No matter what the balance sheet says — or perhaps because of it — the spirit of innovation is very much alive within the retail industry.
Blame the consumer. Shoppers are demanding retailers make more products available, more quickly, and through various points of sale. The consumer-driven supply chain is here, and as a result, retailers are in a sort of arms race, seeking out the best tools to satisfy consumer needs.
Perhaps it’s an Amazon Locker, placed strategically within a newly acquired Whole Foods Markets. It could also be a redesigned store experience, as niche retailers leverage their store associates to pull in more sales. And as online sales grow, so too do the last-mile delivery startups to help fulfill the orders.
Yet, behind each new sale lies an entire process dedicated to its fulfillment. If retailers want to unlock greater sales, they must first look to make their supply chains more efficient. At least, that’s what Supply Chain Dive learned on a recent trip to Bentonville, Arkansas, where Walmart explained its reasoning behind its latest on-time, in-full supplier policy.
Here’s another thing we learned: With good business planning, supply chain managers in other stores or another industry may be able to replicate Walmart’s efforts and improve efficiency.
What is on-time, in-full and why does it matter?
On-time, in-full (OTIF) is not a new concept in supply chain management — it simply means suppliers should deliver their products when and how the buyer needs it — but that’s easier said than done.
Pick-and-pack mistakes, transportation delays and communication issues are all common causes for an OTIF miss. For that reason, Walmart previously provided suppliers with a three- to four-day window to deliver their products, and was forgiving of packaging mistakes.
I think inventory management for bricks and mortar retail is a foundational skill.
Kathryn McLay
Senior Vice President, Logistics Walmart U.S. Flow
Now, however, on-time has a completely different definition for retailers. Same- or two-day delivery is the new norm — so how can retailers meet this with a 4-day supplier window? As for in-full, what’s the point of low prices and fast shipping if a product has unreliable availability at the point-of-sale?
Spoiler alert: there is none. In fact, low availability may translate to lost sales or even lost business for retailers. Walmart’s new OTIF policy, then, is a move to increase availability for its entire supply chain.
So, what did Walmart change?
Walmart announced its new OTIF policy last July, but had signaled its intention to suppliers as early as 2016.
Now, food and consumable suppliers must deliver within a one-day window, while general merchandise or soft line suppliers must comply with a two-day period. If a delivery arrives early, late or improperly packaged, a supplier could be fined a 3% off-invoice charge.
What seems like a simple task, however, is a major change for the thousands of suppliers that work with the retailer. Recognizing the challenge, Walmart is asking suppliers to comply with the policy 95% of the time by February, but had only reached 70% compliance as of August 2017.
For suppliers, the new policy may seem like a draconian way to force compliance among the community. But for supply chain managers, Walmart’s pivot to a stricter OTIF standard is an example of how procedural innovation can unlock greater revenues.
How better OTIF improves availability
If on-time, in-full were so easy to improve, it would not be a competitive advantage.
After all, transforming a company’s supply chain is no small feat, much less when you are the world’s largest corporation responsible for more than a billion annualized cases, 100 distribution centers, a private fleet and thousands of suppliers.
As a result, Kathryn McLay — senior vice president of logistics for Walmart U.S. flow and one of the chief architects of the new policy’s implementation — entered a five-step journey with her team to transition their suppliers to OTIF.
“There is nothing more frustrating than actually having a meeting between supplier and retailer, where you want to talk about OTIF but you spend all of your time debating the numbers,” she said.
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1. Signal your intention
"We were also very very intentional about making sure that how we partnered with suppliers was by first telling you that this is what we were going to do."
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2. Provide the business tools to get there
"We spent a lot of time going through and clarifying our data to make sure we had one version of the truth."
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3. Be transparent about how you're performing
"The same way that we have put out a standard of 95% to our suppliers, we're also internally holding ourselves accountable to that and we're doing it in a transparent way."
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4. Partner to determine root causes of issues and solutions
"What we don't want is people just kind of pulling levers, throwing cost and ending up having a more expensive supply chain to get OTIF."
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5. Ensure charges apply only to supplier-caused OTIF misses
"Our intention is that we want to encourage and incent our suppliers to get to great availability."
Walmart's 5 steps to transition to OTIF, according to McLay
The OTIF journey began 18 months prior, at the company’s annual supplier summit. Once the commitment to increase flow had been made, the team responsible for leading the strategy had to figure out all the large and small changes that would make its supply chain OTIF-ready.
For Walmart, this meant not just figuring out the right equation to reducing variability in the supply chain and increasing flow, but also investing in a series of data-based capabilities to clean the data involved in OTIF.
“I think inventory management for bricks and mortar retail is a foundational skill. If you start looking at the world through a multi-channel lens, actually inventory management is pivotal to our success,” McLay said at an event for suppliers in Bentonville.
A store may rely on a distribution center to consistently replenish on-demand products, but if a supplier does not know to prioritize a shipment — instead relying on the four-day window to ensure its arrival — the entire process gets delayed.
“If I don't know what's coming inbound, I don't know what's going outbound. If I don't know what's going outbound, I can't tell the stores what to expect. If the stores don't know what to expect, they can't plan their labor to make sure that product goes truck to shelf,” she said.
OTIF requires great flow
Availability
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Lowest Inventory
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Lowest Touches
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Flow
“To actually be out and have precise inventory placement — and then be able to nimbly redirect product based on where the demand is — is going to be a critical capability for us to be successful and thrive in a multi-channel world,” said McLay.
Yet, this required managing various distinct parts of the company’s supply chain, including transportation, distribution and replenishment.
To manage carrier performance and expectations, the company invested in its forecasting capability to align lead times with OTIF rates. At the distribution center, Walmart standardized its supplier appointment scheduling system throughout its entire network. When it came to replenishment, the company targeted its prioritization logic so that distribution center managers can tie their inbound to a store’s must-arrive-by-date (MABD). That way, supplier schedules would be aligned directly to store needs.
“I fundamentally believe that if you're going to go about achieving a great OTIF, it actually requires really good business planning,” said McLay. Otherwise, a company may end up “throwing cost” at the problem, making the entire supply chain more expensive.
“There is a right path to get to OTIF, and that right path is through investing in data, investing in planning and making sure your organization is ready to engage at a 95% level,” she said.
In a way, that sounds like a step-by-step guide for many of the industry’s modern problems.
