Long known for squeezing its vast network ofsuppliers, Wal-Mart Stores Inc.is about to step up the pressure.

The focus this time is delivery scheduling, and the company'snot messing around. Two days late? That'll earn you a fine. One dayearly? That's a fine, too. Right on-time but goods aren't packedproperly? You guessed it — fined.

The program, labeled “On-Time, In-Full,'' aims to add $1 billionto revenue by improving product availability at stores, accordingto slides from a presentation obtained by Bloomberg, and itunderscores the urgency Wal-Mart feels as it raises wages, cutsprices and confronts a powerhouse rival in Amazon.com Inc. that's poised togrow with its planned purchase of Whole Foods Markets Inc.

“Wal-Mart has to find efficiencies wherever it can,'' says LauraKennedy, an analyst at Kantar Retail. “They're trying to squeezeand squeeze and squeeze.''

The initiative builds on progress Wal-Mart has made in reducinginventory and tidying its 4,700 U.S. stores after the back roomsbecame so cluttered it often stored surplus products in cargotrailers parked out back.

Wal-Mart isn't the first big retailer to tighten the deadlinefor vendor deliveries. Target Corp. implemented a similar policylast year as part of a broader supply-chain overhaul. ButWal-Mart's vast logistics network of more than 150 U.S.distribution centers dwarfs that of any other retailer, and thecompany typically accounts for a sizable chunk of its suppliers'sales: 27% for bleach maker Clorox Co., for instance.

The new rules begin in August, and the company said they willrequire 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 ormissing during a one-month period will incur a fine of 3% of theirvalue. Early shipments get dinged, too, because they createoverstocks.

By February, Wal-Mart wants these deliveries to be on-time andin-full (known as “OTIF”) 95% of the time. Its previous target was90% hitting a more lenient four-day window.

“Variability is the No. 1 killer of the supply chain,'' KendallTrainor, a Wal-Mart senior director of operations support andsupplier collaboration, said in a presentation to vendors earlierthis year.

Those variations can be extreme: OTIF scores for Wal-Mart's top75 suppliers —including Procter & Gamble Co. and Unilever — hadbeen as low as 10%, according to Trainor's presentation. And notone had reached the 95% long-term target.

Unilever declined to comment. Damon Jones, a spokesman forP&G, said his company and Wal-Mart “share a joint commitment tosuperior consumer service — including on-shelf availability.”

Aggressive Goals

“The goals are aggressive and will require new ways ofworking,'' warned a slide at another Wal-Mart presentation tosuppliers. A company spokesman was more sanguine, saying theretailer is “working closely with our vendors to help reach thesetargets. We know that when products we've ordered arrive on time,it results in happier customers.”

That's been a challenge, though. Under previous CEO Mike Duke,stores suffered from a lack of manpower to keep shelves stocked,and missing products drove customers to rivals including DollarGeneral, Walgreens Boots Alliance and German discounter Aldi. WhenDoug McMillon became CEO in 2014, one of his goals was to improvewhat the company calls “on-shelf availability.” It has gottenbetter, although Wal-Mart declined to provide specific figures.

While big suppliers should be able to invest in fancyinventory-management systems to get up to speed with thenew rules, smaller businesses will feel more pain. Some don't evenknow what “OTIF'' stands for, according to Colby Beland, vicepresident of sales at CaseStack, a logistics provider that bundlessupplier shipments for delivery to retailers' warehouses.

That confusion has created a brisk business for consultants, whoare busy crisscrossing the country delivering tutorials on theprogram.

“OTIF is the hottest subject out there right now,'' according to8thand Walton, a consultant based in Wal-Mart's hometown ofBentonville, Ark., that has conducted OTIF seminars in NewYork; Portland; Ontario, Canada, and other cities.

“Everybody has come to the stark realization that OTIF is hereand it's real and they better get ready for August,” Belandsays.

The program is the latest chapter in Wal-Mart's history ofbadgering suppliers to improve efficiency and performance. It wasthe first big retailer to embrace bar codes in the early 1980s totrack inventory and sales, mandating precise locations on packagesfor easy scanning. Vendors that refused were kicked off theshelves.

“Suppliers went crazy at first, but they all figured out how toimplement it and it helped them as much as it helped Wal-Mart,''says Dale Rogers, a logistics professor at Arizona StateUniversity. “This is just the next one of these things.''

Scoring System

In some cases a problem will be Wal-Mart's fault, so theretailer has developed a scoring system that breaks down reasonsfor non-compliant deliveries and will fine suppliers only ifthey're responsible. If suppliers don't agree with the fine, toobad: Disputes “will not be tolerated,'' Wal-Mart says.

Even a freak snowstorm, like the one that paralyzed travel inthe southeastern U.S. in 2015, might not get suppliers off thehook, if they knew the bad weather was coming and didn't takeprecautions.

“You end up in a situation of, 'Who is to blame?' ” saysSantiago Gallino, an associate professor at Dartmouth College'sTuck School of Business. “It's a tough discussion.”

From: Bloomberg News

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