This week Walmart told its more than 100,000 suppliers about its new Supplier Quality Excellence Program (SQEP) which will measure suppliers on four areas as part of an effort to improve supply chain efficiency.
A memo from Scott McCall, chief merchandising officer for Walmart U.S., and Greg Smith, executive vice president of supply chain logistics and transportation at Walmart, outlined how the new program will work. Through SQEP, suppliers will be required to meet Walmart supply chain standards. Suppliers will be charged when product shipped through the supply chain does not meet the standards to offset any costs generated because of non-compliance, according to the memo.
Walmart said as with the new On-Time In-Full (OTIF) policy, “Our goal is to improve the quality of deliveries in our supply chain by receiving all of the product we ordered at the time suppliers agreed to deliver it. No charges for SQEP will be implemented until after Feb. 1.”
The SQEP will be implemented in the following four phases.
Phase 1: Accuracy and Advanced Ship Notice (ASN) – migration to Item 360
Phase 2: Barcode and Labeling
Phase 3: Load Quality, Label Quality, Packaging
Phase 4: Scheduling & Transportation
Jami Dennis, CEO of Bentonville-based VendorMasters, said the objective is to ensure all suppliers are compliant with basic elements required to conduct business. She said many suppliers are already doing this but the new policy ensures everyone will do so. The first phase deals with item accuracy and how items are set up in the Walmart system. All suppliers will use the same 360 system beginning Sept. 15. Walmart said it is providing training on the 360 conversion via six different webinars, accessible online.
As Walmart continues to marry its online business with its in-store business, more consistency is needed to ensure shelves are fully stocked and the retail giant has a full and accurate accounting of every product it has purchased.
“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,” Walmart corporate spokeswomen Robyn Babbitt provided to Talk Business & Politics.
Walmart said suppliers will also receive a performance score and defects-per-million metric. The Inbound Quality Portal, utilized for Walmart U.S. Stores within the vendor correction of error program, will merge into the new SQEP Portal. This requirement is effective Nov. 2. Walmart said suppliers should review the SQEP standards in the Retail Link portal and develop and implement an internal accuracy action plan for all outgoing Walmart U.S. Stores and commence deliveries. Walmart said the accuracy action plan should consider quality assurance to mitigate errors throughout their supply chain and avoid item substitutions that contribute to SKU (item) inaccuracies.
The retail giant is asking suppliers to be accountable for ensuring practices are in place to prevent inaccuracies while picking orders. Walmart wants no more or less than what it orders. Also suppliers are asked to update an item file when there is a change made in pack sizes to ensure the item file matches what is shipped.
“Between now and Jan. 31, 2021 we are in the Readiness phase of our SQEP and ask all suppliers to meet the standards required. Beginning Feb.1, 2021, suppliers will be held accountable for items that do not meet the standards and will be charged through a reimbursement process,” the memo noted.
Walmart will fine suppliers not compliant with Phase 1. Dennis said this is retail 101 and most suppliers are already doing this or if not, they wouldn’t be in business long. The difference is that now Walmart is scoring suppliers on the metrics and they must be managed and monitored by each supplier.
Kevin Williamson, CEO of Chicago-based RJW Logistics, told Talk Business & Politics that Walmart and other suppliers from Target to Kroger to Meijer have continued to pressure suppliers to get orders delivered in a timely and accurate manner. He said perhaps early on it looked like a revenue grab play, but it has genuinely turned into a real need for a better supply chain.
“We have seen e-commerce blow up in recent months and retailers are having to hold more items in their inventory and fulfill in more ways. Walmart talked about the need for a fluid supply chain a year and a half ago and the pandemic has created demand pressures no one could have predicted. Walmart has to serve its customers and they do by having products on the shelf, ultimately suppliers need to realize they share the same customers who must be served,” Williamson said.
Dennis said the memos can look scary on the surface, but suppliers who manage their businesses well are more successful. She said a complete lead-time audit is the first step to compliance and that can be done in less than a day. She said being proactive and looking for the root causes of why shipments are late is just a good business practice to follow. She also said when suppliers can identify these issues and take them to Walmart, they have more leverage and ability to fix the issue and sell more goods.
Williamson said RJW works with several hundred suppliers of all sizes for which it checks purchase orders daily, picks, packs and ships orders to various retailers such as Walmart in full truckloads. He said RJW is able to hit the 98% OTIF threshold and provide complete visibility throughout the supply chain. He said finding the right partners has never been more important.
He said holding suppliers accountable for increased supply chain efficiency is not new. Target implemented stricter OTIF guidelines in 2016 and fined suppliers 5% of the cost of goods for shipments late or not complete. Target also put into force a strict “no grace period” clause that had previously allowed between 2 and 12 days of wiggle room for suppliers to get product shipments delivered.
Walmart has raised its OTIF guidelines over the past three years and by Sept 15 the new requirement is 98% for all suppliers. Companies that do not comply will be charged 3% of the cost of goods. Williamson said suppliers able to meet the higher delivery requirements have a competitive advantage with Walmart, but now there is also a penalty for those who fail to hit the metric. He said the SQEP requirements are about better in-stocks which promotes more sales for retailers and suppliers.