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