Retail Suppliers are familiar with Prepaid and Collect Shipping. Depending on the constraints of the product and supplier team, these freight options are standard and have different benefits and drawbacks.
For Walmart to maintain profit margins and continue to lead with Everyday Low Prices (EDLP), Collect suppliers are now required to share the cost due to increased transportation expenses.
These fees, while shocking, come as no surprise with the laser focus of Walmart's CEO, Doug McMillon, on inflation and gas prices in recent news impacting the retail giants' profits.
Just before the 4th of July weekend, Walmart announced they would charge Collect suppliers who use Walmart Freight in the US. These additional fees will begin in September for all products shipped Collect in August.
The charges that make up the Collect Pickup Program (CPP) are currently twofold; a Pickup Charge and a Fuel Surcharge.
The Pickup Charge is for Walmart Freight to pick up any shipped items. The dollar amount of the Pickup charge is a percentage of the COGS determined by the item's department every month. The monthly deduction from supplier Cost of Goods invoices will occur at the 6-digit vendor accounting level.
The Fuel Surcharge is based on the distance to deliver products to its destination plus the factor of current gas prices. Fuel data aggregates at the 6-digit supplier level for billing.
Walmart Transportation will utilize Breakthrough Fuel (BTF) to calculate the fuel cost. This third-party gauge costs on the actual freight movements and real-time fuel costs. BTF calculates various factors from live route data; each trip will consider the fuel prices from that day layered in that specific geographic location.
Walmart will leverage BTF data for all Walmart Collect shipments, whether transported by Walmart's fleet or Walmart's engaged third-party carrier.
Fuel charges will adjust per billing cycle predicated on the ship points. If fuel goes down, the surcharge will decrease if the shipment miles remain consistent.
Walmart has also stated in their FAQ section that these charges will be a permanent fixture of Collect Freight. Additionally, percentages are not up for negotiation since they are outlined for each supplier category at the 9-digit level.
Walmart did provide grace for new suppliers. Any supplier onboarded into the Collect program from February 1, 2022 - June 30, 2022, will have charges delayed until February 1, 2023.
Unfortunately, this delay will only apply to brand new suppliers, not shipping Collect before February 1, 2022. This grace period will not apply to suppliers that have added a 9-digit vendor number to an existing 6-digit vendor number that has been shipping under Collect freight terms.
The work of suppliers is full of complexity, and unfortunately, these fees may be another wrench for Collect suppliers. Here's a general outline of the impact in the next month as Collect suppliers stare down the impending storm.
With less than a month to prepare, suppliers bracing for impact in the short term cannot change their item prices to reflect additional costs.
Cost increases are already a tough topic to navigate with a buyer team; these new charges don't have enough legs to justify a cost increase on Walmart's side.
Suppliers should create an action plan as these impending charges threaten profit margins. Looking into where suppliers can minimize additional costs in the next coming months may be the best course of action in the short term.
If you've been in the supply chain world for a day, you'll know that the transportation industry has struggled to keep up with demand since early 2020.
The shortage of drivers and inflation in recent months snowball into ever-recovering lead times. Building a strong relationship with 3rd party logistics providers that partner with suppliers is vital. Collect suppliers looking to switch to Prepaid shipping by August should start shopping now for a reliable 3PL.
As new information emerges, suppliers should talk to their various Walmart liaisons. From buyers to freight teams, since the Fuel Surcharge is based on product departments, the details based on each department matter to the final cost each month.
Current Collect suppliers may find these new charges unbearable in the long run. Changing transportation rates every month may make Prepaid transportation worth the additional hassle. Although the responsibility of transportation lies on the supplier or the third party representing the supplier, Walmart has announced the charges will not be applicable for Prepaid freight.
Prepaid shipping also allows suppliers to justify baking in shipping costs into the COSG. Now is the time to review supplier agreements and decide whether switching to Prepaid from Collect is worth the incremental charges in the coming months.
In the FAQ section, Walmart states suppliers must complete any additional negotiation and execute a new Prepaid agreement by August 1, 2022. Collect freight shipped past August will be subject to the Collect Pickup Program.
To review the responsibilities of Prepaid shipping, check your supplier agreement for elements such as on-time deliveries (OTIF), warehouse allowances, and returns that can vary depending on the shipping method.
As suppliers scramble to solve these new changes, OTIF scores will likely decrease. The Walmart supply chain system must adjust to implementing these additional charges and the anticipated flip-flopping from Collect to Prepaid.
Suppliers who do extra diligence on OTIF compliance during this period may see less of a dip in their scores and spend less time disputing OTIF Fines.
Another caveat is the cross-over between Walmart compliance programs such as Deductions and OTIF.
Walmart currently has two streams for charging suppliers for deductions or compliance fines. Walmart Accounts Receivable employs a third-party disputing portal, HighRadius, for suppliers charged with OTIF and SQEP fines. OTIF, a once non-disputable compliance program, was recently made disputable and done so relatively quietly.
Deductions are taken in bulk or individually off each invoice from the Walmart Accounts Payable Dispute Portal (APDP). The monthly cycle of the Collect Supplier charges seems to fit more in line with AR fines than the AP deduction process.
It may be too soon to tell how Walmart plans to execute these charges for Collect Suppliers, but those fines may be disputable as we learn more.
Understandably, Collect suppliers may be frustrated and nervous about the implication of these fees on their business. These charge calculations are currently vague and based on values that aren't constant or fully predictable.
SupplierWiki's mission is to educate our suppliers on all the current changes at major retailers.
Our team is adjusting to these changes with Collect suppliers. As we learn more, we will break down information and formulate best practices for affected suppliers to stay afloat.
Suppliers shouldn't be spending hours hunting for an answer. For on-demand content around other Walmart's Supplier Compliance Programs, check out our webinars and articles.
SupplyPike builds software to help retail suppliers fight deductions, meet compliance standards, and dig down to root cause issues in their supply chain.Visit their Website ➝