Retail replenishment got a little trickier with the announcement, by Walmart, that the retailer is instituting stricter supplier requirements for On Time In Full (OTIF) inbound deliveries to its distribution centers. There is now a cost to non-compliance. Items that are late or missing during a one-month period will incur a fine of 3 percent of their value.
Suppliers are understandably concerned with retailer policies such as this. But, rather than using this as just more fodder to feed supplier angst over chargeback fines, suppliers can use this as an opportunity for differentiation.
Walmart clearly sees a huge financial advantage to on time in full in terms of operating efficiency. Suppliers who step up to meet the new KPIs can gain favored supplier status and earn more market share.
OTIF for Store Replenishment
Walmart’s OTIF policy has been implemented to improve efficiency. With increasing competition from Amazon, “Walmart has to find efficiencies wherever it can,” says Laura Kennedy, an analyst at Kantar Retail in a recent Bloomberg article. “They’re trying to squeeze and squeeze and squeeze.”
Here are the main elements of the policy in a nutshell:
- Full-truckload (FTL) suppliers of fast-turning items – groceries, paper towels – must, according to Walmart “deliver what we ordered 100 percent in full, on the must-arrive-by date 75 percent of the time.” For FTL, this KPI will climb to 95 percent as of February 2018
- Items that are late or missing during a one-month period will incur a fine of 3 percent of their value.
- Today, LTL suppliers are expected to deliver on-time 33 percent of the time. This KPI will rise to 36 percent on time in full delivery as of February 2018
Walmart is not unique in pressuring suppliers to comply with ever-increasing routing demands. A KANE/Auburn University study on retailer-supplier relationships found that, among the 110 supplier contacts interviewed, small to mid-sized suppliers are particularly frustrated at their inability to connect with their large retail customers on compliance and other issues. As one survey respondent put it: “The retailers are killing us – constantly changing delivery and inventory demands and then imposing punitive actions for non-compliance.”
Using OTIF as an Opportunity
Despite any uproar about the new on time in full policy, Walmart – just like other large retailers with similar policies – stands to benefit greatly from OTIF. Why? Because their set performance metrics are going to improve. Why? Because Walmart has mandated that they must improve.
It really is that simple. Big retailers hold all the cards in these situations and suppliers must meet the requirements or risk losing the business.
For suppliers, this can be a tremendous opportunity. When a big retailer throws down the gauntlet like this, not every supplier will rise to the challenge. That opens the door for those who can.
Optimize Your Operation and Vendor Performance
For Walmart suppliers, the obvious starting point for assessing compliance with the stricter requirements is where you are at today. Once you understand your current performance versus the future standard, it’s not hard to estimate the potential cost to your company (3 percent of product value) for non-compliance.
If that number looks scary, well, you’ve got some work to do.
But you’re not alone. Many 3PLs specialize in retail logistics, working with CPG companies and ship daily to Walmart, Target, CVS and large grocery retailers. Based on this experience, they are well-versed in routing guide compliance and helping small to mid-sized supplier meet retailer demands.
Need help in responding to this latest operational requirement from Walmart? Contact KANE today to discuss how you can turn this requirement into an opportunity.