Beginning this Tuesday, the financial stakes of shipping to Walmart Inc. (NYSE:WMT) will get appreciably higher.
Effective Sept. 15, the Bentonville, Arkansas-based retail behemoth will require its suppliers and their carriers to deliver all orders as Walmart required and by their “must-arrive-by” dates 98% of the time or be fined 3% of the cost of the goods. The adjustment was disclosed in a Sept. 1 Walmart memo, giving its massive supplier and carrier network just two weeks to adjust.
The change to the program, known in the retailing trade as “on-time, in-full” (OTIF), brings the two components into uniformity for the first time since Walmart launched it in mid-2017. Currently, 95% of all general merchandise orders must be filled exactly as Walmart wants it. For food and consumables, that figure is 97.5%. Talk Business & Politics, an Arkansas online publication that first reported the story, said OTIF compliance on the food and consumables segment has been well below Walmart’s requirements.
The same uniform standards will apply to the time-in-transit portion. For truckload carriers, Walmart currently sets an 87% on-time threshold for a “prepaid” transaction where the supplier sets the delivery terms and pays the freight charges. It imposes a 95% requirement for a “collect transaction,” where the retailer handles the shipping and absolves the shipper of any responsibility should an in-transit issue like a truck breakdown affect delivery schedules.
Less-than-truckload (LTL) carriers may face the most difficult adjustment. Their on-time requirements are currently set at 70%.
Walmart initiated the program to push suppliers to improve their fulfillment execution. The retailer complained it was losing millions of dollars in sales because store shelves were not being restocked fast enough. Last year, Walmart raised the OTIF requirements on general merchandise and food and consumables orders.
According to the Arkansas publication’s report, Walmart executives said in the memo that “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.”
The move comes as Walmart’s suppliers and carriers begin gearing up for what is expected to be an unprecedented peak season for e-commerce as the normal holiday frenzy converges with online activity as the COVID-19 pandemic restrains store buying. During the pandemic, all retailers have experienced more frequent and severe inventory shortages. Walmart granted suppliers a COVID-19 exemption from OTIF requirements at the peak of the outbreak, but that exemption expired Aug. 17, according to the Arkansas publication.
The new policy may also be a response to cost and execution pressure from the recent rollout of the Walmart+ program, which offers free same-day deliveries of more than 160,000 items, much of it grocery and general merchandise, for a $98 annual subscription fee, or a $12.95 monthly subscription. The new program is costly to implement, but Walmart views it as necessary to defend its online grocery market share from rivals like Amazon.com, Inc. (NASDAQ: AMZN) and Target Corp. (NYSE:TGT), analysts said. Based on the Talk Business & Politics Report, Walmart has much work to do if it wants to improve its OTIF metrics in the grocery segment.
Amazon and Target’s OTIF compliance standards are similar to those in Walmart’s new policy.