How Walmart (WMT) Is Incentivizing Suppliers To Make On-Time Deliveries, Starting September 15

By Amit Chowdhry ● September 12, 2020
  • Walmart is going to start requiring suppliers and carriers to deliver all orders as required and by their “must-arrive-by” dates 98% of the time

Coinciding with the launch of Walmart+ on September 15, Walmart Inc (NYSE: WMT) is going to require suppliers and carriers to deliver all orders as required and by their “must-arrive-by” dates 98% of the time, a fine will be imposed according to Talking Business & Politics via Freight Waves. The penalty is 3% of the cost of goods. This adjustment was disclosed in a memo on September 1, which gave the company’s suppliers about two weeks to adjust to the changes.

This change in the program is known as “on-time, in-full” (OTIF) in logistics terms. Walmart originally launched the OTIF protocol in 2017 in order to get suppliers to get better at hitting must-arrive-by dates for order fulfillment. Back then, Walmart said it was losing millions of dollars in lost sales due to shelves not being replenished quickly enough. So last year, Walmart increased the OTIF requirements from 85% to 95% for general merchandise along with health and wellness. For foods and consumables, the requirement increased to 97.5%. And full-truckloads were told to hit an average of 87% compared to a 70% average for less-than-truckload shipments. Those requirements went into effect as of February. In March 2019, Walmart said that OTIF shipments on food and consumables were at 40%.

“As we continue to keep the customer at the center of everything we do, we must improve product availability to help ensure that our customers can purchase the products they want, when they want, in-store or online. To deliver on this goal, orders need to be fulfilled accurately, on time, and in full. Over the last couple of years, improvements to the On Time and In Full (OTIF) program have driven increased visibility and accountability for Walmart and our Supplier partners,” said a memo published by Walmart U.S. chief merchandising officer Scott McCall and Greg Smith, Executive Vice President, Supply Chain at Walmart U.S. via Talking Business & Politics. “We must improve product availability to help ensure that our customers can purchase the products they want, when they want, in-store and on-line. To deliver on this goal, orders need to be fulfilled accurately, on-time, and in-full.”

These changes in the supply chain are extremely ambitious as Walmart’s suppliers and carriers have been ramping up for an unprecedented peak holiday while also dealing with staffing constraints associated with the COVID-19 pandemic. Since the pandemic began, many retailers were dealing with more frequency inventory shortages due to unpredictable demand. Walmart provided suppliers with a COVID-19 exemption for the OTIF requirements, but it expired on August 17 according to Talking Business & Politics.

It is believed that this new policy is being applied in order to adjust to the new Walmart+ program. Walmart+ offers free same-day deliveries on more than 160,000 items — which is expected to be a popular option for consumers who prefer to order groceries and general merchandise online. Walmart is going to charge $98 per year or $12.95 for the subscription. This service competes directly against Amazon Prime. Amazon and Target also both have similar OTIF compliance standards that are similar to the new policy required by Walmart.

Walmart Testing Drone Deliveries

In terms of logistics innovation, Walmart is also piloting the deliveries of groceries and other household goods through the use of drones from its stores in Fayetteville, North Carolina. The automated drones are being manufactured by Israel-based company Flytrex Aviation Ltd. The drones are able to fly 6.2 miles while carrying packages that weigh up to 6.6 pounds and they take off from landing pads near the store. One of the other benefits of delivering by drone is the contactless aspects of the deliveries between couriers and consumers.

Amazon has also been piloting drone deliveries for a while. And last month, Amazon’s drone delivery program achieved a major milestone by becoming certified by the U.S. government to operate as a drone airline. This enables Amazon to start testing its first commercial deliveries in the U.S. under a trial.

“We know that it will be some time before we see millions of packages delivered via drone. That still feels like a bit of science fiction, but we’re at a point where we’re learning more and more about the technology that is available and how we can use it to make our customers’ lives easier. Take for example our autonomous vehicle work with Gatik, Ford and Nuro – we’ve gained loads of valuable insight into how autonomous vehicles fit within our business,” wrote Tom Ward, Senior Vice President, Customer Product at Walmart in a company blog post.