully. Bloomberg reported this past summer that some of Walmart’s suppliers had OTIF success rates as low as 10 percent, according to a presentation by Kendall Trainor, Walmart’s senior director of operations support. Ten percent success is a nice way of saying 90 percent failure.
“Walmart is punitive but they are really not any more punitive than any other retailer,” Beland said. “If [retailers] don’t hold the supplier accountable and they don’t make them work to comply, then there’s no reason for the supplier to not ship when they want to ship and ship how they want to ship. That creates backlogs that make it very inefficient. That ends up costing the retailer money.”
Beland said enforcing a stricter OTIF policy can be an expense-free revenue generator for Walmart. Walmart isn’t investing any money in the policy, but if it improves product availability, it will improve in-store sales.
“It’s about having the product on the shelves and in the stores in their current supply chain without them investing any more dollars,” Beland said. “They already have that built. If they can improve the flow of goods through distribution center, they can put those dollars into e-commerce.”
Walmart and other retailers’ delivery policies are running up against the current supply chain environment. Deliveries are made by trucks and truck drivers, and that industry is straining at the seams because of tight capacity and driver shortages.
Beland said another difficulty is faced by smaller suppliers who use LTL deliveries that are not as meticulously pre-scheduled as FTL deliveries from major suppliers. Clorox, which does huge business with Walmart, knows to a pretty pinpoint degree how many whats are going where and when.
Smaller suppliers, who often combined shipments with others, are more ad hoc. It’s one reason Walmart’s requirement for LTL is much lower at 36 percent than FTL’s 85.
“LTL carriers, which is the majority of the suppliers being affected by OTIF, their network is not designed to deliver on a single day,” Beland said. “A LTL doesn’t schedule a delivery to a Walmart [distribution center] until the freight arrives at the terminal. If my freight arrives today and it is due tomorrow, and I go to schedule appointment for tomorrow and there is no appointment because everything is taken in the system, how are you going to deliver on time?”