Walmart is prioritizing inventory management, and that means big changes for its suppliers.
The discounter is rolling out new rules—and penalties—regarding when and how suppliers deliver goods, according to information obtained by Bloomberg. Starting in August, the company’s program, On-Time, In-Full (or OTIF) will require vendors to “deliver what we ordered 100 percent in full, on the must-arrive-by date 75 percent of the time.” By February, the new OTIF guidelines should be met 95 percent of the time. This applies to full-truckload suppliers that offer quick-turn items like groceries and pantry products.
The retailer expects the new policy to create $1 billion in revenue by having the right product in stores when needed with fewer overstocks, according to slides the publication obtained.
Suppliers will be charged 3 percent of the products’ value if it is late or missing during a one-month period.
Walmart has steadily been getting more stringent with its policies goal. At one time, the retailer demanded that 90 percent of deliveries hit its four-day window.
“Variability is the No. 1 killer of the supply chain,’’ Kendall Trainor, Walmart’s senior director of operations support and supplier collaboration is quoted as saying during a presentation.
[Read more about how retailers can get the right product on shelves at the right time: Your Supply Chain Isn’t as Fast as Zara’s—But it Could be]
Trainor said in some cases OTIF rates had been an abysmal 10 percent and no supplier hit the latest 95 percent goal.
A spokesperson for the retailer said Walmart 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.’’
The article also points out Walmart’s part in creating some of these unhappy customers, owing to stores that were understaffed, making keeping shelves stocked an issue.
While the new rules might sound draconian and nearly impossible to follow, when Walmart switched to barcodes in the 80s, the industry was in shock but soon adapted.
“Suppliers went crazy at first, but they all figured out how to implement it and it helped them as much as it helped Walmart,’’ Dale Rogers, a logistics professor at Arizona State University, told the publication. “This is just the next one of these things.’’
Last year, Target made a similar attempt to get its supply chain under control by tightening its deadlines, removing grace periods and enacting steep fines for inaccurate deliveries.