Overview
Like anything else, it is important to read the rules and build your strategy before diving headfirst.
What is a defect?
Walmart defines a defect as any non-compliance instance against their published standards. Each defect within a PO is subject to a fine.
All suppliers are scored based on SQEP criteria that help calculate each fine's dollar amount.
The additional SQEP fines vary based on the criteria of each phase but are all built off of the two main equations; PO Line Accuracy and Defects per Million (DPM).
PO Line Accuracy
Expectation is 100% PO accuracy, and any defect will affect this score.
Defects per Million
DPM stands for Defects per million (DPM) and represents the number of defects found per 1 million opportunities.
The goal is to have a DPM of 0. The breakdown below is present on the SQEP Portal under the DC Map. The DPM is shown in red, yellow, and green as a visual check for suppliers to understand the severity of their defects.
SQEP Scores Translating to Fines
The basic formula for each SQEP phase uses the formulas to score suppliers on their accuracy and precision in fulfilling orders correctly.
If a PO had 70 lines and 3 defects:
PO Line Accuracy = 100% - (3 / 70) = 95.7%
DPM = (100% - 95.7%) x 1,000,000 = 43,000
Compared to the benchmark Walmart has set for suppliers, the examples PO Line Accuracy score of 95.7% is slightly off target from Walmart’s 100% standard. Although this seems like a minor discrepancy, Walmart's high expectations are set to help suppliers understand where suppliers need to make adjustments in their supply chain.
Regarding the fines suppliers incur, the SQEP phase impacts the dollar amount. The basic components of the formula usually consist of a flat fine for every defect plus a charge multiplied by the number of cases affected. If there are multiple defects per PO, these fines will stack, resulting in major fines.
An example of a Phase 1 fine shows the flat fine of $200 plus the three impacted cases multiplied by one total of a SQEP fine of $203. Some suppliers might feel this fine is a negligible operating expense. However, these fines can pile up dollar signs in a couple of different ways.
Fines can add up in several ways, with the phase and scenario being the key variables. The multiplier can be anywhere from $1-$20 depending on the different phases. While this may seem like pocket change; when the cases affected are more than a handful, the fees can become unruly.
Additionally, SQEP fines can stack on top of other SQEP Fines. One PO could be charged with multiple SQEP fines depending on the number of defects. To make matters even trickier, SQEP fines can stack on top of other compliance fines or deductions that will be covered in later chapters.