New delivery requirements for Wal-Mart suppliers are part of the larger effort by the company to drive out cost so it can offer lower prices, analysts say.
The retail behemoth is phasing in the requirements — which apply to produce shippers as well as other suppliers — with an eye toward increasing the frequency of on-time and in-full deliveries.
Suppliers were given a six-month window to reach the mark of making 75% of deliveries on time and in full. By February, suppliers are expected to be at 95%.
Companies will have to pay when shipments are not on time. According to Bloomberg, suppliers will be fined 3% of the value of items late or missing during a one-month period, and early shipments will also incur fees.
“Logistical efficiency is a cornerstone of Wal-Mart’s competitive strategy,” said Bill Bishop, chief architect of retail consulting firm Brick Meets Click. “Wal-Mart is more focused than other retailers on the competitive need to simultaneously reduce costs/prices and increase customer satisfaction.”
Keeping costs low is increasingly important as Wal-Mart competes with Amazon and with hard discounters like Aldi and Lidl, Bishop said.
Paul Weitzel, vice president for Inmar Willard Bishop Analytics, also attributed the new requirements to Wal-Mart’s continual pursuit of increased efficiency.
“It’s all about full truckloads, single-(stock keeping unit) pallets, handling pallets versus cases, ... having somebody show up at the dock on time, unloading them within a certain amount of time,” Weitzel said. “The more you can take all these exceptions out, delays out, then you can tighten your labor force, you can make better forecasts, you can manage your inventory better. That’s the goal of all of it.”
For produce, Wal-Mart realizes there are some supply chain challenges that are unique to the industry, Wal-Mart spokesman Kory Lundberg said.
“We are asking suppliers to stay focused on making improvements that are within their control to deliver their orders on time and in full,” Lundberg said. “We are also making changes and improvements to the program based on supplier feedback.”
Wal-Mart told its suppliers last year that the changes were coming, aiming to give them time to prepare and to allow Wal-Mart to make adjustments to help suppliers meet the new benchmarks.
Weitzel suggested that going forward the company may turn its cost-cutting focus from the supply chain to the processes in its stores.
“There’s still a lot of prep inside the stores,” Weitzel said. “I think everyone’s going to be challenged with labor going forward, the shortage of skilled labor, so I think you’ll continue to see (Wal-Mart) work suppliers to see what suppliers can do such that by the time (products get) to the store there’s less work.”
The produce section has already seen some movement in that direction with fresh-cut and packaged items, Weitzel said.
Describing what else retailers might ask of their suppliers as the grocery landscape gets more and more crowded, Bishop envisioned numerous possible changes, including “a period of exclusivity for new item introductions, more detailed product information and content to be part of the online selling and social media, (and) supplier merchandising support at store level to ensure retail execution and plan-o-gram compliance.”