Best Practices to Avoid Running Afoul of Walmart’s OTIF Policy By Bryan Nickerson, Manager, Trade Practices & Commodity Services Retailer supplier performance compliance policies have been in force for many years with varying degrees of success. However, the rigorous requirements of the Walmart policy have caused considerable concern among shippers regarding how to retain Walmart’s high volume produce business and avoid fines.
According to McKinsey & Co., the On-Time In-Full (OTIF) metric measures the extent to which shipments are delivered to their destination according to both the quantity and schedule specified on the order. Walmart introduced its OTIF policy in 2017, however, it is only recently that produce shippers have seen a substantial increase in fines. The current policy specifies that shipments must arrive at the distribution center during a specific date and time window, be properly packaged and labeled, and be delivered 98% in full. Shipments that arrive short, not as specified in the Purchase Order, early or late are subject to fines, with little room for error. While the original performance target was 70%, Walmart has steadily raised its requirements and on September 15, 2020, the target was set at 98%. Suppliers not meeting performance standards will be fined 3% of the cost of goods and repeated failure to hit the 98% mark will place future business with Walmart in jeopardy. Walmart does recognize that there can be uncontrollable disruptions in the supply chain that can disrupt shipments and will factor these events into OTIF performance measurements, including waiver of fines. For example, shippers were given COVID-19 exemptions during the early days of the pandemic, but that exemption ended last August. In February, Walmart began giving vendors the opportunity to contest fines on purchase orders they believe should be excluded from OTIF. Reasons for exclusion include item code changes, no unloading appointments available, major crop failure or natural disasters. However, most delays, including bad weather, are not recognized as acceptable reasons for fine relief. Given the draconian nature of the Walmart OTIF policy, Western Growers members should understand how it is calculated and adopt the following best practices to avoid fines. How is OTIF calculated? Take the number of cases received within the delivery window and divide by the number of cases ordered. For example: You sell 1,000 cases of product to Walmart at $10 per package. The $10 price is what you bill Walmart, whether FOB or delivered. You only deliver 800 cases on time. Your OTIF penalty calculation is as follows:
800 cases received within compliance
On Time Score 100%
window = 100%
800 cases received/1,000 cases ordered = 80%
In Full Score 80%
200 cases short x $10 per case = $2,000. $2,000 x 3% = $60
OTIF Penalty $60
Using the same example, you deliver all 1,000 cases but the shipment arrives a day late. Your OTIF penalty would be as follows:
0 cases received within compliance window = 0%
On Time Score 0%
1,000 cases received/1,000 cases ordered) = 100% 1,000 cases late x $10 per case = $10,000. $10,000 x 3% = $300
In Full Score 100%
OTIF Penalty $300
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MAY | JUNE 2 021
Western Grower & Shipper | www.wga.com
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