On time. In full. Not yet, at least as far as Walmart Inc.’s (NYSE:WMT) international delivery operations are concerned.
In May 2018, the mega-retailer expanded to multiple international markets a program begun in the U.S. in July 2017 requiring that suppliers deliver full orders within “must arrive by” time windows (neither too early or too late) or face penalties in the form of reductions from the invoice amount, a process known as “chargebacks” that can result in hundreds of dollars in fines. The problem has become so pressing that less-than-truckload and logistics provider ArcBest (NASDAQ:ARCB) said on Tuesday it launched a compliance program called Retail+ to help vendors meet “large retailers’ stringent shipping and delivery requirements.”
Walmart designed the program, known as “on-time, in-full,” (OTIF) to minimize inventory bloat while avoiding stock-outs at the retail store or online ordering levels. However, it was controversial from the start and started slowly in the U.S. Today, the U.S. OTIF fill rate is around 80 percent, according to Michael Allen, Walmart’s director of international supply chain. The international OTIF fill rate sits, on average, at 70 percent, Allen said. The U.S. and international regions have followed similar performance trajectories since their launches, he added.
OTIF performance so far has varied depending on the country, said Allen, who spoke at the Eye for Transport 3PL and Supply Chain conference in Atlanta. For example, Argentina is a sore spot at a less than 20 percent fill rate, he said. The fill rate in China is around 40 percent. By contrast, Japan’s fill rate is an eye-popping 95 percent, a reflection of its sophisticated and well-honed fulfillment and distribution processes. “It’s been run so well that we didn’t have to do a thing,” Allen said. “Basically, Japan has been operating OTIF all along.”
In general, Walmart has been dissatisfied with the pace of international OTIF performance, Allen said. That said, performance has improved by 1,000 basis points from launch levels, according to company data that he cited. “We have a lot of work to do,” he said. Walmart has begun to leverage machine-learning capabilities to auto-classify the root causes of problems that lead to OTIF underperformance, according to Allen. That way, the company spends more time fixing problems and less time just identifying them, he said.
Not long after launching OTIF in the U.S., Walmart recognized that it had set unrealistic milestones and performance targets, and quickly set out about adjusting them. It also underestimated the amount of collaboration that would be required with its enormous ecosystem of supplier tiers, and that a decent-size portion of the problem was of its own making. For example, Walmart would establish delivery windows for its suppliers and then fail to make “appointments” available to them, Allen said. “That was on us,” he said. Despite that, suppliers would still be hit with chargebacks.
The Bentonville, Arkansas-based company is committed to the OTIF initiative as the proper path toward a flawless fulfillment and distribution operation. The process will be tested further by the delivery inroads made by Amazon.com, Inc. (NASDAQ:AMZN) and the moves by both companies to offer one-day delivery for online orders. Walmart’s inventory of 220,000 items will be limited compared to Amazon’s item availability, which is the millions. To counter, Walmart said it will tailor ordering eligibility for strong-selling items in certain geographies at specific times of the year.
Allen acknowledged that the international OTIF process will be trickier for e-commerce transactions. As in the U.S., international fulfillment and delivery can be asymmetrical because orders can be filled from multiple locations in different parts of a country. Still, OTIF “points us in the right direction in the end,” he said.