Tag: On-Time In-Full

OM in the News: Walmart and “On-time, In-full” Shipments

This is the latest shift in a logistics effort that has historically left companies scrambling to meet the retail giant’s demands.

Walmart wants suppliers to deliver shipments on time 90% of the time and in full 95% of the time, down from a 98% benchmark for both measures set in 2020 amid a surge in consumer demand. The change marks a significant lowering of Walmart’s “on-time, in-full” (or OTIF) thresholds that are meant to increase the efficiency of Walmart’s sprawling U.S. logistics network of distribution centers serving the company’s thousands of stores.

Walmart has been working to get tighter control over its inventory as it fulfills more online orders from its stores and competes on home-delivery speed with e-commerce giant Amazon.com. Vendors that fall short of Walmart’s on-time, in-full targets face fines worth 3% of the cost of the goods that didn’t arrive on time or in full.

Walmart last shifted its thresholds in September 2020, when it tightened the requirements as supply-chain disruptions left many store shelves empty of high-demand products during the Covid-19 pandemic. The latest change comes as the retailer returns to more normal ordering patterns after years of struggling with sharp fluctuations in stocking levels during the pandemic. The greater equilibrium in supply chains has helped relieve pressure on suppliers.

Consumer packaged-goods vendors delivered an average of 84% of orders on time in 2023. Walmart’s lowered thresholds should be welcome news to vendors that have struggled to meet the 98% benchmarks. “Very, very rarely do things go perfectly as planned with deliveries. Trucks break down or get caught in traffic, and orders are sometimes packed with the wrong quantity and mix of items, such as orange-flavored soda instead of grapefruit,”  said one industry expert.

Classroom discussion questions:

  1. Why is Walmart changing its OTIF policy?
  2. How does impact suppliers?

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?