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In the Be-Careful-What-You-Wish-For Department, suppliers lucky enough to be represented on Walmart's shelves are constantly being asked to cut their prices while ramping up service.
The latest demand comes in the form of a tightening of shipping windows, from four days to two. At the same time, Walmart is upping its delivery compliance requirement for North American suppliers from 90 percent to 95 percent. The changes take effect in February of 2017.
Walmart’s delivery compliance standards were first announced in 2010, setting a “must arrive by date” (MABD) for all merchandise from suppliers, who were given six months to comply. Current guidelines allow for delivery two days early or one day late, creating a four-day window. If a supplier misses that period 10 percent or more of the time, it’s charged 3 percent of its quarterly invoice.
That amount can be a “massive hit” for suppliers, says Andrew Lynch, co-founder and president of Zipline Logistics. Soon, though, they’ll find it even tougher to comply with the MABD. Delivery will be permitted on the scheduled date or a day early – but not a single day late.
A reliance on pricey express services isn’t the answer. Instead, says Lynch, suppliers will have to get their internal houses in order. They’ll need to bring together sourcing and production teams in order to ensure tighter coordination between manufacturing and logistics. In addition, they’ll have to reach out to carriers to establish reasonable expectations of transit time.
Having aligned operations internally as well as with logistics providers, suppliers should then approach Walmart and figure out a MABD that makes sense for them. Despite its reputation for dictating terms, the mega-retailer is willing to work with suppliers to come up with reasonable delivery dates, Lynch says. But once the deadlines are set, there will be little room for error.
In certain cases, transportation costs are likely to rise, but can be controlled to some extent. The relatively small number of suppliers that ship to Walmart in full truckloads will mostly be unaffected. But others, especially those utilizing less-than-truckload (LTL) services, will have to take special care to manage their logistics expense.
LTL pricing for low-margin snack foods, for example, “can be just impossible,” says Lynch. Carriers in that sector aren’t likely to hit Walmart’s MABDs with any consistency. For such orders, the answer could lie in a rejection of LTL in favor of consolidation. In Lynch’s view, combining three or four drop shipments to multiple retailers is “far and away” the most efficient technique for balancing service requirements with the need for cost control.
By bringing together orders with multiple shippers and destinations, carriers can achieve better utilization of their trailers, then spread the cost of transportation across a greater number of accounts, Lynch explains. In theory, at least, they would pass a portion of those savings on to the shipper, while still adhering to Walmart’s stricter delivery targets.
The new mandate will affect more than transportation arrangements. One Zipline client selling into Walmart plans to shift production of some items from Texas to Ohio, setting the stage for a more efficient delivery network serving all of its retailer accounts, Lynch says.
He believes suppliers should view the Walmart mandate as an opportunity to take a hard look at their current supply chains, and put themselves “in a better position to succeed down the line.” By reworking existing deals with carriers and other logistics providers, they could even lower their cost per unit.
For a company selling to Walmart or other big-box retailer, it never gets easier. Still, the benefits of the relationship can far outweigh the cost, if the supplier is willing to explore opportunities for continuous improvement.
Next: Walmart’s multibillion-dollar e-commerce bid.
