July 19, 2017

Wal-Mart delivery mandate will push supply chain to up its game

"On-time, in-full" program isn't new, but it sure feels that way with the elephant in the ring.

By DC Velocity Staff

The Beast of Bentonville has let it be known that, for all the talk of the "Amazon effect" on the nation's retail supply chains, it still has the power to influence the terms and conditions of the trade.

Starting Aug. 1, Wal-Mart Stores Inc.'s U.S. operation will require that suppliers of full-truckload shipments and their carriers deliver all orders in full on the "must-arrive-by date" 75 percent of the time or else face penalties. As of Feb. 1, 2018, the Bentonville, Ark.-based behemoth will ratchet up the requirement to 95 percent in full and on time. Early deliveries will also be penalized, as those lead to overstocks that disrupt Wal-Mart's supply chain as much as shipments that arrive late.

Wal-Mart set a one-day delivery window for perishables, consumables, and grocery items, and a two-day window for "soft goods" like apparel and for general merchandise. The previous target had been set at 90 percent for food, consumables, and general merchandise hitting a four-day delivery window. The updated directive applies to "collect" shipments that are routed through and paid by Wal-Mart, and "pre-paid" shipments, in which the supplier sets the delivery terms and pays the freight charges.

According to a published report last week, Wal-Mart will impose penalties for mis-timed or incomplete shipments equal to 3 percent of the affected shipment's value. Kory Lundberg, a Wal-Mart spokesman, confirmed in an e-mail that "fees" would be imposed on problem deliveries, though he wouldn't respond to a query about specifics. MacroPoint LLC, a load-visibility software provider, said in a blog post today that retailers can charge fines of up to $500 per load for deliveries that don't comply with their standards.

The new guidelines replace a scorecard approach that provided suppliers with the percentage of shipments that arrived late and the percentage that arrived early and notes which shipments were considered not full. However, it didn't provide suppliers with insight as to where the delivery problems occurred. According to one industry source, Wal-Mart will supply a visibility tool, which will identify delivery pain points to help suppliers fix them. This will be important, because suppliers could easily be dinged for missed deliveries that were caused by problems on Wal-Mart's end, not theirs.

Wal-Mart, which notified its suppliers of the changes a year in advance, has been working to remove its own barriers to suppliers' compliance efforts.

Suppliers using less-than-truckload (LTL) carriers are also subject to "on-time, in-full" (OTIF) requirements. However, they are less stringent—somewhere in the low to mid-thirty-percent range—to account for the more complex nature of LTL ecosystems, which would make the high scores required of truckload suppliers virtually impossible to attain. Averitt Express Inc., an LTL carrier based in Cookeville, Tenn., and a long-time Wal-Mart vendor, provides one-day deliveries across the board, according to Beth Donham, Averitt's director of sales, supply chain solutions. By providing uniform deliveries, Averitt ensures that it is keeping commitments to its shipper customers and to Wal-Mart, Donham said. Averitt has been in compliance with the Wal-Mart guidelines since February.

Wal-Mart's objectives are familiar to all retailers: Reduce stock variability, minimize inventory bloat, and boost sales. Other retailers have put in place OTIF mandates accompanied by non-performance penalties. However, none are as big as Wal-Mart, which is the world's largest retailer. It is likely that other retailers will follow suit as the entire sector copes with heightened consumer expectations largely brought about by Seattle-based Amazon.com Inc., the nation's largest e-tailer.

"We—customers included—knew this was coming, and we expect that OTIF will effectively be a baseline requirement for shippers and carriers," said Craig Fiander, senior vice president, global business development, for visibility software provider FourKites Inc. Fiander said the impact of the mandate "goes beyond visibility" and requires shippers, carriers, and third-party logistics providers (3PLs) to "better automate and synchronize the entire shipping experience from product to distribution."

In its blog post, MacroPoint said it will be imperative to inform retailers in advance of any potential issues likely to affect on-time performance, and to reschedule the appointment if possible. Many retailers assess rescheduled-appointment charges that are as much as 75 percent lower than the fines for failing to meet OTIF standards, the company wrote.

Donham of Averitt said it is paramount to have adequate communications systems in place not only in interaction with Wal-Mart, but between shipper and carrier and within the carrier's own network. The responsibility for making the OTIF initiative work rests equally with shipper and carrier, Donham said.

"The ultimate objective is for both of us to look good in the eyes of Wal-Mart," she said.

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