# Calculating SQEP Fines by Defect

In Walmart's Supplier Quality Excellence Program (SQEP), fines are dolled out for shipments that are not compliant with Walmart's shipping standards (see the updated Secondary Packaging Supply Chain Standards or SPSCS '23 for more detailed information).

These fines are based on calculations unique to each Phase of the SQEP program and, sometimes, to each defect description.

## Phase 1 Defect Calculations

Phase 1 defects are all related to PO Accuracy. Their descriptions and definitions are defined by Walmart in the SPSCS '23 as follows:

The Phase 1 defects are all calculated by the same formula except for the "ASN Not Downloaded" defect. This particular defect is one of, if not the most, common defects in Phase 1, so understanding how it is calculated in a unique way is important for avoiding unnecessary losses in revenue.

• \$200 Flat per PO (DSDC & Dept 38 Only)
• \$25 flat fee per PO (Non-DSDC)

All other defects within Phase 1:

• \$200 per defect

• \$1 per impacted case

As is the case with most of the fine calculations, there is often a flat fee followed by some kind of additional fee based on the number of impacted POs cases, pallets, and loads.

## Phase 2 Defect Calculations

Phase 2 defects are related to barcode and labeling compliance, and their descriptions and definitions, according to the SPSCS '23, are as follows:

Unlike Phase 1 defects, Phase 2 defects are all calculated by the same formula, without exception. Within this Phase, the sub-defect that causes the most revenue loss is the "Barcode Compliance: Incorrect Quantity" defect, which happens when a barcode shows an incorrect quantity.

In Phase 2, defects are calculated in two primary methods: (1) inspection and (2) automation.

Defects found by inspection are calculated as...

• \$200 administration fee per item per PO
• \$1 per impacted

Defects found by automation are calculated as...

• \$1 per case impacted

Although automation may seem to be less costly to suppliers on a first glance, what is more likely is that the widespread adoption of automation in Walmart DCs will increase losses to Phase 2 defects.

## Phase 3 Defect Calculations

Phase 3 defects are related to Packaging, Pallet, and Load Quality Compliance. The descriptions and definitions, according to the SPSCS '23, are as follows:

Phase 3 fines are calculated differently depending on whether the kind of defect (i.e. relating to pallet or load compliance).

All pallet defects are calculated by...

• \$200 admin fee per PO per defect
• \$4 per pallet or item impacted

All load defects are calculated by...

• \$200 admin fee per PO per defect
• \$20 per load or item impacted

Because Phase 3 defects by their nature, have to be inspected manually, those large admin fees are attached to each defect. Perhaps, in the future, Walmart will figure out a way to automate these, but for now and the foreseeable future, these will remain fully manual.

## More SQEP Resources and Reading

For an exhaustive resource on all things related to SQEP compliance, download our SQEP Handbook.

If you would like more insight into your SQEP performance and a way to quickly and painlessly dispute invalid SQEP fines, schedule a meeting with a member of the SupplyPike team today!

## Written by Stacy Tan

### Stacy is the SVP of Retail Insights for SupplyPike. She brings a decade of knowledge and experience working directly with Walmart merchandising teams.

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