Walmart raised its requirements to 98% for On-Time and In-Full (OTIF) deliveries on orders it places from suppliers. The new requirement began Sept. 15, and nearly a month after the deadline, many suppliers continue to struggle to meet the higher metrics.
The retail giant is the first to admit there are still challenges with the 98% requirement, but it won’t likely happen without some plan to get there.
Joe Metzger, senior vice president of supply chain transportation for Walmart, recently spoke virtually at the WalStreet speaker event hosted by the Greater Bentonville Area Chamber of Commerce. Metzger said customers want what they want when they want, how they want it and across all assortments. He said that includes the last mile, delivered in two hours, the next day, in five days, or however they choose to get it, including picking up in stores.
Metzger said consumer demands prompted Walmart to work on its “customer value proposition,” and it takes everyone in the supply chain delivering on time and in-full to help ensure products are where they need to be when the customer wants it. He said the supply chain must be fully integrated, accurate, transparent, in-stock, efficient and reliable all so Walmart and suppliers can exceed customers’ expectations. Walmart expects a seamless flow of goods from suppliers, and it continues to be a work in progress.
A report from Cleveland Research found pre-COVID-19 average on-time rates were 90%, and 78% at the worst point. In June, amid inventory runs and the height of COVID-19, on-time fill rates averaged 83%, and they were the same in July. The in-full rates averaged 95% pre-COVID-19 but fell to a low of 74% before rebounding to 87% in June. They dipped back to 83% in July.
Cleveland Research also surveyed suppliers about when they felt they would return to pre-COVID-19 levels on meeting OTIF demands. In July, 24% said they had already made it back to pre-COVID-19 levels, and 24% said they would get there by September. Another 31% said it would likely be October through December before returning to pre-COVID-19 levels. One in five said they were looking at 2021 to make that recovery.
One of the biggest challenges for suppliers not meeting the new higher threshold was tighter freight capacity that has sent spot pricing up 10% to 20% in the past two months. There is a shortage of trucking availability as carriers have had a more challenging time getting drivers to return to work after furloughing them earlier this year.
Greg Forbis, senior vice president of strategy and business development at RJW Logistics Group, said suppliers have a playbook when freight capacity usually gets tight. With the higher significant volume coming in through the western port for holiday inventory, there is now a capacity crunch moving freight east to west.
Concerning OTIF, Forbis said his company had received a flurry of calls since the August announcement of the 98% requirement. He said suppliers are using the less-than-truckload side of the shipping business because their supply chain had struggled to hit the new metrics.
RJW is also a freight consolidator that owns its assets, so Forbis said the company had already built out for 98% deliveries, and the higher threshold did not rattle its clients. Forbis said other retailers it services already require 98%, and he was not surprised to see Walmart follow.
“I think the rationale behind Walmart’s 98% OTIF protocol and the Supplier Quality Excellence Program is to keep inventories where they need to be, given the higher customer demands,” Forbis said.
He said no one could have predicted the demand surges early in the pandemic. He said being out-of-stock in specific key categories hurt retailers’ market share. That and the rollout of Walmart+ has meant the retail giant must keep higher inventories in food and consumables, he added.
Metzger was recently asked what changes in planning and scheduling Walmart was making to help suppliers the 98% OTIF threshold. He said Walmart wants to work with suppliers to address the planning, scheduling and command center operations to understand the root causes of why orders don’t meet the 98% protocol.
“Understanding the root causes will make us all better,” he said.
Metzger also admitted there were backups in distribution centers, multiple reschedules and no-shows relating to inventory flow and transportation logistics amid the COVID-19 pandemic across the entire retail industry. He said the retailer is much closer to what the customer wants, and that should drive the supply chain to meet those needs.
“We need to work together to build the right E2E [End to End] pulse and signal to tweak and adjust our supply chain. It has to be the right inventory and the right place, and right-place-right-time to avoid shortages and out-of-stocks for our customers,” Metzger said.
In the past 30 days, he said Walmart has had some deep conversations with a fair number of its suppliers to try and find the root causes of delays or other metrics that hinder reaching 98%. He said that dialogue would continue for several more months.
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.