Walmart will fine suppliers for late, early deliveries in push for inventory control
- Life for existing Walmart suppliers is about to get even tougher, as it prepares to implement its latest On Time In Full (OTIF) initiative for deliveries. Suppliers who miss deadlines, package incorrectly or even deliver early will be fined, as will those who fail to bring the agreed-upon amount of products, Bloomberg reported Wednesday.
- The initiative is the latest of Walmart's actions to improve on-shelf availability by leveraging its supply chain. As of August, suppliers must deliver 100% of products "at the must-arrive-by date" 75% of the time. Yet, the change will not be easy: Bloomberg reports Walmart's top suppliers' OTIF scores were as low as 10%.
- The rule will force suppliers to find new ways to manage their inventory, and perform logistical gymnastics to avoid taking a financial hit. Suppliers who fail to meet this goal will face a 3% fine, based on the shipment's value. For brands like Clorox, which derive 27% of their income from the retail giant, fines of even 3% per shipment can quickly cut into profits.
Walmart is known across the industry for its strict supplier compliance rules, so it is no surprise the company is resorting to negative incentives to bring more efficiency to its supply chain.
In fact, Walmart has so many rules for doing business with the company, the retailer frequently hosts supplier summits and vendor presentations, announcing new rules and "urging" them to get on-board with goals. Recently, for example, Walmart sought a profit-sharing agreement with suppliers in China; demanded 15% price reductions across-the-board; and asked supply chain partners to include greater sustainability information on their labels.
Such initiatives, and the frequent success of self-imposed goals, are a testament to the retailers' leverage over its hundreds of suppliers, many of which depend on the store for survival.
Yet, the most recent initiative may have unintended consequences for Walmart if not managed properly. In theory, greater OTIF deliveries would increase inventory accuracy, and encourage better coordination between Walmart stores, suppliers and their logistics partners. However, such a tight window may also encourage truckers who played it safe arriving early to stores, to take greater risks in order to arrive on-time.
James Benson, a driver for a small company, shared a related concern with Supply Chain Dive in May. "If these companies really want to get more efficient, ask them to start on their docks," he said. "Drivers burn many hours because we are tied up trying to get loaded or unloaded. The company, whether shipper or receiver, set the appointment time for us. The problem is they never keep that appointment time for us. Drivers are constantly waiting to get loaded/unloaded and it burns our clocks up. Please understand the ripple effect it has for us. It can and usually does carry on for days with us creating a ripple we can't stop."
Benson's comments reflect why so many companies may have trouble achieving OTIF deliveries. Their product typically depends on the logistics companies they partner with, the truckers that carry their goods, and ultimately, the schedules of the receivers at the loading docks. It's a chicken-or-the-egg problem, where receivers may have delays at their docks due to not-on-time deliveries, but others' deliveries are delayed by this same problem.
Bloomberg reports Walmart intends to keep track of the reasons deliveries are late, and not fine suppliers when it is not their fault. However, the company also said it would not accept disputes over the fines. Gray areas abound, but if history is taken as precedent, Walmart will push through and suppliers will have to comply. Meanwhile, carriers will lose the luxury of having a time-based risk buffer to their deliveries.
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