When it comes to clout with suppliers, there’s no dispute Walmart makes significant demands. The latest is that Walmart has announced it will ask suppliers to deliver more goods to warehouses exactly on time or face fines, as it strives to simultaneously keep inventory low and replenish out-of-stock items faster to better compete with rivals such as Amazon.
“We’ve reduced inventory in stores in order to have the right amount of stock, and have made significant progress in the past few years,” Steve Bratspies, chief merchandising officer at Walmart, told Reuters. “We want to focus on improving that even more.”
Bratspies, in an interview with the Wall Street Journal, said company executives are telling large suppliers they need to deliver full orders within a specified one- or two-day window 85 percent of the time or face a fine of three percent of the cost of delayed goods. Previously, suppliers had to hit a 75 percent threshold to avoid fines. For smaller suppliers, the on-time threshold will move to 50 percent, up from 33 percent. The changes will take effect in April.
“This is not a ‘Hey, let’s see how unreasonable we can be,’” Bratspies said, the Wall Street Journal reports. “We need the product that the customer wants when they want it.” Walmart would rather have the products on-time than fine suppliers, a spokesman added.
As Walmart, Kroger Co. and other retailers demand tighter delivery windows, suppliers including Kraft Heinz Co. and Procter & Gamble Co. have invested heavily to meet those requirements and make their supply chains more flexible for online buyers, the Wall Street Journal article notes. Last February, Walmart executives told suppliers more accurate delivery times would be a focus going forward and first introduced fines for inaccurate deliveries last year.
A more precise delivery window helps Walmart keep shelves stocked and the flow of products more predictable, satisfying customers while simultaneously reducing inventory, say executives. That goal has become increasingly important to the world’s largest retailer as it moves to ensure stores increase profitability so it can channel funds to boost online efforts. What’s more, accurate inventory data is increasingly important to retailers as they strive to offer shoppers more ways to buy products online for in-store pick up.
“They’re trying to get as much inventory as possible off the books,” Adrian Gonzalez, a supply chain analyst and president of research firm Adelante SCM, says in the WSJ article. “They want to order more frequently and in smaller quantities, and kind of accelerate that whole process.”
The drawback is that the strategy also increases the risk of products being out of stock, and consumer disappointment, Gonzalez says. “Wal-Mart is trying to balance that…while still making sure the product is on the shelf.”
What’s also interesting is that Walmart’s demand for a tightened delivery window comes as freight costs are climbing. Many companies struggle to book transportation, particularly for time-sensitive deliveries, because demand has outstripped the supply of available trucks. Prices on the spot market, used by shippers to arrange last-minute transportation, are up more than 20 percent compared with this time last year. Fuel prices are also rising, adding to suppliers’ overall costs.
What are your thoughts on Walmart’s new delivery requirements? Is your company under pressure to meet similar requirements?