Wal-Mart Threatens To Fine Suppliers For Delivering Goods Early

As Wal-Mart ramps up its war against Amazon.com, it seems the retailer’s suppliers are increasingly being squeezed. After telling trucking companies that the retailer will no longer do business with them if they continue moving goods for Amazon, Wal Mart is now threatening to punish suppliers for delivering goods a day early. Here’s Bloomberg:

Long known for squeezing its vast network of suppliers, Wal-Mart Stores Inc. is about to step up the pressure.

 

The focus this time is delivery scheduling, and the company’s not messing around. Two days late? That’ll earn you a fine. One day early? That’s a fine, too. Right on-time but goods aren’t packed properly? You guessed it -- fined.

The program, labeled “On-Time, In-Full,’’ aims to add $1 billion to revenue by improving product availability at stores, according to slides from a presentation obtained by Bloomberg, and it underscores the urgency Wal-Mart feels as it raises wages, cuts prices and confronts a powerhouse rival in Amazon.com Inc. that’s poised to grow with its planned purchase of Whole Foods Markets Inc.

“Wal-Mart has to find efficiencies wherever it can,’’ says Laura Kennedy, an analyst at Kantar Retail. “They’re trying to squeeze and squeeze and squeeze.’’

The initiative builds on progress Wal-Mart has made in reducing inventory and tidying its 4,700 U.S. stores after the company’s backrooms routinely became so overcluttered that stores had to purchase excess storage capacity.

According to Bloomberg, Wal-Mart isn’t the first big retailer to tighten the deadline for vendor deliveries. Target Corp. implemented a similar policy last year as part of a broader supply-chain overhaul. But Wal-Mart’s vast logistics network of more than 150 U.S. distribution centers dwarfs that of any other retailer, and the company typically accounts for a sizable chunk of its suppliers’ sales: 27 percent for bleach maker Clorox Co., for instance.

“The new rules begin in August, and the company said they will require full-truckload suppliers of fast-turning items - groceries, paper towels - to “deliver what we ordered 100 percent in full, on the must-arrive-by date 75 percent of the time.” Items that are late or missing during a one-month period will incur a fine of 3 percent of their value. Early shipments get dinged, too, because they create overstocks. By February, Wal-Mart wants these deliveries to be on-time and in-full (known as “OTIF”) 95 percent of the time. Its previous target was 90 percent hitting a more lenient four-day window.”

“Variability is the No. 1 killer of the supply chain,’’ Kendall Trainor, a Wal-Mart senior director of operations support and supplier collaboration, said in a presentation to vendors earlier this year.

For many of Wal-Mart’s suppliers, this would represent a major shift: OTIF scores for Wal-Mart’s top 75 suppliers - including Procter & Gamble Co. and Unilever - had been as low as 10 percent, according to Trainor’s presentation. And not one had reached the 95 percent long-term target.

As a slide at one company presentation warned: “The goals are aggressive and will require new ways of working.”

The suppliers have largely refrained from commenting, according to Bloomberg:

Unilever declined to comment. Damon Jones, a spokesman for P&G, said his company and Wal-Mart “share a joint commitment to superior consumer service - including on-shelf availability.”

 

A Wal-Mart spokesman said the retailer is “working closely with our vendors to help reach these targets. We know that when products we’ve ordered arrive on time, it results in happier customers.’’

 

Under previous Chief Executive Officer Mike Duke, stores suffered from a lack of manpower to keep shelves stocked, and missing products drove customers to rivals including Dollar General Corp., Walgreens Boots Alliance Inc. and German discounter Aldi. When Doug McMillon became CEO in 2014, one of his goals was to improve what the company calls “on-shelf availability.” It has gotten better, although Wal-Mart declined to provide specific figures.

While big suppliers should be able to invest in fancy inventory-management systems to get up to speed with the new rules, smaller businesses may not be able to comply with Wal-Mart’s demands. Some don’t even know what “OTIF’’ stands for, according to Colby Beland, vice president of sales at CaseStack, a logistics provider that bundles supplier shipments for delivery to retailers’ warehouses.

The new rules have created brisk business for consultants, who are busy crisscrossing the country delivering tutorials on the program.

“OTIF is the hottest subject out there right now,’’ according to 8th and Walton, a consultant based in Wal-Mart’s hometown of Bentonville, Arkansas, that has conducted OTIF seminars in New York; Portland; Ontario, Canada, and other cities.

“Everybody has come to the stark realization that OTIF is here and it’s real and they better get ready for August,’’ Beland says.

Many of these consultants are playing down the negative aspects of the shift and are instead comparing it to when Wal-Mart adopted bar codes in the early eighties.

“The program is the latest chapter in Wal-Mart’s history of badgering suppliers to improve efficiency and performance. It was the first big retailer to embrace bar codes in the early 1980s to track inventory and sales, mandating precise locations on packages for easy scanning. Vendors that refused were kicked off the shelves.

 

‘Suppliers went crazy at first, but they all figured out how to implement it and it helped them as much as it helped Wal-Mart,’ says Dale Rogers, a logistics professor at Arizona State University. ‘This is just the next one of these things.’”

In what might seem like a stroke of benevolence, Wal-Mart said it will only fine companies when they, not Wal-Mart, are responsible for the delay or early arrival. The retailer has developed a scoring system that breaks down reasons for non-compliant deliveries and will fine suppliers only if they’re responsible. But here’s the catch: If suppliers don’t agree with the fine, too bad: Disputes “will not be tolerated,’’ Wal-Mart says.

Even a freak snowstorm, like the one that paralyzed travel in the southeastern US in 2015, might not get suppliers off the hook.

As one b-school professor points out, the system likely won’t be great for fostering mutual trust between the retailer and its suppliers.

“You end up in a situation of, ‘Who is to blame?’ ” says Santiago Gallino, an associate professor at Dartmouth College’s Tuck School of Business. “It’s a tough discussion.”
 

Comments

clade7 AVmaster (not verified) Wed, 07/12/2017 - 21:56 Permalink

Simple work around!  Just deliver the Invoice and packing slip on time!  Who cares if the real shit shows up a day early or a day late!  Its the goddam paper work we gotta keep straight here!  Just Email the damn paperwork OTIF!! Just exactly like an ETF kind of dealie!  Nothing but the paper!

In reply to by AVmaster (not verified)

not dead yet AVmaster (not verified) Thu, 07/13/2017 - 04:20 Permalink

If the guy shows up early and they unload him and put the stuff into the system it could cause a trucker who is delivering crucial stuff to sit and wait. It could then snowball as what is on the on time having to wait load might be needed for immediate shipment and will cause outbound truckers to wait or the stuff misses the load and the shelf at the store goes empty. Just in time inventory control. Walmart is the customer here and when you sign up you know the drill and should respect the customers requests. Many places not only give you a day but a specific time to get unloaded. It's nice for you haters to blame Walmart but most companies that have just in time have the same policies. We have or have had most of the big box stores as large regular customers and they are all alike. Real bastards and it's their way or the highway. When they were in their prime that bureaucratic nightmare Sears was the worst. If they were missing a $2 item on a load, whether we screwed up or Sears lost it it didn't matter, they would take the most expensive item on the load, could be as much as a few hundred bucks per item, and back bill you for that. Sears misplaces a dozen $2 items and we get nicked for $2400.

In reply to by AVmaster (not verified)

Buck Johnson AVmaster (not verified) Thu, 07/13/2017 - 08:24 Permalink

YOu know what, this is the straw that broke the back of Walmart.  Because no way that the shippers are going to like this and once they start getting fined for every and anything they may decide to do a work slowage meaning that all of them will either take longer to get their goods to walmart and/or tell walmart it can't be helped because of this and that and if you fine us we will fine you for the this and that.  

In reply to by AVmaster (not verified)

Son of Loki Alt_Right_Girl (not verified) Wed, 07/12/2017 - 21:16 Permalink

As long as they keep the shelves stacked with Al Sharpton and Soweeto bin Bama busts and action figures, the EBT masses will be content.Walmart lost me when they removed the Confedrate Flags and knick knacks, post cards and shiney bumbper stickers. Let BLM shop there instead as far as I'm concerned. In fact, hopefully their political correctness buries them.

In reply to by Alt_Right_Girl (not verified)

not dead yet enfield0916 Thu, 07/13/2017 - 04:40 Permalink

You think Amazon is any different? Or any of the other big box stores? They all want it yesterday and they want it for free and could care less about your problems. Amazon is just as cutthroat as Walmart and the rest of the big boys and many suppliers supply both of them and will continue to do so. Lots of the big boys allocate shelf space to you and some suppliers stock their own stuff. A few years ago Home Depot got in a spat with GE over light bulbs and suddenly GE is out and Phillips has their bulbs in GE's space. GE took a little hit but if you're a smaller supplier it could be your death warrent. We did a huge business, for us, with Home Depot and except for special stuff we didn't get paid until the item was sold. At one time Sears was one third of our business and when they were on the way out Home Depot came in to keep us growing. Rely too heavily on one large customer for the bulk of your business and you could go bankrupt if the big boy pulls the plug.

In reply to by enfield0916

CNONC not dead yet Thu, 07/13/2017 - 10:56 Permalink

I know a guy who supplied wheat straw and pine straw to several of their locations.  Their habit of delaying payment to small vendors put him out of business.  He claims they allowed the backlog of unpaid bills to mount to nearly a million dollars before he became unable to continue in operation.  He eventually got paid, but lost all of his equipment and trailers.

In reply to by not dead yet

Too-Big-to-Bail (not verified) Wed, 07/12/2017 - 21:08 Permalink

Walmart is behaving the same way the US is in protecting their prized World-Reserve petrodollar and we saw Russia, Qatar and Venezuela all recently get fined. But watch out because China has just bought Whole Foods.

FoggyWorld Bigly Wed, 07/12/2017 - 21:37 Permalink

JIT makes sense in manufacturing certain types of products but there is no way, given that so much of Walmart's retail stuff comes from SE Asia that anyone can begin to do what they are demanding.   And even in the US, manufacturers today have to deal with a very large nation and nothing but nothing is always going to be even close to perfect.Walmart is losing because the fight really is on the internet and they are unable apparently after all of these years to come out a winner in a non brick and mortar environment.    Pushing vendors is just going to mean they will have fewer and that leads to less competition when it comes to vendor pricing.You get what you pay for and that applies to them as well as it does to us. 

In reply to by Bigly

Bigly FoggyWorld Wed, 07/12/2017 - 21:54 Permalink

Yes. Agree -and I should have been more specific. I think it sucks for a walmart for the reasons you list. There are some industries where it could make good sense.There are too many variables that can go wrong in a WM type of business. And you are correct that the mfrs are not down the street!

In reply to by FoggyWorld

Yen Cross Wed, 07/12/2017 - 21:18 Permalink

 Walmart is a shitstain on society. Their prices aren't competitive and quality sucks!   I don't even buy Rat killer at Walfart. If you want to see how the cattle forms herds, just park at Walmart on EBT day.

ebworthen Wed, 07/12/2017 - 21:11 Permalink

"No soup for you!".WalMart sucks ass.  I stopped going because they had almost no human checkers/bagger's.If you want me to wait in line with WalMart people to scan and bag my own groceries give me a 10% discount.Otherwise, I will go to Kroger, or WinnCo, or COSTCO.Amazon can kiss my ass too.Bezos has horns.

Bigly ebworthen Wed, 07/12/2017 - 21:25 Permalink

I also never self scan anywhere. I agree that they can pay me.But I avoid WM because the people who shop there are atrocious. Plus I do not support how they gutted mom and pop to sell cheap chinese shit.Now Amazon is going to screw WM. SAME IDEA DIFFERENT SCALE.I liken it to preditor fish WM is a shark, AMZN is a killer whale

In reply to by ebworthen

shinobi-7 Wed, 07/12/2017 - 21:24 Permalink

The last time I entered a Wallmart store 10 years ago, I couldn't buy anything. Low quality stuff, huge packagings. I wonder how they can survive, squeezed between Amazon and hard discount? Sears has about one year to go, 10 for Wallmart?

gregga777 Wed, 07/12/2017 - 21:26 Permalink

“Wal-Mart has to find efficiencies wherever it can,’’ says Laura Kennedy, an analyst at Kantar Retail. “They’re trying to squeeze and squeeze and squeeze.’’ Efficiencies is the American Business Schools' code word that means "firing lots of people".   Wal-Mart can't even keep their f***ing shelves stocked even when the products are sitting right at the store.  And the Wal-Mart ecommerce site is amazingly inept and amatuerish.  That is because they scrimp and scrape on everything and squeeze everyone instead of managing their business for the long-term.  Amazon.CON is going to eat their lunch and pick their teeth with Old Sam Walton's bones.  But, hey, what do you expect from a CONporation loaded with graduates from America's "finest" business schools?  People who care about anything other than enriching themselves through self-dealing?  Ha, ha, ha!  ROTFLMAO!

Archibald Buttle Yen Cross Thu, 07/13/2017 - 02:21 Permalink

i have personally never spent a single cent at a walmart, but i have had the opportunity to visit several times with friends that were, for whatever strange reason, willing to shop there. if you are ever in doubt that we are living in "interesting times," try it out.a few years ago i read something from a disgruntled walmart employee. it was a list of things to do to fuck with them. one thing was to just move stuff around on the shelves from section to section. as juvenile as this sounds, i do it every time i go there. i tell others to do it as well. one of my proudest moments was when i went into work one day and my manager said to me "guess what my dumbass kid did yesterday?" i said "i have no idea." manager says "we were at walmart and he was walking around with a container of sour cream, and poked a hole in it and hid it behind some barbie dolls. i asked him what the fuck did you do that for? and he said it's ok, archibald buttle told me to do it."fuck the waltons. their demise will be the result of bad karma for letting hitlary onto their board of directors. and well earned.

In reply to by Yen Cross