The Supply Side: Wal-Mart exec tells suppliers why OTIF was needed, says bar is high but necessary

by Kim Souza ([email protected]) 2,381 views 

Wal-Mart said without great product availability on its shelves, its promise of delivering low prices is empty. That is why the retail giant recently upped the ante on supply chain excellence and revamped delivery requirements known as On-Time-In-Full (OTIF).

Suppliers (full-truckload) who don’t comply with the new OTIF guidelines of 75% on-time and in-full deliveries are being fined 3% of the total invoice, according to rules put in place earlier this month. Kathryn McLay, senior vice president of logistics at Walmart U.S., said the retailer doesn’t want to be in the business of fining suppliers, but it’s necessary that everyone, including Wal-Mart, do a better job with the flow of goods from the manufacturer to the shelf.

McLay was the speaker at the WalSreet Breakfast in Bentonville on Wednesday (Aug. 30), a Greater Bentonville Chamber of Commerce event held at Sam’s Club home office. McLay said in looking at Wal-Mart’s inventory flow two years ago it became clear improvements were needed to reduce the variability at its more than 100 distribution centers with billions of case of goods.

She said the four-day delivery window in place made it impossible to accurately measure labor needed at distribution centers and stores. She said the four-day window was more like a 10-day spread in many cases which was too inefficient for a retailer looking to shave expenses in order to keep costs down and prices low.

McLay said instead of Wal-Mart’s distribution center managers directing the product flow it was by default being led by suppliers who sent their shipments on time or early because the protocol was a first in, first-out system. McLay said this resulted in a less-than-efficient supply chain which is why the retailer sought to shrink down the variability.

“We need that accuracy to make sure we are not having to hold extra inventory in our DCs (distribution centers) and clogging up the system that slows us down,” she said. “We need to ensure we have adequate labor to receive the inventory when it comes in.”

She said the shift from 75% to 95% OTIF, which is required by early next year, is doable. While Wal-Mart is giving suppliers time to prepare, she said customers don’t give Wal-Mart a 95% threshold for having products on the shelf.

“If customers can’t find what they need on our shelves 100% of time they will penalize us. Full-shelf availability is the standard Wal-Mart is held to and we need our supplier partners’ help,” McLay said.

Some suppliers have been openly critical of the new delivery focus, and McLay admits the bar is high, but said it’s not any higher than the goals Wal-Mart has set for itself. She said the OTIF scorecard gives transparency and offers one version of the truth. She said the retailer doesn’t want to see suppliers debating the numbers but rather working toward a common goal to meet the OTIF requirements.

McLay said OTIF is not just something Wal-Mart conjured up on a whim. She said the retailer spent two years examining the flow of goods and knew change was needed to improve efficiencies top to bottom. She said 1.5 years ago suppliers were told this is the direction Wal-Mart is moving toward. Early this year when program details were rolled out at the Supplier Summit in Bentonville there was an eight-month cushion to allow suppliers to get onboard. She said the 75% threshold for full truckload was a good place to start but 95% is the ultimate goal.

“When we look at how far we have come since February, it’s really pretty amazing at the progress made. But we’ve got more work to do before we reach our high expectation,” she said.

Suppliers were able to ask McLay a few questions following her prepared remarks. Top of the list was a question about how Wal-Mart plans to deal with Hurricane Harvey and the delays in shipping and closures of DCs. McLay said it was too early to know how the natural disaster is going to impact OTIF scores. She said the retailer’s first priority is to see its employees and customers get what they need and that everyone is safe. She said the Harvey impact will show up in the numbers for September and Wal-Mart will have more to share at that time.

Suppliers also wanted to know about the in-full requirement of the OTIF protocol saying if their order is a box short because it was dropped in the DC is Wal-Mart still going to penalize them.

“We are not grabbling over one case. We have looked closely at the receiving discrepancies and in most cases find they are not having a material impact on of the OTIF numbers. If you think there is a receiving error bring it to our attention,” she said.

Wal-Mat also said there is a two-week lag on the OTIF scorecard in order to catch receiving errors.

Smaller suppliers asked about getting credit for shipments being on time if they sit in the yard two days and get unloaded a day late because they didn’t have a delivery appointment at the DC. Wal-Mart said it doesn’t know the product is there until it enters the building. If the order is in the yard on time, but delivery is going to be late because of no-appointment then suppliers can upload the data via excel spreadsheet into Wal-Mart’s system and get on-time credit.

Wal-Mart also said OTIF is the same for branded and private label suppliers, and is not optional for anyone including Wal-Mart who handles freight for some of its suppliers. McLay said a supply chain that runs efficiently is good for all concerned. She said customers win because they can find what they need on the shelves, suppliers win because they get credit for the sale and Wal-Mart wins because it can deliver on its promise to customers and grow top line revenue in the process.
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.