Walmart and other big box retailers introduced us to the “Must Arrive By Date” or MABD several years ago, which held suppliers to tighter compliance regulations. These regulations raised quite the concern over suppliers getting the right products to the right stores or distribution centers by a certain time or they would pay a fee.
Fast forward to now and we are having a similar discussion with suppliers and shipping companies about the new “On-Time In-Full” OTIF, policy. Although this mandate has been in the introductory phase since January of this year, the short pays will begin now and suppliers will most likely see their first chargebacks from Walmart in September! This program mandates that if any shipment arrives early, late, or on-time but is not packaged properly, the shipper will be charged 3 percent of the total items’ value. (i.e. a supplier has a purchase order of $10,000 but their product didn’t meet the OTIF guidelines so Walmart will only pay $9700 for the merchandise.)
The short pays will begin now and suppliers will most likely see their first chargebacks in September!
OTIF > MABD
The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”. In the past, if less than 90% of merchandise cases were received within the MABD delivery window, the supplier would pay 3% of the cost of goods. Now, full-truckload suppliers of fast-turning items must arrive by the specified date 75% of the time, 100 in-full.
The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”
Any items claimed late or missing during a one-month period will be fined 3 percent of their value. Starting in February 2018, OTIF will go into full effect, requiring deliveries to be on-time and in-full 95 percent of the time.
The MABD Window vs. OTIF Window
The MABD Window was a three-day grace period for perishables and a four-day grace period for food, consumables and general merchandise. The OTIF window is much tighter with a one-day for perishables and a two-day for general merchandise.
“Variability is the No. 1 killer of the supply chain,’’ Kendall Trainor, a Wal-Mart senior director of operations support and supplier collaboration.
Variability is the No. 1 killer of the supply chain
In some cases, a problem will be Wal-Mart’s fault, so the retailer has developed a scoring system that breaks down reasons for non-compliant deliveries and will fine suppliers only if they’re responsible. If suppliers don’t agree with the fine, too bad: Disputes “will not be tolerated,’’ Wal-Mart says.
This change is expected to add $1 billion in revenue.
Arriving early, arriving late, not arriving in full will be the issue in a shipper’s supply chain. This change is expected to add $1 billion in revenue. Walmart had to find efficiencies wherever it could and they feel a sense of urgency as the rival between them and Amazon amplifies.
FTL and LTL Guideline Breakdown
Here are the latest OTIF guidelines for full truckload (FTL):
- Starting August 2017, FTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 75% of the time.
- By February 2018, FTL suppliers must deliver orders 100% in full, on the must arrive by date, 95% of the time.
- Non-compliance will result in a fine of 3% of the “missing case” value; early deliveries will also be penalized, to eliminate overstock situations. (Penalties will be short paid monthly.)
For less-than-full truckload (LTL):
- Starting August 2017, LTL suppliers must deliver orders 100% in full, on the must arrive by date 33% of the time.
- By February 2018, LTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 36% of the time.
- If OTIF was 36% or better in August 2017, then the supplier must demonstrate a 20% improvement.
- Non-compliance penalties (3% of non-compliance COGS) will be short paid monthly.
What does this mean for YOU?
Manufacturers and suppliers that work with large retailers like Walmart are more successful in getting their merchandise on the shelves with the proper lead time due to partnering with a third party logistics provider (3PL).
Suppliers scorecards will inevitably be affected
Suppliers scorecards will inevitably be affected, so it is imperative for a supplier to find a 3PL they can count on for navigating these changes. A 3PL, is an expert in transportation management and supply chain optimization and has the ability to help estimate from start to finish where the OTIF will impact the suppliers products.
We look at every aspect of your shipment and find the appropriate fix
BlueGrace has the ability to work with suppliers on freight consolidation, chargeback auditing and management as well as load planning and optimization. We look at every aspect of the shipment and find the appropriate fix for the shipments to reach the shelves on-time and in-full. Combine this with our proprietary technology BlueShip™ and your chances for success during these mandates/compliance regulation changes will undoubtedly increase!