Thursday, July 20, 2017
Wal-Mart Stores Inc. is planning to step up the pressure on its network of suppliers by handing out fines to vendors that deliver merchandise too early, later than expected, or improperly packed when delivered to stores.
The retailer’s new On-Time, In-Full (OTIF) program aims to add US$1-billion to revenue by improving product availability at stores, according to slides from a presentation obtained by Bloomberg. The move 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., the news report says.
“Wal-Mart has to find efficiencies wherever it can,’’ Laura Kennedy, an analyst at Kantar Retail, told Bloomberg. “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 back rooms became so cluttered it often stored surplus products in cargo trailers parked out back.
The new rules begin in August, and the company said it will require full-truckload suppliers of fast-turning items, such as groceries and paper towels, to “deliver what we ordered 100 per cent in full, on the must-arrive-by date 75 per cent of the time.” Items that are late or missing during a one-month period will incur a fine of three per cent of their value. Early shipments get dinged, too, because they create overstocks.
By February, Wal-Mart wants deliveries to be OTIF 95 per cent of the time. Its previous target was 90 per cent 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.
Those variations can be extreme: OTIF scores for Wal-Mart’s top 75 suppliers – including Procter & Gamble Co. and Unilever – had been as low as 10 per cent, according to Trainor’s presentation. And not one had reached the 95 per cent long-term target.