Walmart is taking aggressive measures to streamline the supply chain with a new “On-Time, In-Full” (OTIF) initiative.  This latest chapter in the Walmart playbook is an evolution of the retailer’s tightened delivery requirements enacted in February (which we wrote about earlier this year), and further clarifies expectations around order accuracy and on-time service—and how they will be measured. Under OTIF, any shipments deemed late, early, or improperly packed may trigger a hefty fine (Business Insider).

Understanding OTIF

OTIF takes Walmart’s Must-Arrive-By-Date (MABD) requirements to the next level by not only compressing delivery windows, but also enforcing order accuracy.  To help shippers avoid costly penalties, we’ve answered some key questions about the OTIF program here:

Q: What does “On-Time, In-Full” mean?

A: Shippers of food and other consumables must deliver all products ordered, correctly and completely, on the MABD. This means that both late and early shipments are considered non-complaint, as are improperly packed items.

Q: What are the compliance requirements and when do they take effect?

A: Under the new guidelines, shippers must be compliant 75% of the time starting in August 2017. That requirement will jump back up to 95% in February 2018.

Q: What happens if a shipment is late or missing items?

A: Walmart will track late and missing items, and assess fines equal to 3% of their value. Unlike the former Retail Reliability Program which assessed fines quarterly (every 13 weeks), OTIF is measured monthly.

Q: How will Walmart track and assess penalties?

A: Walmart’s scoring system evaluates causes for non-compliant deliveries and will fine suppliers only when they are responsible. The OTIF scorecard, along with supplemental tutorials, user manuals, and videos, can be found on Walmart’s Retail Link website.

Q: How can I dispute a fine?

A: Walmart has stated that they will not consider or “tolerate” any shipping disputes if they decide the problem was the fault of the shipper.

Walmart’s Rationale

Shippers are surely asking why Walmart is forcing such tough requirements and penalties on loyal partners, but Walmart has a solid answer. Under pressure from consumers and workers to cut prices and raise wages, all while keeping up with the growing Amazon threat, the mega-retailer must make sweeping changes to trim costs, and the supply chain is ripe for improvement (Bloomberg).

Stock outages are a major source of Walmart’s problems. Because the retailer has more than 4,700 stores, 150 distribution centers, and painfully low existing OTIF scores from top suppliers—some as low as 10%—late deliveries have consistently led to out-of-stock items, leading to significant lost sales. Meanwhile, super-fast Amazon and low-cost competitors like Dollar General and Aldi have swooped in to fill the gaps. The OTIF program promises to improve this “on-shelf availability” problem while reducing the inventory overstocks that take up valuable sales floor and storage space when products arrive too early. If successful, the optimized supply chain could add $1 billion to Walmart’s bottom line (MH&L).

Answering the Call

Given Walmart’s size and number of suppliers, the effects of the new OTIF program will be felt by many, and for those who have been non-compliant with existing Walmart standards, the new program will feel particularly aggressive. Don’t panic. Taking these steps will help you address critical areas quickly:

  1. Pre-secure delivery appointments earlier in the order lifecycle to ensure the appropriate fulfillment and transportation resources are in place at the right time.
  2. Evaluate your carrier network and partner with companies that have extensive retail delivery expertise and a proven on-time performance track record.
  3. Invest in technologies that give you better supply chain visibility and control.
  4. Develop internal processes to actively predict and manage risks during surge seasons and poor weather conditions.
  5. Analyze or build out diversified routing guides to minimize the risk of service failure that comes with having too few carriers.

The new OTIF program may cause strife for shippers at first, and even lead some to question the value of a Walmart relationship. However, if past success is an indicator, these changes could be just what the industry needs. Just as Walmart changed supply chains everywhere when they required barcode scanning more than three decades ago, OTIF compliance could be a catalyst to help all suppliers meet just-in-time consumer demands across today’s evolving retail landscape (Bloomberg).

Capstone understands that noncompliance with retail requirements is costly. We have extensive experience with on-time deliveries into the largest big-box retailers and grocery chains in North America. Whether you require expedited solutions, surge capacity, project capacity, or DSD, we’ll help you avoid chargebacks and maintain positive relationships with your customers.