The Supply Side: Wal-Mart asked more from suppliers in 2017, the same shaping up for 2018

When Wal-Mart Stores kicked off its annual Year Beginning Meeting in February, president and CEO Doug McMillon told suppliers: We want the absolute lowest prices in order to deliver on the retailer’s “Everyday Low Price” mission.

McMillon said he expects more turbulence in the retail sector in the coming years, but reiterated the company’s efforts to win with customers, saying suppliers can help with new product innovation and rock-bottom prices. The expectation of suppliers by Wal-Mart is they will do what it takes to help the retail giant grow sales.

One of the biggest challenges for suppliers and opportunities for Wal-Mart is the growth of omnichannel retail.

“Omnichannel is the only channel,” said Jami Dennis, CEO of VendorMasters in Bentonville. “The ability for consumers to seamlessly shop from one channel to the next is essential. From following their favorite Instagram fashionista to mobile check-out, suppliers will have to find new ways to connect with consumers.

“In addition, suppliers will be challenged on how to get their products to the consumer faster, stepping up their responsiveness … decreasing lead times and investing in better fulfilment options to keep up with the latest industry delivery standards.”

Dennis sees the growth of online as one of the biggest challenges in 2018. Wal-Mart’s intent focus on growing online sales and marrying them with brick-and-mortar flips the old formula used by suppliers to grow sales out the window.

In years past, suppliers relied on growing new stores as a big part of their own sales growth formulas. But with Wal-Mart expecting to open fewer than 15 new Supercenters in the U.S. next year, and less than 10 new Neighborhood Markets, suppliers are being forced to rethink their growth strategies.

Suppliers have fewer opportunities to get added shelf space in brick-and-mortar, which means they are being asked to do more with their online businesses. For supplier teams in Bentonville that have served new stores in the past, that’s a significant change.

The expansion of grocery pickup to more than 1,000 U.S. locations is one way Wal-Mart was able to put up big numbers in the first half of 2017, specifically in online sales, which jumped 63%. Ken Cassar, principal analyst at Slice Intelligence, said the growth of online grocery has been the most important catalyst for growth of Walmart U.S., accounting for 26% of the retailer’s sales online in June. That was more than Sam’s Club and Jet combined. That metric has improved from just 8% or so a year ago.

Cassar said Wal-Mart’s online grocery sales nearly tripled in the past year while SamsClub.com and Jet sales are smaller in relation to the retailer’s overall U.S. e-commerce sales. An analyst with Kantar Retail said suppliers who counted on more new stores for their sales growth are finding themselves scratching their heads. Suppliers are being asked by Wal-Mart to take a bigger role in merchandising their products online as well as in stores through technology-enhanced displays and in-store demos.

PRIVATE LABEL
Dennis said the growth of private label is also a challenge to suppliers as retailers are looking to differentiate themselves from the nationally branded online offerings.

“A possible game-changer would be the online retailer Brandless, with $3 private label pricing and a charitable platform for feeding the hungry,” Dennis explained. “Suppliers will have to continue to raise the bar for quality sourcing for their private labels and better manage costs on their national brands in order to remain competitive in the marketplace.”

She said every year suppliers have to learn to do more with less, and it’s even more essential that companies work out the efficiency in their process to ensure they are truly offering the best product for the best price.

“Greater investments will need to be made in analytics to ensure companies are keeping ahead of the changing market,” Dennis said.

She also referenced a quote made often by Wal-Mart founder Sam Walton: “You can’t keep doing what works one time; everything around you is changing. To succeed, stay out in front of change.”

ON-TIME, IN-FULL
It wasn’t just low prices, private label and e-commerce growth Wal-Mart emphasized to its supplier base this year. The retailer also ushered in new guidelines for product delivery with the On-Time, In-Full (OTIF) initiative, which created steep fines for missing the new guidelines.

On Aug. 1, Wal-Mart began fining full truckload suppliers who didn’t meet the 75% on-time delivery ratio using a one-day window, compressed from three or four days prior. The ultimate goal of 95% is quite ambitious, according to Ed Oldham, vice president of flow at Walmart U.S.

Oldham said the retailer is nowhere near reaching the 95% goals, but progress has been made. The fines were stiff, totaling 3% of the shipment invoice for shipments that didn’t meet the new guidelines.

Wal-Mart has defended its strategy on product delivery, saying the old four-day window made it impossible to accurately assess the labor needed at the distribution centers and stores. Kathryn McLay, senior vice president of logistics at Walmart U.S., said the old 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.

“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.”

The retailer said as progress is being made in OTIF, in-stocks have gone up, and while there are still a vast number of issues to resolve, setting the goals was an important first step.

Colby Beland, vice president of sales and marketing for Fayetteville-based CaseStack, said the recent rhetoric from Wal-Mart with respect to OTIF guidelines was quite positive amid a perfect storm brewing in the transportation supply chain sector. He said Wal-Mart knows there are challenges with getting to a 95% OTIF goal, and he believes the retailer will be extending the timeline for that new goal beyond early 2018, as originally expected.

Beland said Wal-Mart is not building additional regional distribution centers, and that means it’s going to have to improve the flow in the 42 it already operates. He said Wal-Mart has to do a better job itself handling the freight, and the retailer knows it.

The suppliers meeting today’s goals are incurring added shipping costs to do so, Beland said. That’s because of the tight trucking capacity not expected to abate anytime soon. Beland said full truck load suppliers hitting today’s goals are incurring between 6% and 10% higher shipping rates, and that’s a direct conflict with Wal-Mart’s mission to drive costs out of the supply chain.

“Shipping rates are outside Wal-Mart’s control, and I see them making some adjustments in short- to near-term,” Beland said. “We will find out when they share the new guidelines after the first of the year.”
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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.