Walmart Now Requires 98% On-Time In-Full Compliance for Suppliers
As of September 15, 2020, Walmart suppliers are now required to meet 98% on-time and in-full shipments (OTIF). Walmart is also demanding a full purchase order (PO), no longer allowing for split shipments or orders. Suppliers that fail to meet these requirements will be fined 3% of the total PO value, which could quickly rack up in fines if even a few shipments are missed.
In this article, we’ll discuss why these changes took place as well as how the new requirement is sending shockwaves through Walmart supply chains and supplier partners and how suppliers can navigate the new standards.
Why did Walmart change their shipment guidelines?
Scott McCall, Chief Merchandising Officer, and Greg Smith, Head of Supply Chain, released Walmart’s new compliance memo on September 1, 2020. In the memo, they stated the new 98% requirement, no-split orders, and 3% PO fine would apply to all categories of Walmart suppliers, including those who handle their freight and those that use Walmart’s logistics program.
Walmart aims to improve product availability to its consumers, ensuring customers have access to their goods in-store and online quickly. To maintain healthy stock levels and deliver products efficiently to customers upon order, Walmart needs their orders to be fulfilled accurately, on time, and in full. They have increased accountability and visibility of their supply chain, demanding near-perfect metrics from their partners. The COVID-19 exemptions for OTIF ended August 17, and now Walmart is back with force requiring suppliers to recover quickly in time for the holiday rush.
Ultimately, Walmart aims to prioritize the customer’s needs for high stock levels and fast delivery. As Walmart rolls out their Walmart+ membership program, it’ll need to guarantee home delivery in expedited time frames, similar to its competitors Target and Amazon. This new way to deliver to customers requires the entire supply chain to be highly efficient.
Of course, any business would want this to deliver to their customers. But the retail giant always plays hardball (that’s how they have such low prices). They are essentially telling their suppliers to step up or step back, with little time to adjust to the changes.
Progression of OTIF protocol
This isn’t the first time Walmart has established a strict OTIF protocol. They first instituted these regulations in 2017 to push suppliers to more effectively and quickly fulfill orders because the retailer was losing millions of dollars due to slow replenishment rates. In February 2019, Walmart raised the OTIF requirements to 85-95% for general merchandise and health and wellness; 97.5% for food and consumables; 87% for full truckload orders; and 70% for LTL shipments. Until recently, suppliers still weren’t reaching Walmart’s requirements, so they decided to set an even firmer and stricter standard following the COVID-19 shutdowns.
The challenge of Walmart’s new guidance
Walmart’s executives are calling for a major shift, considering suppliers were previously averaging a 70% OTIF completion rate (despite higher requirements) and were allowed split orders. The announcement gave suppliers less than two weeks to adjust to the new regulations without paying significant fines.
Asking for 98% is significant, especially when so many suppliers, distribution centers, and partner arms are involved. For LTL, premier carriers have only been able to hit 80-92% in OTIF performance. Requiring 98% will certainly be an even higher uphill battle if LTL providers are to remain compliant. This is particularly noteworthy considering the implications that COVID-19 had on the logistics and transportation industry.
It’s speculated that Walmart is using this fast timeline as a means of “weeding out” or “pushing up” some suppliers. They have been working on OTIF protocols since 2017, so a lot of suppliers have already been working towards these compliance numbers. Walmart is making the final push to make the best suppliers work a little harder while getting rid of those suppliers that aren’t making the cut. Although there may be some fines early on, Walmart is hoping this will push their suppliers to improve their deliveries at a faster pace and in a more accurate way.
How suppliers can meet Walmart’s regulations
Although 98% OTIF feels like a feat, there are some key methods to work towards reaching these metrics:
- Work with your logistics partner(s) to correct OTIF issues
- Collaborate with Walmart
- Partner with a 3PL
Work with your current logistics provider(s) to Correct OTIF Issues
Adjusting to the new OTIF compliance criteria is not a simple task, and certainly not an overnight fix for active shipping players in the Walmart network. Modifications of this scale run the risk of increasing supply chain issues for many shippers and transportation providers who work with the retail conglomerate.
Accurate forecasting, strategic shipment prioritization and timely pick ups and deliveries are pivotal now more than ever if standards are going to be met. This likely will require a different plan of attack to meet these changing requirements.
This starts with a collaborative relationship with your current providers. Providing visibility to current OTIF scores and aligning priorities can drastically improve underperforming areas in your network. Lean on them for their expertise to avoid costly OTIF penalties and openly evaluate how their role may change related to freight costs and service to meet the new standards.
With the new protocols, providers could add more value, based on their OTIF experience, to your operations consulting beyond freight costs savings and assisting with strategy. Your existing provider(s) likely do business with a host of Walmart vendors and can share best practices that have proven successful over time.
Partnering more deeply with your existing providers may help you implement a reliable, well-structured, compliance-approved transportation strategy.
Collaborate with Walmart
Walmart wants to keep products coming into their stores. They just want it done faster. They’re recommending that their suppliers perform a lead-time audit and data review to identify weaknesses and opportunities in shipments. When a supplier finds root causes of their supply chain inefficiencies, they can communicate these to the Walmart replenishment manager. They will be allowed to request longer lead times or change carriers. Walmart is looking to collaborate with their partners to ensure standards are met without losing suppliers in the process.
Partner with a 3PL partner
There are lots of third-party logistics (3PLs) providers out there. Many find it difficult to meet the numbers Walmart is demanding. Individual suppliers should work with vetted 3PLs that have scorecards with key performance indicators, like on-time and in-full metrics. The right 3PL should leverage technology and expertise to effectively consolidate shipments, directionally load, plan intelligent routes, and employ artificial intelligence and other programs to acknowledge and address critical concerns continuously. In the end, those individuals and businesses selling to Walmart will need to find logistics partners and carriers that aren’t scared or intimidated by Walmart’s compliance metrics.
Need a trusted 3PL? Partner with Redwood Logistics
Redwood Logistics is a different kind of 3PL. We promise to deliver superior scorecards that meet even Walmart’s strict standards. We offer transportation options including multimodal brokerage and a dedicated fleet for your business, as well as hands-on supply chain management and innovative tech solutions. With experience, technology, and an established network, we guarantee a streamlined and optimized supply chain unlike anything your business has before experienced.
Reach out to us for a free consultation to help determine where your supply chain inefficiencies exist and discuss a customized plan to help you meet Walmart’s on-time and in-full requirements along with other key performance metrics.