Holding 3rd Parties Accountable for OTIF Fines
- How Walmart fines for OTIF non-compliance
- Fetching data regarding OTIF
- How to find the root cause of OTIF non-compliance
Every Walmart supplier knows, Walmart levies hefty fines for poor On-Time, In-Full performance. The OTIF metrics can be challenging to meet, and compliance failures are the supplier’s burden to bear.
Specifically, Walmart fines suppliers 3% of what it pays for suppliers’ products for OTIF performance failures. Fines can add up to many thousands of dollars, payable to Walmart, month by month until the supplier addresses OTIF issues.
However, it’s not always the supplier’s fault. Third parties in supply chains do not face these fines for their performance. Still, they often can be a leading cause of OTIF failures, resulting in suppliers losing money to penalties and poorer replenishment and out-of-stocks.
Additionally, it is challenging to track third parties’ performance and quantify their impact on an ongoing basis because of siloed data. Thus, it’s challenging to hold them accountable for their performance, preventing suppliers from improving OTIF outcomes and eliminating fines.
Suppliers have On Time, In Full, and/or Collect Ready OTIF metrics, each with their own goal percentages that they must meet each month. If suppliers do not meet the goal for a month, Walmart fines suppliers 3% of the Cost of Goods Sold (COGS) of the non-compliant cases shipped to the distribution centers.
Walmart does not fine third parties, including carriers, 3PLs, and warehouses in supply chains for their performance. Instead, Walmart fines the supplier.
This may seem unfair, but it puts the burden of compliance on the pain point Walmart sees: the supplier. It is the supplier’s responsibility to find out where compliance issues lie, and thusly address them.
Finding the root cause
It’s essential to find the root cause of compliance issues to avoid costly fines. Let’s break down some reasons for common problems.
On-Time Prepaid issues
On-Time Prepaid issues occur when the order did not arrive by the Must Arrive By Date (MABD) at the distribution center (DC) – not the appointment time. The first place to look at when judging On-Time issues is the carrier.
- Has the carrier been late or early?
- Did the carrier pick up the order within enough time to deliver it? Were there extenuating circumstances, such as bad weather or overwhelmed drivers?
- Is there a pattern with a particular carrier, e.g., its orders always arrive late?
- Did the carrier miss the appointment (even if it was within the delivery window)?
The supplier can also look at the timing of the pickup.
- Did the supplier schedule the appointment too late or too early?
- Did the carrier or logistics team know when they must deliver the order?
In-Full issues occur when an order contains fewer cases than what Walmart ordered on the PO. The root cause for In-Full problems may be the supply chain of a particular item.
- Is enough being manufactured, i.e., is demand higher than supply?
- Is there enough supply in the warehouse to fill the order?
If there are no supply chain issues causing order shortages, it may be time to look at DC behavior.
- Is the product packaged and clearly marked so that DCs may identify that they have the correct quantity of the right item?
The best practice here would be to contact the replenishment manager or buyer and find out what issues a particular DC may be experiencing with orders.
In-Full issues may also arise from PO cancelations. If a supplier cancels a PO because it cannot fill the order as requested, the supplier must cancel it for the right reasons. For example, if a hurricane devastates the warehouse, the supplier will need to cite “Weather/Natural Disaster” as the cancelation reason code. This will remove the supplier’s accountability and prevent fines.
Shortages often come in the form of deductions, and suppliers can dispute these. If a Proof of Delivery (POD) shows that all of the products on a PO arrived at the DC, then the supplier may dispute the deduction.
Collect Ready issues
Collect Ready issues occur when Walmart could not pick up an order at the appointment time or from not routing the PO by the designated time (i.e., confirming the shipment). This can happen for any number of reasons, but the principal place to look at is the origin that fulfilled the order.
- Is the warehouse or vendor having difficulty picking and packing the order?
- Are there issues with supply at that particular origin?
- Is the origin of the order having issues with appointment times?
If Walmart carriers are not arriving on time (or at all), is the supplier submitting tickets? Suppose the supplier is having issues with Walmart’s fleet. In that case, the supplier will need to submit a ticket via the Transportation Portal in Retail Link to ensure that the OTIF failure falls into Walmart’s accountability bucket.
For Collect Ready orders, unless the PO specifies something else, the supplier must confirm the shipment by 4:00 PM Central Time (CDT) the day after receipt of the order. If the supplier’s scores dip, it will need to ensure the order processing system follows Walmart’s Confirm Shipment (previously Request for Routing) guidelines.
Answering these questions will help find the causes of compliance issues with OTIF. Walmart will not supply this information, so suppliers have to dig up the details themselves.
Holding 3rd parties accountable
Almost all suppliers rely on third parties in their supply chain in a way that affects OTIF outcomes. Even Collect suppliers who have outsourced transportation to Walmart must still rely on third-party carriers such as the Walmart fleet or other carriers to pick up orders on time and ensure that product gets delivered to DCs in full. Collect suppliers must also rely on warehouses and vendors to ensure they have their orders completely fulfilled and ready for routing on time.
Whether it’s carriers, 3PLs, or warehousing providers, these parties are integral to the ultimate outcome of achieving maximal OTIF performance and helping suppliers avoid fines.
With the proper amount of visibility and data, suppliers can expose OTIF failures to the responsible third parties. Then, conversations can occur to solve the root cause, modify services, or even seek monetary relief in the form of passing fines along, receiving discounts, or negotiating better future rates. In some scenarios, suppliers might move on to other service providers that can better meet their goals.
Lack of data
Suppliers’ data is segmented across systems, apps, and websites. The ability to group OTIF performance by individual parties in a supply chain is simply not feasible without expensive integrations or tons of manual work every week indefinitely.
It’s possible to see the final OTIF outcomes, but not possible to see what happened in the supply chain to cause those outcomes because the data is so spread out. Data comes from a wide variety of Retail Link apps, which are not connected or cohesive. Additionally, Retail Link does not give suppliers insights into the actual causes of OTIF non-compliance.
Internally and externally, OTIF outcomes, as judged by Walmart’s OTIF program, are not always the same performance tracking. For example, meeting a scheduled delivery appointment on time does not mean that the supplier delivered the PO on time, according to the Must Arrive By Date (MABD) requirements.
SupplyPike OTIF Radar helps solve these problems by automatically retrieving data from multiple applications, stitching it together, and providing insights and KPIs to easily judge each party in your supply chain.
OTIF Radar – Carrier performance
Not only can you compare performance across parties to your specific OTIF goals, but you can also scorecard each third party with the specific data behind the scores and the exact dollar amount in fines that third parties have caused you.
OTIF Radar – Scorecard summary
This data transparency gives you the information you need to objectively grade third parties, initiate conversations with the third party, resolve supply chain problems, or move you to better service options without OTIF fines. Get started with OTIF Radar today!
OTIF Radar – Dive into potential fines
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Written by The SupplyPike Team
About The SupplyPike Team
SupplyPike builds software to help retail suppliers fight deductions, meet compliance standards, and dig down to root cause issues in their supply chain.Read More