Tag: inventory

OM in the News: Fiat Chrysler and 40,000 Unordered Vehicles

Fiat Chrysler has been manufacturing more cars and trucks than its U.S. dealers are willing to accept, at one point creating a nationwide stock of about 40,000 unordered vehicles and stoking tension with some of its retailers. Dealers claim the company has revived what’s known in industry circles as a “sales bank,” writes Bloomberg (Nov. 12, 2019). The practice is decades old and frowned upon by investors because it can obscure an automaker’s inventory figures. Dealers don’t like it because it can amp up the pressure companies place on them to take delivery of vehicles they don’t want.

Fiat Chrysler denies the sales bank claim. The company says it put a predictive analytics system in place early this year that aims to better align its supply chain and manufacturing plans with anticipated dealer orders. But it recently paid a $40 million penalty related to filing years of sales reports the SEC said were fraudulent. One way the company inflated figures was by paying dealers to report fake sales. The predictive analytics strategy was implemented this year and has already increased the required lead time for dealers to order cars, saving the automaker $441 million.

Some dealers were looking to pare back inventory after being burned by rising interest rates that increased the cost of holding cars, and a lack of incentive support from the company to boost sales of older models. Just last week, Fiat Chrysler told dealers it would allocate them vehicles for both November and December all at once, and that it may restrict orders for certain models. Dealers viewed this as a bid by the company to work through inventory by prodding dealers to order cars that remain in the sales bank. Fiat Chrysler said the restrictions apply only to certain vehicle configurations where demand exceeds production capacity.

Classroom discussion questions:

  1. Is there an ethical issue in this story?
  2. Point out the forecasting (Ch.4), supply chain (Ch.11), analytics (Mod. G), and inventory (Ch.12) OM implications.

OM in the News: Picking Inventory at Amazon With Humans and Robots

While this Amazon center is highly automated, some tasks are likely to remain in human hands for years to come.

Every day, about 50 truckloads of merchandise turn up at Amazon’s warehouse in Staten Island, NY. One group of workers unloads the goods, and another group distributes them to work stations. There, a third group, stowers, transfers the items onto large shelving units that hold several dozen bins, and are attached to robots that move through the building. Stowers choose the bin where they want to place each item, trying to make the task as easy as possible for the worker, a picker, who will have to grab items out of the bin.

Picking inventory off shelves to fill customer orders is usually the most common job at an Amazon warehouse, and the company has worked for years to make its pickers more productive. At many warehouses, pickers walk miles each day in search of items, but algorithms provide them with the optimal route. In robotics fulfillment centers like the one on Staten Island, the pickers are stationary and the robots deliver items to them. (These warehouses account for more than 50% of its 175 centers).

The robots have raised the average picker’s productivity from 100 items per hour to 300 or 400 –and help explain why Amazon managed to ship more items than ever during last year’s holiday season with about 20% fewer seasonal workers. But robots have also made the job far more repetitive. Unlike pickers in manual warehouses, the pickers on Staten Island have almost no relief from plucking goods off shelves

Amazon  plans to fully automate picking in the near future, reports The New York Times (July 7, 2019). It calculated that there was so much productivity to be gained from reducing the millions of miles its workers walk each year that it was better off finding robots well suited to moving goods all those miles, not worrying whether the system would later be compatible with robotic pickers.

Classroom discussion questions:

  1. Why would it be hard to replace the human pickers?
  2. Outline the process of merchandise flow in an Amazon warehouse that uses robots vs. one that does not.

OM in the News: Amazon Falls Short Over Food Delivery

A contract employee for Amazon picks up bags of groceries to deliver to Whole Foods customers

Amazon last year began offering some Prime members online grocery-shopping and delivery from Whole Foods, touting the service as another perk to customers after purchasing the organic grocery chain. But Whole Foods employees said Amazon workers routinely ask for help finding items on shelves or elsewhere, distracting them from their own duties. And technology that tracks Whole Foods’s inventory is old.

Amazon’s struggles aren’t unique, writes The Wall Street Journal (March 25, 2019). As supermarkets increasingly offer online grocery delivery to keep customers loyal, most services that fill orders from stores are struggling with execution. The challenges are numerous. Many grocers don’t have technology that can readily track inventory in real-time. That means items listed as available online often aren’t in the nearest stores filling a delivery order, leading employees to make their best guess or rely on computer recommendations that can suggest unsuitable substitutions.

Target recently introduced a new inventory-management system for stores and online to speed up replenishment. At Instacart, the largest third-party grocery-delivery service, incomplete orders were the second most frequent source of customer dissatisfaction, after price. Some 15% of consumer products listed on U.S. online ordering services are out of stock when it comes to fulfilling them, nearly double the rate in stores.

There are a number of reasons why many online grocery services struggle to offer substitutions customers want. Shoppers typically depend on suggestions from online tools, and algorithms can make mistakes or suggest inappropriate alternatives. Services that rely on gig-economy workers who pick items off store shelves can exacerbate the selection problem, since many aren’t food experts and juggle many orders a day. Mishandling substitutions is expensive for retailers, as it often leads to refunds or a replacement item that is pricier than the original. Refunding incorrect items decreases an online order’s profitability by 1% to 2% on average.

Classroom discussion questions:

  1. What are the inventory issues that online grocers face?
  2. What can be done to make the systems more efficient?

 

OM in the News: Walmart Bets on Consolidation Centers to Win at ‘Inventory Flow’

For big retailers with a lot of suppliers, it doesn’t make much sense to ship items directly from vendors to each individual store. It may not even make sense for vendors to ship to each regional distribution center. That’s where consolidation centers come in, writes Supply Chain Dive (Feb. 26, 2019). Walmart just announced it will open its 10th, a 340,000-square-foot high-tech consolidation center in California that will receive, sort and ship freight from suppliers before sending them to a distribution center.

Using consolidation centers, items from vendors whose purchase orders (POs) are smaller than what would fill an entire truck are consolidated with other similar shipments so that half-empty trucks aren’t showing up at stores. “We believe this investment is going to really set Walmart apart by being able to create a national purchase order for 4,600 stores where we can buy and flow inventory more efficiently than anybody else. The center will be the first to leverage best-in-class inventory management and automated inventory receiving and sortation,” said a Walmart exec.

The goal of the consolidation centers is to get items to Walmart store shelves as quickly as possible. Walmart also sees its consolidation centers as a better way to get the right inventory to the right stores. Walmart now has 10 of them, only not like this special one. They receive less-than-truckload freight shipments for all manner of products making their way to the retail stores and essentially collate freight into truckload shipments of products. From there, Walmart shipments go on to 42 regional distribution centers and the U.S. stores. What’s changing is that the new California consolidation center automates sorting, which allows it to process 3 times more freight volume than an equivalent manually-run facility. Further, order inaccuracies won’t be able to get as far downstream.

Classroom discussion centers:

  1. Explain the advantages of consolidation centers.
  2. What are the downsides?

 

Good OM Reading: The Benefits of RFID Technology to Retailers and Brands

Since the advent of the barcode in the 1970s, the flow of information and goods between brands and retailers has been relatively consistent—a purchase order is issued from a retailer, the brand collects the products to be sent to the retailer, an advanced shipping notice (ASN) is created, the products are shipped, the retailer receives the products, and any difference between what is ordered and what is received is reconciled. The process is straightforward and established. However, inherent errors introduced at various stages of the process are not understood.

This 35 page study, called Project Zipper, by 3 Auburn U. profs,  examined the flow of information between 8 brands and 5 retailers from 2017 to 2018 to evaluate and analyze process errors. They originally speculated that, given the longevity of use and the stability of the process, errors would be few. However, using solely U.P.C. data—the primary form of data capture and sharing currently—almost 70% of the orders contained an error somewhere along the supply chain process. These errors were manifested in picking, shipping, and receiving, resulting in inventory inaccuracies, at best, and claims (i.e., chargebacks) from the retailers to the brands, at worst. Interestingly, they also found that brands and retailers generally accept the inherent errors in the process, and that they attempt “workarounds” which often result in additional errors. Conversely, for those brands using RFID tags to capture information and reconcile shipments, order accuracy was greater than 99.9%. During this study, claims from the retailer were eliminated for those using RFID technology.

In an era of omnichannel retail—which demands high inventory accuracy—the errors created in the supply chain propagate downstream and ultimately impact a retailer’s ability to meet customer demand in a timely manner. Several of these errors found at the store or in direct shipments to the consumer via a retailer’s fulfillment center are caused by the upstream disparity between the information flow and the physical product flow amongst brands and retailers. As demonstrated in the study, RFID technology eliminates the errors commonly found in the process, ensuring the accurate flow of information and products.

OM in the News: Does Tesla Have a Quality Problem?

A car in the Scottsdale lot marked “inv,” or inventory, indicating it has no buyer, with service needs noted.

Tesla has been parking hundreds and hundreds of cars at lots and industrial buildings in Burbank, Antioch, and Lathrop, Calif, reports The New York Times (Oct. 2, 2018). Last week, a batch of about 100 Model 3s turned up in Bellevue, Wash., with smaller collections in Chicago, Dallas, Las Vegas and Salt Lake City. The parked vehicles were discovered over the last two months by amateur detectives who closely follow the company stock.

Elon Musk recently acknowledged that the company was having difficulty shipping cars to customers, saying Tesla was in “delivery logistics hell.” He attributed the problem to a shortage of trucks to haul cars around the country. But the Auto Haulers Association says it is not aware of any shortage of car haulers, and that other automakers that are not having shipping troubles.

Is Tesla simply gathering cars together before shipping them to customers, or bringing cars with defects together to repair them before delivery? If the former, it suggests Tesla failed in a critical task: It didn’t set up an efficient way of delivering hundreds of cars a day as it was scrambling to produce 5,000 a week. A more worrisome problem would be if Tesla built these cars and now doesn’t have customers willing to take them. Musk had long promised that the Model 3 would be available for as little as $35,000. But the least costly version available now starts at $49,000.

In some cases, cars have been marked — with a bar-coded sticker or with grease pencil on the windshield — to indicate that they are inventory vehicles, meaning they have no customers awaiting them. Some markings indicate repairs required before the cars can be sold. In the rush to ramp up Model 3 production, Tesla has faced growing issues with vehicle quality. Some customers have complained that cars arrived with scratches, loose parts and other manufacturing defects. And a new headache has cropped up: severe shortages of replacement parts. Owners needing repairs have complained of waiting a month or longer for parts.

Classroom discussion questions:

  1. What is Tesla’s biggest OM issue?
  2. Why is the company only producing high-option models of Tesla 3?

 

Good OM Reading: Surviving the Amazon Effect

“Many manufacturers and wholesale distributors have been profoundly impacted by the Amazon Effect, even if  they don’t compete directly with Amazon,” writes a new report by Oracle. The Amazon effect refers to Amazon’s influence, dramatically raising customer expectations for things like: (1) Frictionless commerce (epitomized by 1‐click checkout and Amazon Go); (2)Extremely fast, low cost, or free delivery, with precise real‐time tracking and easy returns; (3) Nearly infinite selection; breadth and depth of products; (4) Rich product search, filtering, and product information; and (5) Personalization.

In fact, the boundaries between retailers, manufacturers, and wholesale distributors have become ever more blurred. Manufacturers and distributors are increasingly selling directly to the end customer. And existing customers’ expectations have also changed. Customers, whether consumers or businesses, expect to be able to view in‐depth product information, configure, order, check status, and potentially request returns or report issues online 24/7—that is in addition to the traditional channels of interaction.

Now, many retailers are demanding that suppliers hold inventory and drop ship to the retailer’s customers, forcing manufacturers to become proficient at fulfilling a large number of smaller orders consisting of just a few items, in addition to continuing to fulfill a small number of large bulk orders as traditionally done. Those 2 different types of order flows require completely different models for order management, warehouse management, inventory management, material handling, pick, pack, ship, and logistic/transportation management.

In short, running a business the ‘old fashioned way,’ is becoming increasingly untenable. To adjust to these changing expectations, the report suggests a 2‐pronged strategy: 1) differentiate and 2) optimize. (1) It is impossible to ‘out‐Amazon’ Amazon. They have scale, technology, capital, and experience that is hard to compete with head on. So it is vital to provide value that Amazon is unable to. This can take many forms, such as unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services. (2) Businesses must also optimize their execution. This means: Improved forecasting and Inventory optimization; Fulfillment optimization: and Compressed cycle times/digital supply chain.

OM in the News: Zara’s New Inventory and Logistics Plan

The ship-from-store operation inside a Zara store in Spain.

Fast-fashion giant Zara is equipping its stores to also ship online purchases, betting that the move will boost sales of full-priced items that can be delivered to customers more quickly than from a warehouse. The rollout encompasses around 2,000 stores in 48 countries, including the U.S., making it one of the largest-scale attempts by an apparel company to repurpose downtown shops to help fulfill online orders.

Zara’s efforts are part of a broader push among retailers to rethink how they can better use their network of brick-and-mortar stores to compete with Amazon, whose dominance in the retail industry has depressed profits and set new standards for speed of delivery. While some have considered traditional retailers’ vast store networks costly and antiquated, industry executives are increasingly equipping them to fulfill online orders to quicken delivery times, cut delivery costs and lift sales. “There has been a trend lately to think of a store as a liability,” an industry expert said. “It’s an asset—but you need to learn to use it correctly.”

Traditionally, retailers shipped items from warehouses to downtown locations, writes The Wall Street Journal (Aug. 1, 2018). (But warehouses on the outskirts of cities are not as close to consumers as stores are). As online shopping grew, many retailers created inventory lines specifically for internet orders. Retail companies including Zara have been working to merge their inventory for online and in-store purchases rather than keeping separate stocks, to minimize lost and discounted sales. Ship-from-store initiatives are one pillar of efforts by Zara and others to tackle the far bigger problem of mismanaged inventory, which, by one estimate, cost retailers nearly $1.4 trillion in lost sales in 2017. While shipping online orders from downtown stores can lower delivery costs, some retailers have struggled to make it profitable because they lack the technology to track in-store and in-warehouse inventory accurately.

Classroom discussion questions:

  1. How are brick and mortar retail stores an asset?
  2. Describe the inventory problems that firms like Zara are facing.

OM in the News: Best Buy’s New Supply Chain Strategy

Best Buy is changing its supply chain, adding more automation and more distribution centers closer to population centers

Best Buy believes it needs to stock more inventory if it wants to sell more electronics, reports The Wall Street Journal (May 25, 2018). The electronics giant reported its inventories rose ahead of even its fast-surging sales in its most recent quarter, as the company sought to drive more sales by having goods in place both online and in its physical stores even at the expense of higher supply-chain costs. Inventories on a per-square-foot basis—an important measure of supply-chain efficiency for retailers—were up 9% from a year ago.

Best Buy says the figures show the company is getting its inventories lined up with an “improved customer experience,” which means having goods available wherever consumers are shopping, even if that increases short-term supply-chain costs. Getting the right amount of goods in the right place has become a growing concern for retailers as online sales have exploded, undercutting longstanding strategies aimed at keeping supply chain costs down by keeping stocks lean.

Many store owners are wrestling with the need to have inventory on hand in stores and at warehouses for online fulfillment, and retailers including Target and Walmart have turned to having their stores do double duty by shipping online orders from the sites or having customers pick up their orders at the sites. Best Buy is undertaking what the company calls a “multiyear transformation” of its supply chain, which will include more automation and more distribution centers closer to population centers.

Classroom discussion questions:
1. What are the advantages of Best Buy’s new inventory strategy?

2. Why are other chains increasing store inventory levels?

OM in the News: Target Tests Retail ‘Flow Center’ for Faster, Nimbler Distribution

The company hopes to send shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products.

“Target is testing a new distribution strategy aimed at speeding up its restocking and making the retailer more nimble as it competes with rivals like Amazon and Walmart”, reports The Wall Street Journal (May 15, 2018). The aim is to pare Target’s replenishment cycle from days to hours and reduce inventory at stores. The approach, now in pilot mode at a warehouse in N.J., also uses the same pool of inventory to replenish stores and fulfill online orders, a departure from Target’s existing supply chain.

Under the operation, through a “flow center,” the company sends shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products. That could mean shipping “five bottles of shampoo, a case of ketchup, two polo shirts on hangers and a pallet of water, all prepared to move out directly to the sales floor,” said the Supply Chain VP.

Target is also creating a new warehouse management system intended to better integrate its distribution and fulfillment operations, which now use separate systems. The logistics effort comes as Target is investing $7 billion in improvements as it adjusts to the changing consumer shopping patterns that have buffeted the retail world. The explosive growth of e-commerce has put a premium on rapid delivery to online buyers and pressured traditional retailers to make better use of their “big box”real estate.

Target has been expanding its use of stores to fulfill online orders, and nearly 70% of its online volume is handled by stores. With less inventory held at stores, “we can dedicate more room to digital fulfillment. Shipping more orders from our stores reduces our costs, while allowing us to move faster,” said the COO. Stores supported by the flow center have reduced back-room inventories “to a fraction of the norm.”

Classroom discussion questions:

  1. Describe Target’s existing and new distribution strategies.
  2. What is a “flow center?”

OM in the News: Suppliers and Whole Foods’ Slotting Fees

Whole Foods, which cut prices last year to make it cheaper to shop there, now is making it more expensive for suppliers to get their products onto shelves, reports The Wall Street Journal (Feb.9, 2018). The supermarket chain is asking suppliers of all sizes to pay new rates for prime shelf space as it tries to boost profits and better organize the exploding number of organic products hitting the market.

Many suppliers will see an increase from the average $25,000 “slotting fee” companies were paying to be featured in the stores’ most-visible, high-traffic areas. Additionally, Whole Foods is pitching its biggest suppliers on a promotion costing up to $300,000 for several weeks of prime shelf space along with souped-up marketing. The chain also is asking suppliers to offer bigger discounts on their products to earn the space. A high-visibility nationwide promotion at Whole Foods now often requires companies to cut product prices by at least 25%.  “We knew full-well that there would be discontent,” said Whole Foods’ V.P.

The firm is adopting a suite of retailing tactics meant to enhance profitability, including centralized purchasing decisions, tighter control over inventory and working with a national contractor to do in-store sampling. Grocery suppliers will pay a fee of 3% of the cost of goods delivered, and beauty suppliers will pay 5%. Whole Foods has hired an outside company to stock shelves “to provide a much more effective result.”

On the other hand, Kroger, the largest U.S. supermarket chain, has been courting niche brands over the past year with a new portal for local suppliers and a series of natural-foods trade fairs. The company doesn’t charge slotting fees for small suppliers.

(See our discussion of slotting fees in Chapter 9 on pages 374 and 392.)

Classroom discussion questions:

  1. Discuss the ethics of charging fees to allow products to be placed on supermarket shelves.
  2. Why is this an issue particularly in the grocery industry?

OM in the News: Grocers Want Inventory to Arrive On-Time

“The country’s biggest grocers are increasingly demanding their suppliers deliver on time, imposing fines for late shipments as they try to keep customers satisfied and better compete with online retailers like Amazon,” reports The Wall Street Journal (Nov.28, 2017). Kroger is fining suppliers $500 for every order that is more than 2 days late to any of its 42 warehouses, and Wal-Mart is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time.

Retailers used to give suppliers more leeway, since any number of factors—bad weather, a surge in demand, technology malfunctions—can foil deliveries. But sales of some $75 billion a year are lost because products are out of stock or unsalable for other reasons.

Wal-Mart has signaled it could do more than levy fines if problems persist. Wal-Mart told suppliers they could also lose shelf space if they don’t solve their delivery issues. Most large suppliers average around 75% of orders on time and complete. An out-of-stock on an important product can lead to thousands of lost consumers in a given day. Packaged-goods companies are straining to keep up with the demands and remain in the good graces of retailers. They need GPS trackers and software to adjust routes in real time. Filling full orders fast is also challenging, since many manufacturers house items all over the country.

Wal-Mart says a more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to the retailer as it invests heavily to compete online. The change, says Wal-Mart, could create $1 billion in additional sales. Meanwhile, P&G, Wal-Mart’s largest supplier, has spent billions of dollars in recent years overhauling its supply chain, in part to meet retailers’ more-precise shipping windows and boost its ability to ship online orders directly to shoppers.

Classroom discussion questions:

  1. Why is it important for orders to arrive full and on-time?
  2. Is better supply chain management software the solution?

 

OM in the News: Department Stores Keeping a Tight Lid on Inventory This Year

“With foot traffic at their stores in decline, department stores that would have stocked up for the biggest shopping season of the year months ago are still in the process of placing new orders,” writes Supply & Demand Chain Executive (Nov. 8, 2017). The strategy is aimed to keep their inventory costs down and avoid the experience of previous holiday seasons, when large piles of unsold stock led to deep markdowns that eroded profits. But these retailers risk losing sales if supplies run out at a time when many are struggling to keep up with Amazon and the shift towards online shopping.

Macy’s, J.C Penney, Kohl’s, Nordstrom, Dillard’s, Lord & Taylor are among the retailers buying in smaller batches with shorter lead times this year and relying on a more dynamic demand forecasting process than in the past. Keeping inventory levels low helps manage costs, and may also instill urgency in consumers to spend now rather than hold off on purchases in search of a better deal. But it also risks alienating customers who may end up having less choice, and is also putting strain on vendors to deliver on shorter lead times.

The high-stakes strategy takes a page from the playbook of  Zara, H&M, and other “fast fashion” retailers that consistently keep low inventories of trendy clothes and try to win customers with cheap prices. Traditionally, retailers lock in most of their purchases 9-12 months in advance. This year, retailers started placing a large portion of their holiday orders 3-4 months before the holiday season, and are refreshing fast-selling items within as little as 6-8 weeks.

The risk: Department stores rely on vendors whose traditional supply chains are not built for a fast turnaround, because they handle orders for several brands. Fast-fashion chains, on the other hand, have designed their supply chain to shift on a week to week basis and work with vendors who can deliver quickly on private label items they stock. So far this year, retailers have been willing to sacrifice some orders for tighter inventory management and higher margins.

Classroom discussion questions:

  1. What are the advantages and disadvantages of the smaller batch approach?
  2. What strategy do fast fashion retailers use?

Guest Post: Odd Quantity Discounts

Our Guest Post today comes from Howard Weiss, who is Professor of Operations Management at Temple University. 

Several of the models in OM assume proportionality, so when I get to break-even analysis (Supp.7), I explain that one of the assumptions is that the cost/unit for each unit is identical and the revenue/unit is identical for each unit. I like to ask the students to give me examples where it would not be the case that revenue is directly proportional to the number of units sold. The bulk of the examples the students cite are due to quantity discounts. I explain that our basic breakeven, transportation and LP models (Modules C and B) do not allow for quantity discounts but that when examining inventory (Chapter 12) we will see models that include quantity discounts.
What I like to bring into class though, for amusement, are odd instances of quantity “discounts”. Very recently I was in a Houligan’s restaurant and saw the cost per wing was more for 10 wings than for 6 wings. Jack’s Restaurant and Bar in NYC currently has what I think is an interesting pricing option for Tapas when comparing 3, 4, and 5 tapas. Lancer’s is a very nice diner near Philadelphia. It has what I think is an interesting pricing strategy when you compare the price of 12 oz. for two products with the same cost for 8 oz. glasses.

I usually delay the next example until I teach LP. Stroehmann’s bread is interesting. The picture below is from a loaf of bread from a few years back. Stroehman’s used to report nutrition for both 1 and 2 slices. The newer packages only report the calories in one slice. Two slices of bread have 110 calories whereas one slice has 50 calories. Of course, the calories should be proportional.

Best Buy once ran a sale where buying 100 DVDs was less expensive than buying 50 DVDs. Not less expensive per DVD but rather less expensive in total cost! I always encourage my students to be alert for these odd quantity discounts.

 

OM in the New: Wal-Mart Introduces OTIF Inventory

 

Packages move along a conveyor belt inside a Wal-Mart fulfillment center.

“Long known for squeezing its vast network of suppliers, Wal-Mart is about to step up the pressure,” reports Businessweek (July 24, 2017). The focus this time is delivery scheduling, and the company’s not messing around. Two days late? That’ll earn you a fine. One day early? That’s a fine, too. Right on-time but goods aren’t packed properly? You guessed it–fined.

The program, labeled On-Time, In-Full, or OTIF, aims to add $1 billion to revenue by improving product availability at stores. It underscores the urgency Wal-Mart feels as it raises wages, cuts prices and confronts a powerhouse rival in Amazon that’s poised to grow with its planned purchase of Whole Foods. Says a retail expert, “They’re trying to squeeze and squeeze and squeeze.’’

The initiative builds on progress Wal-Mart has made in reducing inventory and tidying its 4,700 U.S. stores after the back rooms became so cluttered it often stored surplus products in cargo trailers parked out back. The new rules begin this August, and the company said they will require full-truckload suppliers of fast-turning items — groceries, paper towels — to “deliver what we ordered 100% in full, on the must-arrive-by date 75% of the time.” Items that are late or missing during a one-month period will incur a fine of 3% of their value. Early shipments get dinged, too, because they create overstocks.

By February, 2018, Wal-Mart wants these deliveries to be “OTIF” 95% of the time. Its previous target was 90% hitting a more lenient 4-day window. “Variability is the No. 1 killer of the supply chain,’’ says a senior Wal-Mart exec. While big suppliers should be able to invest in fancy inventory-management systems to get up to speed with the new rules, smaller businesses will feel more pain. Some don’t even know what “OTIF’’ stands for.

Classroom discussion questions:

  1. What are the implications of OTIF to suppliers?
  2. Why is Wal-Mart introducing this inventory strategy?