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Walmart is slightly reducing its requirements for on-time and in-full (OTIF) shipments from suppliers after tightening them in 2020 due to the supply chain disruption caused by the pandemic.
According to the Wall Street Journal, Walmart’s requirements for on-time shipments are being reduced to 90% of the time and in-full shipments to 95% of the time, down from a 98% benchmark set for both during the pandemic. Prior to September 2020, Walmart’s OTIF target was 70%.
Vendors are fined 3% of the total shipment value for shortfalls.
The updated targets remain high hurdles. Consumer packaged goods vendors across retailers delivered an average of 84% of orders on time in 2023, according to supply-chain visibility firm FourKites.
The change for Walmart comes as ordering patterns have returned to normalized levels with inventories rebalanced.
“We feel good about our inventory position as we begin this year,” John Furner, chief executive of Walmart U.S., said last week on an analyst call. “Store managers and associates have back rooms that are quite under control.”
Walmart’s OTIF policy, a stricter take on its former Retail Reliability Program, was first rolled out in 2017 with a stated goal of adding $1 billion to revenue by improving product availability at stores. At the time, Walmart said some suppliers’ OTIF scores were as low as 10%, and improved in-stock levels were seen as necessary to help Walmart better compete with the speed of Amazon and the lean-cost structure of competitors like Dollar General and ALDI.
Target, Kroger, Walgreens, and others have similar OTIF policies.
A survey from McKinsey & Co. shared in November 2022 indicated that retailers were already returning to their pre-pandemic delivery expectations. Of CPG vendors surveyed, 85% had a core retail customer change their delivery dates from “requested” to “scheduled” or “committed.” What’s more, 63% reported retailers narrowing delivery windows and increasing fines for noncompliance.
To preserve margins amid “high and rising” delivery requirements, McKinsey said vendors “need to understand the true cost” of meeting their customers’ expectations and charge enough for extra services, such as expedited shipments or complex order requirements. McKinsey wrote, “Ensuring that pricing reflects the true cost-to-serve is important for multiple reasons: protecting CPG players from margin erosion, promoting equity among retailers, and preventing manufacturers from subsidizing one retailer’s unusual requirements on the backs of its competitors.”
Capstone Logistics’ advice includes investing in technologies to improve inventory visibility, developing internal processes to manage risks during surge seasons and poor weather events, and building out diversified routing guides to minimize the risk of having too few carriers.
Kevin Williamson, CEO at RJW Logistics Group, told Forbes that while compliance eliminates fines, having more accurate and timely shipments ultimately drives sell-through rates. He said, “When a supplier is on the shelf, available for purchase, their sales and market share grow, along with consumer loyalty and brand equity."