After first requiring suppliers to do a better job meeting must-arrive-by dates for order fulfillment back in 2017, Walmart is insisting on much stricter OTIF rules starting this week.
Walmart’s standards for suppliers have tightened progressively
The latest memo may have gone out on September 1, 2020, but the process of raising the on-time and in-full (OTIF) bar has been ongoing for many years. As of September 15, 2020, shipments must be 98% complete. Non-compliance will result in a fine of 3% of the “missing case” value. Early deliveries will also be penalized to eliminate overstock situations.
Two additional factors are also in play this time. The new OTIF rules have come down just as Walmart emerges from supply issues during the pandemic. (Some persist, as anyone shopping for disinfecting wipes can attest to.) These ongoing stock issues will be magnified during this holiday season’s forecasted record e-commerce demand. Add to this the launch of Walmart+, and you have more than enough reason for Walmart to shore up its inventory act right now.
Positioning yourself for compliance
With all suppliers needing to get up to speed with Walmart – no matter how close they were to meeting the previous set of benchmarks – a comprehensive effort is in the offing. The alternative could be a costly proposition. Improving OTIF rates will require a multi-disciplinary approach. For starters, transportation networks and plans for expected demand and supply needs have to be refined, and processes implemented to monitor and make adjustments on the fly.
Transportation management
Arguably, product availability issues are far more complex than possible transportation bottlenecks. In general, for lanes of defined transit time, the contract carrier (TL and IM) and the LTL industry do a solid job of picking up and delivering as requested. Over the years, our work with shippers generally shows that carrier performance to scheduled appointment dates and times is routinely over 96% for shippers who track these KPIs. Generally speaking, carriers perform their obligation effectively when tendered freight on-time and appointments are available at the receiving facility.
However, two possible transportation-specific challenges come to mind for Tier 1 suppliers:
- Receiving appointment availability – Many large suppliers have been “pre-securing” delivery appointments early in the order life cycle for years. These appointments become visible through the entire order management process, so fulfillment knows what needs to ship and when. And carriers know what appointments they are expected to fulfill at tender, or sooner if involved in the pre-secure process. However, it also means carriers have less flexibility to make adjustments should an exception arise, like heavy traffic or a delay at a previous stop. No appointment schedule runs perfectly every day. So, you must constantly monitor your shipments for changes as well as work as a “traffic controller” to ensure the flow of trucks in and out of your facilities runs smoothly and quickly, adapting to updates throughout the day.
- Surge volume – Volume spikes are an issue for everyone; shipper, carrier, and receiver. Diversifying your routing guide (i.e., splitting lane volumes among multiple carrier partners) can be an effective solution on the transportation side. This is because it is easier to get various active carriers in a lane to provide surge capacity for you than to ask otherwise inactive carriers on a lane to respond at the last minute. Leveraging primary carriers at an origin location on lanes where they are not the standard provider is also a great way to secure surge capacity. Often they will have assets in position at the origin point that can be quickly reassigned to new lanes.
Integrated supply and demand planning
Walmart suppliers must implement the necessary actions to re-evaluate and redesign their supply chain to prevent repeated penalties. Past reports indicated OTIF scores for Walmart’s top 75 suppliers had dipped to a low of 10%, and not one had been as high as the prior 95% long-term target. It will be interesting to see how long it takes suppliers to meet the new requirements and at what cost. For some, Walmart represents a majority of their sales volume. Failure to meet these latest requirements cost-efficiently represents an existential threat to these companies.
So what do Walmart Tier 1 suppliers need to do to ensure they meet the new service requirements?
- Monitor KPIs and diagnose the root cause of misses: Tier 1 suppliers need a clear understanding of the OTIF calculation and its key drivers. The ability to pinpoint issues with production schedule adherence, Tier 2 supplier performance, forecast accuracy, inventory accuracy, picking delays, carrier delays, and other criteria will be critical to making sure you are focused on improving the right areas.
- Improve forecast accuracy and collaboration: You will need to increase your collaboration efforts and data sharing (both with Walmart and your suppliers) to ensure you are properly accounting for changes in demand associated with new product launches, promotions, planogram changes, production schedules, store openings and closings, etc. In these situations, some insight is better than none at all.
- Invest in planning tools: Investment in supply chain optimization technology is a necessity. If your company is large, you may easily afford the cost of such tools (or already have them), but if you are among the numerous small to mid-sized suppliers, you will need to find solutions that fit your scale. The cost of poor forecasting, overstocking and understocking, and improper buying will likely dwarf the necessary expense.
- Implement S&OE and S&OP processes: Catering to a higher OTIF expectation needs to be considered within your company’s broader context. S&OP is the proper forum for discussing strategies for reset windows, pricing negotiations, and managing other customer impacts. Increasing service to Walmart implies a reduced capacity to serve others, which must be addressed (and accounted for in your pricing strategy). S&OE can also be leveraged to properly balance the near-term trade-offs associated with hitting OTIF targets.
Increasingly stringent delivery standards are not new, but it can be easier said than done to achieve them. Chainalytics’ combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve. Reach out and learn how our supply chain consultants can help you thrive in the face of increasing customer and market demands.
Jeff Baker is a principal in Chainalytics’ Integrated Demand & Supply Planning practice. He works with some of the world’s best-known companies to improve their supply chain planning processes and capabilities – from design to implementation.
Bryan Wyatt is a principal in Chainalytics’ Transportation practice with over 20 years of experience and expertise in transportation operations, strategic sourcing, data analysis, logistics planning, and logistics/supply chain change management.
