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To successfully compete with Amazon, Walmart tightened its on-time in-full (OTIF) policies, fining suppliers who can’t meet them.
Will these recent Walmart delivery demands on suppliers confer a positive effect on logistics companies, Walmart or the consumer? Suppliers must develop strategies to meet the new requirements. The question of whether customers are expected to experience fewer “out-of-stock” bottlenecks under the new system, however, remains to be determined.
As Walmart is increasing its focus on online grocery pickup and delivery services, it is even more imperative to ensure that suppliers deliver on time. With its new focus on pushing suppliers to deliver more goods on-time in-full, Walmart has increased the threshold of its two-day delivery rate to 87 percent, up from 85 percent.
For suppliers that fill part of a truck with goods, the rate has increased from 50 percent to 70 percent. Walmart is also changing its system for fining suppliers who fail to meet its requirements.
The new metrics for measuring OTIF compliance
For each case that does not meet the requirements of Walmart’s OTIF policies, the supplier will receive a 3 percent fine. The supplier will not be fined more than once for noncompliance.
The metrics used to determine fines are also undergoing some changes. While suppliers used to receive a combined score that reflected how consistently they delivered products on time and how complete the orders were, the two aspects of OTIF delivery will now be broken up into two separate ratings.
For example, if one crate of eggs were missing from an order of 20, the supplier would be fined 3 percent of the cost of goods sold on the missing crate. If the entire shipment arrived late, the supplier would be fined 3 percent of the entire shipment.
The impact of Walmart’s move to an OTIF policy
Now that Walmart is measuring both aspects of its suppliers’ performance more easily, tracking supplier statistics will become simpler. It will also be easier to identify issues in the delivery process. As Walmart expands the number of stores that offer pickup of online grocery orders and, in some cases, home delivery of groceries, improving the precision of the flow of products through its warehouses has become a pressing concern.
As Walmart is seeking to expand online grocery orders, which draw on inventory, the retailer has been lowering the overall amount of inventory housed in its warehouses to cut costs. Walmart’s OTIF policies are a direct reflection of the need to reduce out-of-stock readings in stores and online while increasing the cost-effectiveness of deliveries from suppliers.
The benefits of Walmart’s OTIF policy
OTIF policies are bound to benefit both Walmart, which will be able to improve the efficiency of its warehouses and make more sales, and the consumer, who won’t have to deal with shortages in the products they use. But there is another winner in this scenario. With the increased focus on making sure that suppliers deliver the right products at the right time, providers of real-time freight visibility solutions are seeing an increase in demand for their services.
According to industry experts, providing real-time freight visibility is now considered a requirement of doing business in the shipping industry. Real-time freight visibility is showing up more often in requests for proposals and supplier agreements. This trend is being driven by OTIF policies such as the one Walmart implemented.
The importance of real-time freight visibility
In today’s “on demand” world, real-time freight visibility is becoming even more vital to making sales and retaining customers. In the past, shipping updates were too infrequent, but it is now possible to receive updates every 15 minutes with some visibility software, which allows customers to streamline the delivery process.
Real-time freight visibility is also vital to customers with strict OTIF policies, Walmart included, because it makes it easier to predict the estimated time of arrival and work collaboratively with customers. Customers have come to expect visibility from suppliers, and it has become a requirement for logistics service providers (LSPs) to win contracts.
Walmart’s OTIF policy leading the way
Changes to the way that Walmart operates, such as its increased focus on online grocery ordering and delivery, have resulted in the implementation of a strict OTIF policy requiring a high degree of visibility from suppliers. To respond to the demands of online ordering, it is becoming increasingly important for Walmart, as well as other companies, to maintain exactly the right inventory at the right time. And this requires accurate tracking information from logistics service providers.
With the implementation of Walmart’s OTIF policy, other major retailers are bound to follow suit to be more responsive to the demands of customers. Not only will this trend benefit Walmart and other retailers as well as the consumer, but it will also increase the market for real-time freight visibility from logistics service providers. It will be an opportunity for them to differentiate themselves from the competition to provide the fastest, most accurate delivery possible.