Walmart is asking its suppliers to improve their on-time delivery performance for both full and partial truckloads or face a fine as part of its effort to reduce out-of-stocks on its shelves and improve the customer shopping experience in the process.
As of April 1, full-truckload suppliers will have to ensure 85% of their orders are received on-time, up from the 75% requirement that was implemented in August; half-truckload shipments will have to meet a 50% on-time threshold on that date, up from 33% currently.
Those not meeting the deadline will face fines implemented in August of 3% of the value of the products that did not hit the target deadline.
The new criteria were spelled out during a two-day supplier growth forum – attended by 4,000 of the retailer’s suppliers – at its Bentonville, Ark. headquarters. The purpose of the forum, which concluded today, is to give suppliers information about Walmart’s strategy and what the retailer is doing to drive growth of the business, and inform them about all of the tools that Walmart has available to them.
“This is initiative is part of our journey to get at least 95% of our merchandise on-time and in full at our distribution centers,” Lorenzo Lopez, a Walmart spokesman told Supermarket News. “Last year we established it at 75% to start, and this year we are going up to 85% for full truckloads.”
Walmart is also working closer with its suppliers, by sharing information with them that it had not shared in the past, Lopez noted.
“We will be sharing with them on-shelf customer availability data, for example, which essentially shows what is available to the customer at what time,” Lopez said. “We are also sharing with them what we call root cause data. When we analyze why an item may be potentially out, it may be for any number of reasons, like the merchandise was in the backroom, or not delivered on time to the distribution center, or that the modular for those items was set up incorrectly. There are a number of reasons why that could happen and we are sharing that information with our suppliers. That will help the supplier as we talk about on-time deliveries,” Lopez said.
“Essentially what we are trying to do is get the inventory we need at exactly the right time the customer wants the product,” Lopez said. “It is about establishing a level of flow that will get the product on the shelf when the customer is going to look for the item. We’re able to do that by getting a lot of data and now sharing it with suppliers.”
Walmart has historically done that through initiatives like its Retail Link system which gives suppliers visibility into the sale of the product.
“This is actually getting more granular and providing additional information that the suppliers have been asking for as part of this journey to make sure that we continue to drive sales and growth for suppliers and for our company,” Lopez said.
“It is all about making sure that when the customer goes to the store that they find the product that they need, and we are doing that by reducing inventory that is flowing through the distribution center during periods when the product is not needed or having items sitting in the back of the store. That does not help the customer when they go to find an item,” Lopez said.
Ensuring that items are flowing through the supply chain efficiently has already helped Walmart improve the in-stock position of many items on its shelves.
“Walmart has made a big push over the course of the last several years of improving its in-stock position while committing less inventory to the stores and backroom in particular,” said Ben Bienvenu, a research analyst who follows Walmart at Stephen Inc., in Little Rock, Ark. “To me this is another move in that direction, and it is not incongruent in what we’ve seen across the retail space, most notably with Kroger making a similar move.”
For retailers, alleviating sales or margin pressures by putting pressure on the supplier partners is the smart thing to do, and is good for the suppliers as well, since it helps them build sales, Bienvenu said.
“Walmart has made a tremendous amount of progress in reducing their out-of-stock situations over the past two years, and I think this is going to be another contributing factor to that,” Bienvenu said.