Walmart Freight Terms: Prepaid vs. Collect
Suppliers face many challenges when doing business with Walmart. From deductions to allowances, a supplier's bottom line might be significantly less than their expected returns.
One of the first decisions a new supplier must make is "How should we fulfill Walmart purchase orders: prepaid or collect?". The decision might seem simple. Who should pay for the freight costs, Walmart or the supplier? In reality, however, there are many nuances to this decision.
Prepaid and Collect Freight Terms: Defined
There are a few differences in the two freight terms, from operational practices to actual product costs. With collect freight terms, Walmart is responsible for scheduling the carriers and transporting the product. Walmart is also responsible for the cost of transporting the goods. Conversely, with prepaid freight terms, the supplier is responsible for choosing the carrier, handling all purchase order routing, and assuming the cost of transporting the goods.
Choosing between Collect and Prepaid might seem like an easy decision. After all, why would a supplier choose prepaid freight terms if it only means a higher cost and additional operational requirements? The answer lies in a transportation metric called a Freight Factor. The Freight Factor is a way for Walmart to estimate how much it costs to transport a supplier's goods.
For Collect suppliers, the freight factor is typically absorbed by the supplier through a lower cost quote. Therefore, suppliers ultimately pay for the cost of transporting their goods, even with Collect freight terms. While Prepaid freight terms require the supplier to pay for transportation charges directly, this typically results in a higher cost quote to Walmart.
For more on this timely issue, read further on how Walmart's new Collect Pickup Program largely offsets any cost savings the supplier might hope to achieve.
Prepaid Requirements and Best Practices
Prepaid suppliers have more "hands-on" requirements than Collect suppliers. They are responsible for choosing a carrier and negotiating transportation costs. Suppliers own the entire life cycle of purchase order fulfillment -- from the acknowledgment of a purchase order to delivery at Walmart's distribution centers.
These additional procedures add to the supplier's workload, resulting in a higher "soft cost." Additional human capital is required to handle the procedures associated with Prepaid freight terms. This workforce costs money!
So, what are the best practices for Prepaid Suppliers? First and foremost, suppliers need to understand what is expected of them. Walmart has strict requirements for purchase order fulfillment. The OTIF (On-Time and In-Full) initiative, introduced in 2017, mandates that suppliers must deliver 98% of purchase orders on-time and in-full. With delivery windows of 1-2 days, this can be a difficult target.
With prepaid freight terms, the supplier owns the entire life of a purchase order - from PO receipt to order delivery. From an accountability perspective, this exposes the supplier to more potential points of error.
To meet these requirements and avoid hefty fines, suppliers need repeatable processes. Reducing the variability of recurring operational requirements can greatly increase efficiency and help ensure that purchase orders meet Walmart's OTIF requirements.
Suppliers should have the following resources in place for every purchase order period.
Receive and acknowledge receipt of the purchase order
Schedule carrier pickup
Pick and pack the product
Ensure that the carrier arrives during their scheduled pickup window
Monitor delivery status at Walmart distribution and secure associated bill of lading and proof of delivery documentation
Conduct lead time audits to ensure that proper lead times are in place
Discuss any delivery exceptions with both internal and external resources to improve on operational gaps
OTIF requirements for Prepaid suppliers greatly increase the supplier's exposure to potential fines. The following benchmarks are all in the supplier's OTIF accountability bucket:
Not in full
Delivery without a DC appointment
Obviously, this requires a lot of work and staffing. However, how does this compare to the Collect requirements?
Collect Requirements and Best Practices
Collect suppliers only "own" the purchase order until Walmart's carriers physically pick up the goods. For this reason alone, it might seem like there is nothing but upside to being a Collect supplier. Not so fast!
Collect suppliers still have plenty of procedures and requirements that they must adhere to avoid costly OTIF fines. These requirements are known as "Collect Ready."
Some of the procedures and requirements for collect suppliers are:
Acknowledge receipt of a purchase order and submit a request for routing from Walmart Transportation within 24 hours of PO receipt
Receive routing instructions from Walmart Transportation and ensure that the orders are picked and packed before the scheduled pickup date
Communicate any late carrier arrivals with Walmart Transportation for resolution
While Collect suppliers are not accountable for early or late deliveries, these exceptions still impact the overall OTIF score. Just because you aren't receiving OTIF fines does not mean your Buyer and Replenishment Team are happy. Suppliers are still responsible for working with Walmart Transportation to resolve persistent delivery issues.
As with Prepaid freight terms, the best practices center around consistent internal procedures. Variability in procedures can result in costly delivery fines. Reducing variability can greatly improve your OTIF scores and can actually help reduce the workload requirements of your fulfillment team.
Recapping Collect vs. Prepaid at Walmart
Walmart suppliers face many challenges; there is no doubt. Choosing the most appropriate freight terms can greatly improve operational efficiencies and hopefully help avoid costly OTIF fines.
TL;DR OTIF Tips
First-time suppliers have a three-month grace period of waived OTIF fines.
Disputing with the Buyer is best before the invoice.
Disputing in HighRadius is best after the invoice.
OTIF fines invoices post around five weeks after month-end.
Walmart applications don't always communicate with each other. Make sure to call out these discrepancies with your buyer.
SupplierWiki's mission is to educate our suppliers on all the current changes at major retailers. Suppliers shouldn't be spending hours hunting for an answer. For on-demand content around Walmart's Supplier Objectives, check out our webinars and articles to build your OTIF expertise.
Written by Tim Carey
About Tim Carey
Tim has been in the Walmart supplier community for over 15 years. His expertise is in Consulting, Business Analytics, and Retail Link for Walmart suppliers.Read More
Established in 2007, Trend Results is a full-service Consulting, Business Intelligence, and Retail Link Training firm specializing in Walmart suppliers throughout the United States and Canada.
Our team consists of former Walmart suppliers and retail professionals with over 16 years of combined experience calling on Walmart and Sam's Club.View Trend Results's Website