Suppliers penalized with 3% invoice deductions for non-compliance from Feb 1, 2010
Walmart, in what many consider to be their most stringent delivery requirement yet, has from Feb 1, 2010 rolled out an initiative that would penalize suppliers for non-compliance with their new "Supply Chain Reliability Program". This new effort is aimed at ensuring that goods do not arrive too early or too late into over 100 Walmart distribution centers (DCs). US companies that ship Walmart distribution centers must now deliver in full, within a four-day window leading up to a Must-Arrive-By-Date (MABD). Suppliers who fall below a 90% monthly threshold that Walmart has applied for compliance with this program will incur an invoice deduction that is equal to 3% of cost of goods sold (COGS) for shipments arriving before or after the 4-day MABD window.
The Walmart Supply Chain Reliability Program (SCRP)
Walmart introduced this program via a letter to their supplier community on Oct 15, 2009 that I read on the Logistics Viewpoints site. This letter cites costs incurred for inventory carrying, labor, warehousing and shrink associated with shipments arriving early as well as lost sales on short or late shipments as prime inefficiencies being targeted for elimination with this program. The program's mandate covers domestic replenishment, promotional and new modular purchase orders. At this time, direct import orders, direct-to-store deliveries (DSD) and"collect" LTL shipments are excluded from the program's purview. The letter goes on to add that the handling of MABD windows would be more stringent for certain business segments such as perishables and would vary by product category.
Tracking & Monitoring
Wal-Mart has committed to making weekly scorecards and monthly reports available via its Retail Link portal to report on supplier performance and the potential for or assessment of penalties. These metrics and reports have already been made available since Nov 1, 2009 for early participants in the program.
Supplier, Shipper & Carrier Actions
It is clear that transportation carriers have as much a role to play as suppliers and shippers in achieving compliance with Walmart's new mandate.
- Suppliers will be forced to re-evaluate their own ordering, production and shipping schedules to meet Walmart's delivery window requirements and work very closely with their trucking partners to expedite freight as necessary. Being able to accurately track and trace in-transit shipments would become a critical imperative to stay on top of this on a daily basis.
- Shippers would need to enter into new back-to-back commercial arrangements with their carriers in order to shield themselves from penalties arising from carrier performance issues.
- Suppliers will need to work very closely with their Walmart merchandising officers to clearly understand the different requirements for each product category that they ship.
- Suppliers will need to carefully manage their own upstream suppliers and carriers to ensure that multiple supply chains can work in harmony to comply with Walmart's mandate in a cost effective manner.
- Suppliers must have a perfect understanding of the delivery lead time required for shipment to each Walmart DC location. Furthermore, suppliers may be forced to negotiate to modify the way their products are routed within the Walmart distribution chain.
- Finally, suppliers must have the ability to receive and exchange supply chain transactions electronically with Walmart in a timely and accurate manner utilizing either EDI and/or the Retail Link portal to stay on top of critical PO changes such as updates to ship-to locations or to the MABD.
The Supply Chain Reliability Program, based on compliance with the Must-Arrive-By-Date is the latest among Walmart's initiatives to work closely with suppliers to control inbound inventory and to improve in-store product availability while reducing operating costs. This latest move, combined with their Walmart's decision to scorecard suppliers as part of their "Sustainability Index" that I had written about earlier, have many in the industry once again questioning the retailer's tactics in managing supplier relationships.
Walmart is not the first retailer to have strict delivery window requirements, and will surely not be the last. The sheer scale and reach of their operations introduces industry-wide tremors each time they roll out initiatives like these. Effective supplier collaboration, education, performance monitoring, score-carding and transparency will ultimately hold the key in determining the program's long term financial returns.
Image courtesy: Wal-Mart corporate image library
