[Disclaimer] This blog post was written to educate suppliers currently working or aiming to work with Walmart. The information RangeMe and SupplyPike share about OTIF standards for 2020 is to help you better understand these changes and is solely our interpretation of the updates. Walmart is not a contributor to the information presented in this blog post and is not a sponsor or promoter of SupplyPike’s OTIF Radar. Walmart provides its suppliers with their individualized OTIF data in real-time via the supplier’s Walmart Retail Link User access. Suppliers must rely upon their individualized OTIF data in Retail Link.
On September 1, 2020, Walmart announced changes to its On-Time In-Full (OTIF) program. These changes affect all purchase orders intended for U.S. stores with a Must Arrive By Date (MABD) of September 15, 2020, and after.
The new OTIF goals do not affect suppliers for Sam’s Club, Marketplace, direct-to-store deliveries (DSD), Import, and Walmart International, which have separate compliance programs.
What is OTIF?
OTIF is a compliance program that Walmart implements to create a better supply chain. The retailer designed the program to ensure that products are on the shelf when they need to be and where they need to be. The idea is that orders arrive by the day and time listed on the PO and all ordered quantities.
If suppliers fail to achieve their OTIF goals, then they will face hefty fines based on the costs of the late or unfilled goods sold. A study done by a broker who works exclusively with Walmart suppliers found that less than 40% of Walmart suppliers made their OTIF goals in 2019. Walmart estimates that poor In-Full performance accounted for $1.7 billion in lost sales during the 2018 fiscal year.
New 2020 Walmart OTIF goals
Previously, Walmart differentiated different goals for its compliance program. Now, Walmart’s monthly OTIF goals for U.S. suppliers are as follows:
- On-Time:
- Prepaid On-Time (i.e., when the supplier manages the transportation):
- 98% of all cases delivered arrive on time at the distribution center.
- Collect Ready (i.e., when Walmart manages the transportation):
- 98% of all cases are ready for pick up by the appointment time.
- Prepaid On-Time (i.e., when the supplier manages the transportation):
- In Full: 98% of all cases ordered are delivered
- This goal includes all merchandising alignments (General Merchandise, Food/Consumables, and Health & Wellness).
To sum up, Walmart has changed the goals so that every order, regardless of merchandising alignment or shipment type, must meet the 98% goal.
For Prepaid suppliers, Walmart includes Less than Truckload (LTL), Full Truckload (FTL) Shipping, and Mix of LTL and FTL into the Prepaid metric. In other words, Walmart expects all Prepaid orders to meet the 98% goal.
Walmart does not expect Collect suppliers to deliver the order on time to the distribution center (DC) or store. That’s Walmart’s responsibility. Suppliers just have to have their orders ready for pickup. The supplier must make sure that Walmart can pick up the entire order by the appointment time listed on the purchase order (PO).
The changes affect prepaid LTL suppliers the most with a 40% increase to the on-time goal from 70%, prepaid FTL suppliers will see a 12% jump for their on-time goal, up from 87.5%, and in-full goals increased by 3% for general merchandise and 0.5% for food and consumables. Collect ready goals have also increased by 3%.
For prepaid shippers using both FTL and LTL, there is no longer a “blended goal.” Regardless of how suppliers ship their products, the On-Time goal is 98% across the board.
If orders fail to comply, Walmart will charge the supplier 3% of the cost of goods sold (COGS) of non-compliant cases that go to stores and shipped eCommerce items. Walmart has not specified a minimum fine threshold for OTIF non-compliance to receive an actual fee.
OTIF calculations
The way Walmart calculates OTIF has not changed. Walmart measures OTIF based on the original PO quantity and original Must Arrive By Date (MABD) for system-generated orders. For manual orders, the calculations use the adjusted PO quantity and adjusted MABD. Cases received in excess still go into the “Overfilled Cases” metric on the scorecard.
Even though the goals are now the same for all POs, Walmart will still measure each PO based on the individual shipment and merchandising type. So, Walmart calculates its OTIF score for Collect orders based on whether the order was ready by the pickup appointment time or, for Prepaid orders, based on the date and time the order arrived at the DC. Walmart will also measure in-full performance separately. However, the retailer does not levy fines for the same cases twice.
What does this mean for new suppliers?
New suppliers should weigh their shipping options very carefully. What works for other retailers and distributors may not work for Walmart with its new stringent goals. Small suppliers, especially, should weigh the pros and cons of Prepaid versus Collect shipping to determine which option will best suit their needs.
Because Walmart no longer differentiates between goals for LTL and FTL shipments, it is no longer always advantageous to use less-than-truckload. New suppliers should research their carrier and third-party logistics company (3PL) options very carefully before choosing a shipment method. New suppliers should specifically ask carriers and 3PLs for their OTIF histories to weigh their compliance.
The good news is that Walmart gives new suppliers a three-month grace period to test out the shipping waters to the retailer. This gives suppliers a chance to try shipping collect, LTL versus FTL, or different carriers to find the right fit.
Moving forward
With these new changes, suppliers will need to dive deep into their logistics and supply chain. If their “On Time” metric is low, suppliers need to look at the order’s progression from the warehouse to the carrier to the distribution center. If their “In Full” metric is low, suppliers need to look at the individual items and how they move from the manufacturer or vendor to the warehouse, and they should also make sure the warehouses are fulfilling the orders completely.
Walmart considers its suppliers to be fully responsible for their OTIF performance, regardless of the circumstances. The retailer suggests that suppliers follow these best practices:
- Review OTIF scorecards weekly
- Assess order processes
- Be proactive with buyers, replenishment managers, logistics teams, and other key stakeholders by canceling POs when necessary or communicating potential compliance issues before they happen
- Act on kinks in the supply chain by holding third parties accountable and work to resolve issues
Suppliers should always keep an open line of communication with their buyers, third parties, and representatives at Walmart. The important takeaway from these changes is that Walmart strives to be number one in the retail industry, and it wants its suppliers to succeed as well.
Glossary
Collect or Collect Ready: “Collect Ready” is a shipment option where the retailer’s truck will come to pick up (or “collect”) these orders from the vendor, so the vendor does not need to worry about employing a logistics company or carrier. For collect orders, the vendor must ensure that the order is ready for the retailer to take away at the scheduled time.
Cost of Goods Sold (COGS): The cost of goods sold is an amount listed on the invoice indicating how much the items in the order cost Walmart. This is not Walmart’s price on the product, but the cost vendors have negotiated with Walmart, including allowances and discounts.
Delivery Window: The delivery window is a specific timeframe during which an order must arrive. For Walmart orders, these windows vary based on the item’s department and distribution center list on the PO.
Distribution Center (DC): The distribution center is the facility between the vendor or vendor’s warehouse and Walmart’s stores. The DC sorts orders and sends them to their designated stores on Walmart trucks. Not all orders go to a DC – some go to the stores directly.
Full Truckload (FTL): Full Truckload shipping is for orders that take up a whole truck by themselves and do not share space with other vendors. The carrier goes directly from the vendor’s warehouse to the destination DC or store.
In Full: To be “in full” means to have shipped the exact number of items listed on the purchase order to the retailer. So, if Walmart orders 100 cases, it considers the order to be “in full” only if it receives 100 cases.
Key Performance Indicator (KPI): Key performance indicators numerically represent how successful a vendor is for many different aspects of its business over time. An example, in this case, would be 98% In-Full (showing that 98% of all cases ordered within a period arrived at their destinations).
Less-than-Truckload (LTL): Less-than-truckload shipping is for orders that share a carrier’s cargo space with other vendors’ orders. LTL shipments are typically small, only a few pallets.
Merchandising Alignment: Retailers broadly define the goods they receive by “merchandising alignment,” meaning a high-level category. Examples are Food/Consumables or Health & Wellness. More drill-down categories and departments, such as “cosmetics” or “frozen foods” fall under these general alignments.
Metric: A metric is a measuring algorithm used to determine a vendor’s level of compliance or how close a vendor is to a goal (such as a sales forecast). Metrics are numeric, often percentages.
Must Arrive By Date (MABD): The “Must Arrive By Date” is a date listed on vendor’s purchase orders stating when the retailer expects the order. This is different from the “delivery window,” as the MABD can be more of a guideline. Retailers base their delivery windows on the MABD. For example, Walmart expects General Merchandise to arrive no sooner than one day prior to the MABD and no later than the MABD itself.
Non-Compliant Cases: Non-compliant cases are packaged items that either arrived after (or before) the item’s designated delivery window or did not come with all the quantities ordered. For example, if Walmart orders 100 cases from a vendor, and only 80 cases arrive, the vendor would have 20 “non-compliant cases.”
On Time: To be “on time” means that all of the cases ordered on a particular purchase order arrived at their destination within the delivery window, or that all of the cases ordered were ready for pick up by the retailer. Walmart considers early orders to not be “on time,” so vendors must make sure they deliver their goods within the delivery window.
On Time In Full (OTIF): On Time In Full is a supply chain compliance program meant to ensure that vendors meet customers’ demand for their products according to sales forecasts, instock goals, and replenishment requests. OTIF is a KPI by which retailers measure how well their vendors comply with their standards and can be a yardstick by which vendors measure their supply chain’s efficiency.
Prepaid: “Prepaid” is a shipment option that allows vendors to select their logistics company or carrier to deliver their goods as ordered to the retailer.
Scorecard: A scorecard broadly refers to a method of measuring metrics or KPIs. For Walmart, it specifically refers to how it displays OTIF metrics (or “scores”), in a percentage. For example, if a vendor had 1000 cases ordered for the month of September, and Walmart only received 800 cases, then the scorecard would show an OTIF score of 80%.
Supplier: Walmart uses the word “supplier” to describe its vendors. Suppliers span all departments, including Walmart’s pharmacy, optical lab, automotive department, and other merchandise.
About the Author
SupplyPike is a leading supply chain software solutions company helping CPGs increase their retail intelligence and profitability with analytics applications, machine learning, and deductions management. SupplyPike’s team has over 100 combined years’ experience with Walmart and is located just 20 minutes away from Walmart HQ. They empower CPGs and brokers to create solutions to the biggest headaches in the supply chain business. Sara White has been with SupplyPike for 3 years, and she enjoys creating content and talking through business challenges to help entrepreneurs grow their business at mass retail.