Delivery standards for Walmart suppliers set to kick in starting in August

Effective next month, Walmart will officially begin its formal rollout of multiple changes to its on time delivery standards for its suppliers that have the potential to significantly impact how these thousands of suppliers approach its supply chain and logistics processes with the retailer.

Walmart is going to require its suppliers (shippers) to meet a two-day shipping window instead of its previous four-day window, as well as up its required compliance rate from 90 percent to 95 percent. 

In a corporate blog posting, Walmart said that for non-compliant deliveries, its suppliers pay a fee of 3 percent of the cost of goods of all non-compliant deliveries, which has been in effect since 2010. The 3 percent “tax” also applies to suppliers when less than 95 percent of merchandise cases are received within the must arrive by date (MABD) delivery window. But suppliers are not charged it they cancel purchase orders prior to the MABD.

The impetus for these types of changes over the years, according to Walmart, is part of an effort to “streamline its supply chain and cut costs,” adding that “stores are no longer acting as warehouses, with too much inventory in back stock rooms or in trailers behind stores. Walmart wants merchandise to arrive in stores just in time to restock shelves and serve customers.”

A Bloomberg report noted that this effort is the cornerstone of a Walmart company program entitled “On-Time, In Full,” with the intention of adding $1 billion in revenue by improving product availability at stores, adding that this comes in tandem with Walmart raising wages, cutting prices and dealing with competitive pressure with Amazon’s recently announced planned acquisition of Whole Foods.

“Walmart implemented the must arrive by date as it streamlines its supply chain and cuts costs, to save shoppers money so they can live better,” the blog posting noted. “Stores are no longer acting as warehouses, with too much inventory in back stock rooms or in trailers behind stores. Walmart wants merchandise to arrive in stores just in time to restock shelves and serve customers, as store shelves have been reduced and the center aisles are no longer cluttered ‘action alleys’ with merchandise in bins with the goal of making stores appear cleaner.”

And it added that suppliers will be exempt from fees if merchandise does not arrive by the specified date should suppliers cancel purchase orders prior to the must arrive by date.

From a modal viewpoint, Walmart explained that manufacturers shipping goods with truckload carriers will have a “much easier time” complying to the new rules as truckload freight moves to one destination.  

But on the less-than-truckload (LTL), it said there could be more issues, as LTL freight moved through freight consolidators that often have large numbers of variable days, with it sometimes taking two days for good to leave the consolidator while other times it may take eight days. And it also noted that things can also be challenging for goods coming via rail which it described s very inconsistent.

While Walmart’s reasons for these changes are clear, it does not mean they will not be challenging for its suppliers by any stretch on multiple fronts, according to Andrew Lynch, co-founder and president of Zipline Logistics, a Columbus, Ohio-based 3PL focusing on retail and consumer products.

“There is serious skin in the game with these mandates for shippers that serve Walmart,” he said. “Falling below 90 percent on-time delivery for 3 percent of the invoice fee is a monster and will be even more so when it goes up to 95 percent.”

Lynch explained that these pending changes are somewhat reactionary to evolving consumer trends in that Walmart needs to be leaner and more exact about when goods are coming into their distribution centers, as well as needing to have higher velocity on their inventory turns.

If it is a single-source supplier that only has one manufacturing location, that supplier needs to come up with the best MABD that allows it to continue to maintain control over its inbound supply and production in order to meet the 95 percent on time delivery standard soon to be required by Walmart while not excessively increasing costs.  

“That is where you dive into consolidating for customers onto one truck and deconsolidating, too,” said Lynch. “There is also a lot less handling and loading to ride and not worrying that an LTL carrier will get it back on truck and delivered by the MABD. It is all about control and from Walmart’s perspective of course they want control of when their inventory comes in and for us what we are advising our clients is to not necessarily allow that to mean that they have control of your entire production line and inbound supply chain. If you give up control of transport you give up control of all those other things. If Walmart gets a lower price they are picking it up when convenient for them and unless you are a huge supplier you don’t have production capacity, warehouse capacity and sourcing capacity to let someone else have that much control over your supply chain.”

Walmart is not alone in establishing these types of mandates. Target also announced its plan to tighten deadlines for warehouse deliveries in May 2016, with fines for late deliveries increasing and penalties up to $10,000 for inaccuracies in product information, which took effect on May 30, according to a Reuters report.