Walmart suppliers — from giants like Procter & Gamble and Li & Fung to smaller, regional suppliers — must get their merchandise to a distribution center or store within a certain time frame or pay a fee.
If the merchandise arrives too late, too early or is not the quantity and product ordered, Walmart suppliers face paying a fee of 3% of the cost of goods of all non-compliant deliveries.
Walmart implemented its must arrive by date requirements in January and was late in charging out-of-compliance fees for merchandise that isn’t in the right place at the right time. All automotive retailers, along with Target and Home Depot, have charged these fees for some time.
Companies like High Impact Analytics and others work with manufacturers who supply goods to Walmart and Sam’s Club to help them become more compliant with must arrive by dates; helping them estimate proper lead times to provide Walmart based on the four-day arrival compliance window as well as evaluating their supply chain. The must arrive by date window includes the day the merchandise is due to the distribution center or other facility, plus the three previous days.
For example, if goods are due on May 20, the merchandise is on time if it arrives on May 17, 18, 19 or 20. If it arrives on May 16, it’s too early, and the supplier is subject to a noncompliance fee. If the merchandise arrives May 21, it’s too late and the supplier also must pay fees.
It’s not just the arrival date that counts: It’s also the contents and number of items. If less than 90 percent of merchandise cases are received within the must arrive by date delivery window, the supplier must pay 3 percent of the cost of goods.
Walmart implemented the must arrive by date as it streamlines its supply chain and cuts costs, to save shoppers money so they can live better. Stores are no longer acting as warehouses, with too much inventory in back stock rooms or in trailers behind stores. Walmart wants merchandise to arrive in stores just in time to restock shelves and serve customers, as store shelves have been reduced and the center aisles are no longer cluttered “action alleys” with merchandise in bins with the goal of making stores appear cleaner.
This is part of the Project Impact initiative, to remodel Supercenters nationwide and make stores easier to shop. Even the Neighborhood Market in Bentonville — the first Neighborhood Market and built only 11 years ago — is getting a makeover.
Walmart is spending about $1.2 million to enlarge the deli and fresh meat area, give the store a fresh coat of paint with new gold and green colors, widen aisles to 7.5 feet from the previous 6 feet, and buy new produce bins that better show off Walmart’s merchandising strategy to feature fresh categories for shoppers.
Some suppliers or items are exempt from the must arrive by date fees right now, as Walmart eases into the requirements. The exempt items include merchandise arriving by air freight, fresh grocery items, small packages and products for Sam’s Club. Walmart also offers exemptions for suppliers who pay for their own freight in less than truckload shipments, but that will eventually change.
There is a way suppliers can avoid paying fees if merchandise does not arrive by the specified date. If suppliers cancel purchase orders prior to the must arrive by date, it’s not held against them.
The must arrive by date can affect freight logistics and shipping charges suppliers pay. Walmart with its save money, live better model recognizes that right now, suppliers may by using the cheapest transportation to get goods from Point A to Point B. That can conflict with arrive-by dates, so the transportation model may need to change.
Manufacturers who ship goods with truckload carriers — goods from one shipper are placed in a trailer for transport and delivery — have a much easier time complying with the rules because their trucks deliver to one destination.
The less-than-truckload carriers — which combine freight from several customers into one trailer for multiple deliveries — have more issues. These goods go through freight consolidators, with sometimes large numbers of variable days. Sometimes, it may take only two days for goods to leave the consolidator, or up to eight days, for example. In addition, some goods are delivered by rail, which is very inconsistent.
A supplier may have to evaluate the entire supply chain if compliance with must arrive by dates doesn’t improve after changes in lead time estimates have been implemented. Prepaid suppliers — in addition to ensuring they are shipping on time and are shipping the full order — must evaluate freight carriers they are using and perhaps make changes.
Walmart does not penalize each order that is out of compliance with the must arrive by date. If at least 90 percent of the merchandise complies with the must arrive by window in a month, then the supplier is not subject to fees. That means one order in a month might arrive late or only contain 85 percent of the ordered merchandise for that purchase order. However, if that is the only out of compliance purchase order, then the supplier likely has a 90 percent or better compliance average for the entire month.
Suppliers must keep sharp eyes on their must arrive by date compliance reports, available in Retail Link® under merchandising. It’s relatively easy to track compliance. The difficult thing is resolving compliance issues.