Two Wal-Mart logistics managers spent most of Tuesday morning fielding supplier questions and explaining the reasoning behind the new On-Time-In-Full (OTIF) policy that was first unveiled by the retail giant in February at the Supplier Summit held in Bentonville.
The Supply Chain Summit hosted by Casestack in Bentonville on Tuesday was held on the Aug. 1 deadline the retailer gave suppliers to meet the new shipment guidelines. Wal-Mart said if suppliers can’t meet the targeted goals on the new OTIF Scorecards found in the Retail Link Portal, and they fall below the minimum objective because of late, early or incomplete shipments they will see chargeback deductions next month. The fee is 3% of the value of the loads out of compliance.
While that policy might look strict to an outsider, the minimum guidelines for Aug. 1 were lower than those required under the previous agenda.
Colby Beland, vice president of sales and marketing for Fayetteville-based Casestack, said Wal-Mart is not out-of-line with the policy which requires suppliers to hit a one-day window on their order deliveries. He said Target went to a one-day window in March, Kroger did it last year and H-E-B also has a similar protocol.
“I know suppliers are concerned about OTIF but it’s a flow initiative from Wal-Mart and everybody has to do their part. If Wal-Mart executes OTIF successfully then everybody supplying Wal-Mart wins because if the shelves are adequately stocked then more goods can be sold,” Beland said.
Peter Hirsch and Jennifer Shorkey, divisional merchandise logistics managers at Wal-Mart, presented the basics of the new OTIF agenda to about 100 suppliers who attended Casestack’s Supply Chain Summit.
“When the shipments are on time then we know products will be on the shelf,” Shorkey said.
Wal-Mart provided suppliers with a range of tools to help them drill down into the supply chain and check for accountability at each stop. The presentation by Wal-Mart was essentially the same given six months ago when the new guidelines were first announced. But the Wal-Mart team on Tuesday did fielded questions focused on inefficiencies with Wal-Mart’s system.
One supplier said it’s unfair for Wal-Mart to charge for late deliveries when much of the problems come from using Wal-Mart’s internal consolidation centers known as Center Point. Shorkey assured this supplier Wal-Mart is aware of the problems at Center Point and is working on the issue. Wal-Mart has 19 of the consolidation centers which are dedicated to received small truck loads of goods direct from manufacturers. The goods are packaged with other small shipments and then sent out in full truckloads to distribution centers which feed Wal-Mart stores.
Beland said that is a reason Wal-Mart set the minimum goals for less-than-truckload (LTL) suppliers at 33% instead of the 75% set for truckload suppliers, because the LTL world is not ready for one-day delivery windows. Those goals go up again at the end of the year to 36% for LTL and 95% for truckload. He said the LTL might stop six or seven times to pick up other goods once it leaves a supplier factory with a partial load. He said each time the truck stops the loads on board are at risk for damage and there is longer lead time needed with this model.
When using a consolidation center like Casestack the shipment goes directly to the consolidation center nearest the distribution center that services the stores where the product is sold. Casestack stores the product, picks the pallet when needed and loads on a full truckload direct to the distribution center which can be reached in one day. He also said because the freight moves in truck load the shipping rates are lower which helps offset consolidation charges. He said consolidation has proven to be cost effective for suppliers of all sizes and it’s one option to look at when suppliers are trying to navigate changes to their Wal-Mart business.
Another supplier concern is being charged for missing the one-day window when they rely on Wal-Mart’s system to handle their freight. Wal-Mart was clear that when there is a mistake and it’s their fault the supplier will not be charged.
Wal-Mart said the new tools provided to suppliers give them a breakdown of every purchase order for a particular period and it’s easy to see who is to blame for missing the objective. If it’s Wal-Mart’s fault because it took three extra days for the product to clear the Center Point consolidation center despite being shipped on time, then Wal-Mart will know that and take the blame.
Hirsch told suppliers who took issue with using Wal-Mart’s transportation and consolidation system they could opt out of that service and move from a “collect freight” status to a “prepaid freight” status and handle their own transportation and delivery through third-party consolidation providers. Hirsch said he was not there to promote Casestack and there are at least seven providers with which Wal-Mart works.
Casestack CEO Dan Sanker told the suppliers OTIF is not hard because his company has been preparing for to meet the new rules for the past year and half. He said their customers who now use consolidation to Wal-Mart, Kroger and or Target have a a 90% to 92% OTIF score. He said suppliers that can’t make the new guidelines under their previous arrangements should look at all alternatives because those who get the product to the retailers on time will ensure they get the sales.
“I can’t understand how a supplier could be happy with an OTIF guideline of 36%, that means two-thirds of the time their shipments are late or incomplete, and that is bound to mean lost sales. How are they going to fare against a competitor that is on-time and in-full 90% of the time? Having a low OTIF score is bad for their business and there are solutions available,” Sanker told Talk Business & Politics following the event.
Jami Dennis, CEO of Vendor Masters of Bentonville, told Talk Business & Politics the OTIF issue is not complicated but she understands the concern at the supplier level given there are fees for missing the guidelines. Dennis said suppliers will have to figure out for themselves what works in their best interest. She represents clients who handle their own freight and those who do not. Dennis said Wal-Mart has given suppliers a host of tools in their Retail Link portal to help them navigate this process.
There are plenty of brokers that can help and third party consolidators as well, but Dennis said suppliers do have to comply if they want to continue to do business with Wal-Mart. She agreed with Sanker that suppliers should want to have the highest OTIF score possible because being on time is a big part to being in-stock.
Shorkey told the suppliers by February 2018 the full truckload customers will have a 95% minimum goal and those using LTL will have a minimum of 36%, or 20 points higher than they were to start this year. She said beyond that time the LTL goals have not been set because the retailer has a team working on the Center Point system problems.
Hirsh said OTIF is also one way the retailer can carry out goals to continue reducing inventory on the heels of a $1 billion reduction last year.
Sanker said the suppliers attending Tuesday’s event had dozens of questions which were collected via a mobile application process and each one of them will be answered. Casestack has held similar forums in Chicago and Dallas on the topic. Sanker said suppliers are eager for answers to their specific questions and thanked Wal-Mart for taking part and trying to get their suppliers up-to-date on what is expected.
Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.