The Supply Side: Grocery suppliers get a buffer day on Walmart ‘OTIF’ policy

Walmart Chief Merchandising Officer Steve Bratspies sent a memo to suppliers on Monday (April 9) detailing changes with “On-Time-In-Full” (OTIF) delivery requirements. The changes are retroactive to March 31.

“As we continue our journey of improving On-Time and In-Full (OTIF) inbound performance to 95% across the business, Walmart is committed to reviewing OTIF standards and making adjustments to benefit out customers when needed. Our focus is ensure we have product for our customers when they want it, and help drive efficiencies within our supply chains,” Bratspies noted in the memo obtained by Talk Business & Politics.

Walmart said food and consumable suppliers along with health and wellness will have a one-day early delivery option in addition to their one-day requirement. The expanded delivery option is effective on purchase orders with a Must Arrive By Date (MABD) on and after March 31.

Walmart said the new two-day option allows carriers to deliver a day earlier at regional distribution centers. This change is being implemented for truckload and less-than-truckload shipments regardless if they are prepaid by suppliers or handled through Walmart’s collection option.

Colby Beland, vice president of marketing at Fayetteville-based CaseStack, told Talk Business & Politics the ongoing capacity constraints in the transportation sector and complaints by suppliers having difficulty hitting the one-day OTIF window is likely why Walmart added the buffer day.

“Walmart knows tight trucking capacity is a problem and perhaps in looking at their own records for those customers whose shipping they handle it became clear that a buffer day was needed,” Beland said. “I believe Walmart saw the need to amend the delivery timeframe and still not compromise on their final goals. Walmart has been nothing but fair with the implementation of OTIF.”

Beland said suppliers shipping LTL are starting to feel the punitive nature of the fines for being out of compliance. He said LTL shippers have a 50% OTIF minimum requirement. If their OTIF score is 49% then they are fined on 51% of the cases out of compliance. He said this is more punitive than if they were to consolidate and ship truckload which has an 85% minimum threshold. If out of compliance at 84% then the 16% of cases are fined the 3% late fee.

He said suppliers shipping LTL can’t afford to miss the 50% OTIF threshold because the fines are steeper for noncompliance than those shipping in full trucks.

Late last year Walmart classified suppliers into four groups for OTIF compliance. The retailer said its A and B suppliers, primarily truckload deliveries, were mostly in compliance with the 85% goals set by the retailer. However, C and D suppliers, those who ship LTL and use Walmart’s transportation network, were finding it more difficult to reach a 50% threshold.

Beland said Walmart has listened to its suppliers complaining about the one-day delivery time frame particularly with the four Nor’easter storms that basically shut down transportation in the East in late February and March.

“Rather than give exceptions to the fines like Walmart did for the hurricanes last fall, they added a buffer day which they are calling an option,” Beland explained. “We don’t know if this option is a short-term thing or if will be more permanent. But for now suppliers of food and consumables have a two-day delivery option.”

SAM’S OTIF GAME PLAN
Last week Sam’s Club implemented its OTIF initiative which takes effect May 1. The guidelines were announced by Ashley Buchanan, Sam’s chief merchandising officer, at the company’sexecutive summit held last week. Beland said suppliers to Sam’s Clubs will have to meet a 75% OTIF minimum threshold by May with a two-day delivery window. Like Walmart, Sam’s Club is moving from a four-day window to the shorter two-day.

Sam’s Club will increase the requirements to 85% in 2019 with the two-day window and eventually reach the 95% threshold in 2020, keeping the two-day window.

“I think it’s interesting to see Sam’s Club start with the two-day timeframe and then escalate to the same 95% goals Walmart has in just three years time,” Beland said.

He said Sam’s Club buyers have also proactively reached out to some suppliers ahead of this announcement to ensure they understand the new terms and there is no trouble complying.

“Walmart and Sam’s Club can benefit from this flow initiative that OTIF fosters when suppliers are in compliance,” Beland said. “More suppliers are simply cross-docking now in that their products move from one truck at the distribution center straight into another truck bound for the stores. This creates a just-in-time inventory structure, but when there’s a hiccup there is no reserve stock and the chance for out-of- stocks can rise. This makes it necessary for suppliers to be on-time with every delivery shipped.”