Suppliers are scrambling to meet Walmart’s tighter standards for delivery performance — and they can expect the giant retailer to keep raising the bar.
Walmart has imposed an on-time, in-full (OTIF) metric on its suppliers since 2017. Last year, it upped the requirement for timely delivery of full truckloads within a two-day window to 85 percent. Now, that number is rising to 87 percent for on-time delivery of truckloads, and 70 percent for less-than-truckload (LTL) shipments.
At the same time, Walmart is splitting “on time” and “in full” into two separate metrics, with the latter taking precedence. The “in-full” requirement has been pegged at 95 percent for general merchandise, and 97.5 percent for food and beverage shipments.
On paper, a 2-percent improvement for on-time deliveries might not seem like much of a challenge. Big suppliers that have set up supply chains specifically for the purpose of serving Walmart likely won’t have too much trouble upping their game by that amount, says Rachal Snider Jordan, vice president of customer supply chain with logistics services provider GlobalTranz.
Some mid-range vendors, especially regional suppliers, could have a tougher time of it. But the price of failure will be substantial: those missing either on-time or in-full targets will be fined 3 percent of the cost of goods.
Jordan says the new OTIF regime will require suppliers to take a close look at their supply chains, including their choice of service partners. They’ll need to take into account the carrier’s proximity to markets, types of equipment, and suitability for handling the product in question. “Simply choosing the lowest-cost transportation providers could lead to suffering from a performance perspective,” she said.
Bumping up the on-time number to 87 percent could require some shippers to increase safety stocks, in the event of a shortfall at the manufacturing end. But Jordan views higher inventories as “a Band-Aid solution. It’s more important to assess being proactive from a supply-chain perspective instead of reactive.” No amount of buffer stock can solve the problem if the carrier can’t deliver on time, she adds.
The tougher standards will likely result in an increase in suppliers’ transportation costs, especially if they must resort to so-called premium carriers to get the job done. But Jordan says shippers can offset at least some of the higher expense through economies of scale. Perhaps a twice-weekly shipment via LTL can be consolidated into a weekly truckload delivery. Such a shift, of course, would require big changes in upstream manufacturing and inventory strategies. In addition, says Jordan, shippers should consider reducing procurement costs through the use of sole sourcing, as long as the reliance on a single supplier doesn’t place them at risk of missing delivery targets.
Changes in the manufacturing landscape, driven by customer demand for more product options, will complicate efforts to meet Walmart’s tougher OTIF standards. Manufacturers can no longer optimize their plants with large production runs. What’s more, the coming of e-commerce and the omnichannel is reducing the number of full pallets shipped in favor of small packages — all of which makes for a more complex supply chain. “For every 10 SKUS in a Walmart store,” says Jordan, “the omnichannel wants 100.”
Technology, especially in the areas of analytics and artificial intelligence, can help. It offers the ability to view every bit of information relating to manufacturing, transportation and inventory across multiple systems, according to Kaushal Dave, global vice president for solutions and customer engagement with Aera Technology, Inc. In the process, organizations can avoid the departmental finger-pointing that often occurs when a delivery falls short of the customer’s expectations, he says.
When considering “smart” technology, Dave prefers the term “cognitive skill” over artificial intelligence. Either way, the system can help to improve inventory management by optimizing production and transportation plans in line with customer requirements.
The system can grow in sophistication to the point where it’s autonomously taking actions derived from experience. For example, Dave says, it might assess the likelihood of a given order being at risk six months in the future, based on how that order was fulfilled in the past. “It follows the principle of understand, recommend, predict and act,” he says.
A “cognitive” system might recommend actions that seem counterintuitive to human planners. They could deem it too expensive to shuttle inventory from one distribution center to another, in order to be closer to the retailer. But what the humans might be missing is the much higher cost of ramping up production at the factory, Dave says.
Retailers with the size and purchasing power of Walmart are apt to dictate terms to suppliers. But Jordan says Walmart should share responsibility for realizing its OTIF standards. Analytics deployed by the shipper might reveal that a load was late due to excessive dwell time at the receiving location, or because the order was improperly placed by the retailer.
“Vendors have the responsibility of putting the onus back on Walmart when it’s something within [the retailer’s] day-to-day execution that’s causing them not to meet service levels,” Jordan says.
At the same time, shippers should be preparing to meet not only Walmart’s new OTIF standards, but even tougher ones in the years ahead. “They should imagine a 95-percent [minimum] throughout the industry within the next five years,” Jordan says. “We’re already setting ourselves up for that expectation.”
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