Walmart demands all suppliers comply with 98% on-time in-full shipment rule

Walmart suppliers have been told that on-time and in-full (OTIF) shipments must be 98% complete effective Sept. 15. Suppliers not meeting the new guidance will be fined 3% of the cost of goods. The guidance gives suppliers, who now meet a 70% completion rate, little time to adjust.

The Sept. 1 memo uploaded on Walmart’s supplier portal was authored by Scott McCall, chief merchandising officer for Walmart U.S., and Greg Smith, head of supply chain at the retail giant.

“As we continue to keep the customer at the center of everything we do, we must improve product availability to help ensure that our customer can purchase the products they want, when they want, in-store or online. To deliver on this goal, orders need to be fulfilled accurately, on time and in full. Over the last couple of years, improvements to the On Time and In Full (OTIF) program have driven increased visibility and accountability for Walmart and our Supplier partners,” the memo said.

The memo sent shockwaves through the supplier community, particularly smaller companies that utilized less-than-truckload shipments, because of so little time to move from 70% to 98%. Walmart also said the 98% requirement applies to suppliers who handle their own freight and those who utilize Walmart’s logistics for moving goods. The 98% rule is applicable across all categories.

Comments on a social media site for Walmart suppliers ranged from disbelief to outrage. One supplier said the move feels “very punitive and unnecessary” given “my carriers are getting pushed out days-weeks at a time right now because the Walmart DCs are behind,” noted Tammy McPeak McCause. Tim Carey, president of Trend Results in Dallas, said in a post he works with dozens of small suppliers and he can’t imagine any of the prepaid suppliers being able to hit the new threshold.

Walmart provided this statement to Talk Business & Politics: “The customer is at the center of everything we do and one of the best ways we can help them save time and money is by having the products they want, when they want them, both online and in stores. We appreciate our suppliers and the work they are doing to help improve availability by ensuring all the products we’ve ordered accurately arrive on time for the customer.”

OTIF HISTORY
Walmart first instituted the OTIF protocol in 2017 to try and get suppliers to do a better job of hitting must-arrive-by dates on order fulfillments. Walmart said then it was losing millions of dollars on lost sales because shelves were not being replenished fast enough. Walmart raised the bar again last year with OTIF requirements taking them from 85% to 95% for general merchandise and health and wellness. It went to 97.5% for food and consumables. Full-truckload was told to achieve an average of 87% while less-than-truckload shipments were told to average 70%. The requirements became effective in February. Walmart reported in March 2019 OTIF shipments on food and consumables were still at a dismal 40%.

Jami Dennis, CEO of VendorMasters, told Talk Business & Politics the memo was a call-to-action for suppliers who have not been managing their logistics and supply chain functions on a regular basis. Dennis has for decades worked with suppliers to improve relationships with Walmart and other retailers.

“OTIF is not new. We have been working on this since 2017 and Walmart wants all suppliers to comply with the 98% on-time and in-full deliveries of products they order,” Dennis said.

She said the short time window of less than two weeks is not a big problem for suppliers who have been in or near compliance. She said those who have not been on top of their business could see some fines in the first month, but believes most issues can be addressed by the second month.

Dennis said the best practices for OTIF can be accomplished in short order. She said suppliers must do a lead-time audit and complete data review which should take two days at the most. They will identify opportunities for better results to see which distribution centers might be late, or if there is a problem with a particular carrier. Once problems are identified, Dennis said they should be communicated to the replenishment manager at Walmart and the transportation agent. Lastly, Dennis said, if the supplier communicates the issues and root causes of problems to Walmart, they can request longer lead times or change carriers. The important thing is to collaborate with Walmart on a solution that helps products get to the stores on time, she said.

STATUS CHANGE POSSIBLE
Dennis said Walmart is also giving suppliers the opportunity to change from a prepaid status – handing their own transportation – to a collect status where Walmart handles the logistics. Suppliers switching to collect will also take a cost reduction to compensate for shipping. Walmart said collect suppliers must have orders ready to go for Walmart’s pickup and if so, the supplier is not liable for the order being late because of truck breakdown or other transit issues.

Dennis said just because a supplier may switch from prepaid to collect does not absolve them from still managing their business and following shipments with weekly monitoring. She said the onus is on the supplier to monitor the loads and communicate any problems directly to the replenishment buyer. She said Walmart may be trying to get more suppliers to switch to collect with this move. Dennis thinks more will make that move, but she cautions them to conduct weekly monitoring of their shipments for opportunities to improve overall performance.

Analysts believe this move is happening as Walmart works to roll out the Walmart+ membership program that will raise its costs to guarantee home delivery of items in expedited timeframes. But they also said Walmart’s biggest competitors in Target and Amazon already have similar requirements of their suppliers.

Dennis said Walmart is asking all of its suppliers to get their house in order. She said with the pandemic, inventory shortages have become pronounced and shelves are emptier than ever before. Walmart did give suppliers COVID-19 exemption around OTIF at the height of the initial outbreak. But that exemption ended Aug. 17.

Freight analysts with the Hub Group describe a tight capacity crunch with fewer trucks and rising costs for supplier manufacturers who are already behind after huge demand spikes in recent months. They said the timing of this change is also colliding with heightened demand for Christmas and holiday shipments.