Walmart’s New Supplier Quality Excellence Program (SQEP) – Phase 1

Learn all about:

• Walmart’s new excellence program, SQEP
• The phases of SQEP
• Details on Phase 1 of SQEP
• The meaning of “PO accuracy”

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Walmart has announced that it is implementing a new “Supplier Quality Excellence Program (SQEP)” to aid suppliers with supply chain compliance.

What Is SQEP?

Walmart has designed the Supplier Quality Excellence Program (SQEP)  to create a “100% accurate” supply chain, including purchase order accuracy, barcoding and labeling, packaging, loading, and pallet quality. Walmart built the program with expectations of 100% PO accuracy and the receipt of defect-free products.

Walmart’s vision for SQEP is to create quality and excellence for its customers. Walmart believes that this program will increase its supply chain’s efficiency and quality, giving the retailer a distinct advantage over its competitors. Its mission is to achieve the lowest cost, best-in-class supply chain by removing impediments, defects, and inadequacies.

SQEP’s purpose is to reduce supply chain costs overall, not to increase them. The program should improve order accuracy and visibility into orders’ production, procurement, and logistics. The idea is to create “First Time Quality” (FTQ), meaning Walmart receives the ordered items from its suppliers when they have agreed to deliver them. Walmart is applying this program to all of its distribution networks, including e-commerce fulfillment centers.

Walmart hopes that the program will create a “best-in-class supplier experience” and includes a rigorous education program. It will implement a dashboard portal to track SQEP progress, PO accuracy, and performance results. The portal will be available on November 2, 2020 (otherwise known as Walmart Week 40 FY 2021).

Phases of SQEP Implementation

Walmart is implementing SQEP in four phases:

1. Accuracy and Advanced Ship Notice
2. Barcode and Labeling
3. Load Quality, Label Quality, and Packaging
4. Scheduling and Transportation

As of September 1, 2020, the retailer has only released details about Phase 1, which begins February 1, 2021. A pilot version of the program will start on November 1, 2020, and will run through January 2021. SupplierWiki will provide more information about the SQEP program as it progresses.

Phase 1a – Item Data Accuracy

Suppliers may already be familiar with Item 360 as a way of uploading information about new and existing products. Beginning September 15, 2020, all item setup and maintenance must go through Item 360. Suppliers can change warehousing data, case pack sizes, item images, and other data in this portal in Retail Link, under “Apps.” Walmart requires suppliers to register for training in Item 360.

Walmart Import items and pharmacy products may continue to use the Online Item File found in Retail Link.

Phase 1b – PO Accuracy

Starting November 2, 2020, suppliers may use the SQEP portal to review POs for accuracy and track down what Walmart calls “defects.” (A pilot version of the portal will be available on October 15, 2020, to limited suppliers.) The portal will have a “detailed drill-down” analysis of PO performance, and it will display a score and defects-per-million metric.

The SQEP standards are available in Retail Link Supplier Academy. Walmart expects its suppliers to review these standards as soon as possible. Additionally, the retailer asks suppliers to create an “accuracy action plan” for US stores and e-commerce deliveries. This plan should take into account goals and metrics the supplier may already be tracking, such as:

• Quality Assurance: Suppliers should track errors in their supply chain and attempt to correct them. Additionally, they should avoid item substitutions and, instead, work with their replenishment managers on updating POs to avoid SKU inaccuracies.
• Accountability: Suppliers should have set goals in mind for their supply chain (especially if they are already compliant with OTIF objectives). They should hold the individual links accountable for poor picking standards and over- or underfilled orders. Walmart expects orders to arrive exactly as they requested on the PO.
• Item File Accuracy: Suppliers should update their items within Item 360 when case or warehouse pack sizes change. They should also make sure they stay on top of changes to their items within that portal. The Item File should always match what the supplier is shipping.

Walmart will begin to hold suppliers accountable for PO accuracy starting February 1, 2021. During this phase, Walmart will start deducting fees from invoices for defective orders. There will be an administrative fee as well as a handling fee per unit for these invoices. Walmart will determine this fee after the pilot period. (SupplierWiki will update this article as soon as we have this information.)

Phase 1c – Advanced Ship Notice (ASN)

Starting February 1, 2021, all domestic POs shipping to Walmart distribution and fulfillment centers will need an EDI 856: Advanced Ship Notice (ASN). Pharmacy, Direct Store Delivery (DSD), and Direct Store via Distribution Center (DSDC) are exempt. These POs will continue with the current program.

Walmart will require ASNs to improve inventory visibility. Walmart will post updated ASN guidelines in Supplier Academy on October 1, 2020.

Update To ASN Compliance

Walmart will require ASNs to improve inventory visibility. Walmart requires three qualities for its ASNs as submitted by the supplier: 

• Data accuracy
• Completeness
• Timeliness

Data Accuracy

ASNs must have accurate data on them. This means that all ASNs must have the same lines that were on the original Purchase Order (850). The ASN lines must match for each line item that was on the PO. Walmart has stated that while this is a requirement for “accurate” ASNs, the retailer will not consider ASNs with inaccurate PO lines invalid for SQEP purposes and, therefore, these ASNs will not incur penalties.

ASNs must also have accurate item information on them. This includes such data as item UPCs and GTINs, pack size information, and expiration dates. This information allows Walmart to ensure that the ASN matches the PO for each item ordered. 

ASNs without accurate item information will result in SQEP penalties. The item information must also match the item data listed in the item file in Item360.

ASNs must have accurate and true quantity information. The quantities listed on the ASN must match the quantities requested on the PO. Additionally, the quantities on the ASN must completely match the quantities in the physical shipment. Otherwise, the order will incur SQEP penalties.

Completeness

All ASNs received by Walmart must be complete. ASN completeness means that the ASN matches the guidelines for a proper ASN listed on Supplier Academy with all of the data required.

Suppliers should also set up Functional Acknowledgments (EDI 997) and Application Advices (EDI 824) to monitor ASN transmissions. An EDI 997 will show when Walmart’s EDI system receives the ASN. 

Walmart transmits EDI 824s when there is an issue with the data in an ASN. For example, if the global location number for the Walmart store is invalid, Walmart will send an EDI 824 stating such. Typically, such errors will occur with manually entered orders that skip fields or have inaccurate information.

If a supplier submits an ASN that is incomplete, Walmart will invoice fines for that infraction. Suppliers who receive an EDI 824 typically have 24 hours during which to correct the invalid ASN and resubmit it to Walmart.

Timeliness

Walmart expects to receive ASNs before the physical shipment arrives at the distribution center or fulfillment center. Valid ASNs should arrive before the trailer doors close and the DC or FC finalizes the shipment.

Walmart considers an ASN “On Time” if a valid EDI transaction occurs before the gate during the time of the physical shipment’s arrival at the DC or FC.

SQEP Penalties for ASNs

Walmart will fine for ASNs based on a comparison of the PO to the physical shipment. There are two defect types that may occur with unacceptable ASNs:

• ASN Not Downloaded: This defect occurs when the shipment does not have a corresponding ASN. This may occur due to an issue with the EDI provider or VAN or because the supplier has not properly set up their EDI connection.
• ASN Mismatch: The items or quantities on the ASN do not match what was in the physical shipment. Such issues may cause errors on an EDI 824, which would mean that Walmart may not receive the valid ASN on time.

Walmart now expects a complete, accurate, and timely EDI 856 for each and every shipment to its distribution centers and its fulfillment centers. The key here is that the item information and quantity values on the ASN match what Walmart ordered on the PO and has received.

What Does PO Accuracy Mean?

Walmart defines PO accuracy as the receipt of items as ordered within the delivery window. In other words, the items must arrive at their destination DC in good condition as listed in the PO. Walmart will still allow PO changes. Suppliers should keep an open channel of communication with their replenishment managers.

The main idea of PO accuracy is that items received at their destination distribution center must match the items ordered on the PO in good condition (“defect-free”). Walmart expects suppliers to invoice for the items they shipped as ordered. In other words, do not overfill, short-ship, or ship substitutions. 

Walmart measures PO accuracy by dividing the number of defects in the shipment by the number of PO lines subtracted from 100% to find the percentage of accuracy. 

PO Accuracy = 100% - (number of defects divided by number of PO lines)

Why Is PO Accuracy Important?

Walmart is taking PO accuracy very seriously. It considers accuracy to be the oil in its supply chain. Its sources say that millions of dollars of orders are sitting daily in “problem” freight (i.e., orders that contain items that are not sellable). It estimates that receiving associates log thousands of tickets daily for orders that are defective and have problems with processing due to PO inaccuracies.

PO inaccuracies cause a waterfall effect where receiving associates must remove defective merchandise and notify the problem freight department. This ticket goes to another associate who must create a problem freight ticket to send to the Walmart Home Office for disposition. Once HO resolves the issue, the problem freight associate must scan and label the order to pass it back to the DC or FC to continue processing.

How Do I Improve My PO Accuracy?

PO accuracy applies to all links in the supply chain. Manufacturers must replenish the correct amount of products according to supply plans in an accurate and timely manner. Suppliers must ship the ordered amount of products without substitutions and according to the Item File. They also must ensure that their Item File is always up to date and reliable. Orders should arrive at the DCs on time and according to the PO, and the ordered products should be available for shipment.

Walmart has created a list of defects that can occur with POs. Avoiding these defects can improve accuracy and help suppliers avoid fees.

• Allocation Issue: The supplier shipped an order to the wrong DC/FC type, specifically for facilities that do conveyable sorting versus those that can sort larger items.
• ASN Not Downloaded: There was an issue with downloading the EDI 856 ASN report for DSDC orders.
• ASN Mismatch (Non-DSDC only): The ASN contained line items where the quantity on the ASN does not match what Walmart received.
• Canceled Line: The supplier has shipped an item after Walmart canceled the line item on the PO.
• Canceled PO: The supplier has shipped an entire PO after Walmart has canceled it.
• Date Issue: The supplier has shipped an item that has expired or is otherwise not compliant with the date requirements listed on the PO.
• Haz-Mat/Compliance Flag: The supplier has shipped a hazardous material without the proper documentation, markings, etc., or sent a hazardous material to a location that does not have the facilities to handle it.
• Imagery: The supplier has incorrect or incomplete information in the Item File for e-commerce items only. This defect does not apply to brick-and-mortar suppliers.
• Item Not on PO: The supplier has shipped an item that was not on the original PO, typically as a substitution.
• Item Set up: The supplier has not set up the item correctly in the Item File, including missing or inaccurate information, specifically causing delays in processing or receiving.
• Load Infestation: The carrier’s trailer contains mold, mildew, insects, or other foreign objects that can cause infestations.
• No ASN Label (DSDC only): Walmart received cases on which there were no Serial Shipping Container Code (SSCC) labels. The SSCC should be in the MAN segment of the EDI 856.
• Not Walmart Freight: The supplier has shipped items to a Walmart DC intended for another customer (e.g., Target or UNFI).
• Overage: The supplier has shipped more items for a PO line item than what is on the original PO.
• Parent-Child: The supplier has not successfully or properly linked the “child” item’s UPC with the “parent” item’s UPC in the Item File (e.g., individual colors of a brand of plastic cups).
• Quality Issue: The supplier has shipped an item that has damage, is defective (i.e., is broken or doesn’t work), or is otherwise unsellable in its current condition.
• Recall/Withdrawl: The supplier has shipped an item on which an agency has issued a recall, or the supplier (or a third party) has otherwise removed an ordered item from the shipment.
• Rework: The DC has re-packaged the shipment in an unacceptable manner, including relabeling, poly-bagging, boxing, taping, or other changes.
• Unscheduled (WFS Only): The supplier did not schedule an appointment with the DC – applies only to Walmart Fulfillment Services.
• Wrong DC: The supplier, carrier, or 3PL shipped the order to a DC that was not on the original PO.
• Wrong Pack: The supplier has shipped an item or items with a vendor pack quantity that does not match what was on the original PO.

Walmart will implement the standards of 100% PO accuracy in Phase 1 of SQEP starting on February 1, 2021. Walmart will begin fining for PO inaccuracies beginning on March 31, 2021, for February’s defective orders.

SQEP Fines

Walmart will induce fines for defective ASNs and POs per purchase order. Each defect occurs on a PO level and a unit line level. For an inaccurate PO, Walmart fines $200 for the defective PO and $1 per handled line item. For an ASN defect, Walmart issues fines based on whether the PO is Direct-to-Store, Shipped through DC​ (DSDC).

PO Defect Fine Example

If a supplier receives a PO for 100 items but ships an overage of 120 items, then Walmart will fine the supplier $200 plus an additional $20 for each line item over the original PO quantity for a total of $220.

In another example, if a supplier receives a PO for 50 widgets and the supplier ships 25 broken widgets, 25 intact widgets, and 50 gadgets, then Walmart will submit a fine schedule in this way:

• $200 for the “Quality Issue” defect
• $200 for the “Item Not On PO” defect
• $1 for each broken widget for a total of $25
• $1 for each extra gadget for a total of $50

These defects and line items would come to a total of $475.

ASN Defect Fines

If Walmart cannot download the ASN (“ASN Not Downloaded”), it will charge the supplier a fine. For DSDC POs, the fine is a $200 flat fee per PO. For non-DSDC POs, it is a $25 flat fee per PO.

Additionally, for non-DSDC POs with an ASN mismatch defect, there is no overall PO fee, but Walmart fines $0.25 per case with mismatched quantities.

Walmart plans to start issuing fines on March 31, 2021, for POs starting on February 1, 2021, for PO defects. For ASN issues, Walmart will issue fines on July 1, 2021. Suppliers can see their defective POs and ASNs in the SQEP Portal on Retail Link.

There will be a cap at the PO header level for SQEP fines such that the fine does not exceed 30% of total cost of goods sold (COGS) on each defective PO.

In the event of an invalid SQEP chargeback, Walmart suppliers may use the High Radius portal to submit a dispute. This process is the same as with other Accounts Receivable Walmart deductions. To submit a dispute, suppliers should include:

• PO number
• Item number
• Defect type
• Distribution center
• Impacted cases

Suppliers may obtain and review their order backup documentation and information in Retail Link on the SQEP Dashboard.

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