As consumer demands continue to evolve, retailers place higher expectations on suppliers. Today’s consumer knows they don’t have to wait for an item they want to be in-stock. They can find it on another store shelf or online. To ensure the item is there for the Walmart customer when they want it, Walmart launched the On-Time In-Full (OTIF) initiative in 2017.
OTIF has seen many changes since its launch, but the purpose has remained the same: improve the supply chain to keep items in stock.
What Is On Time In Full (OTIF)?
Walmart’s On-Time In-Full initiative is a compliance measure of how a supplier’s freight arrives at a Walmart store or distribution center. As its name states, Walmart is asking two questions of each supplier delivery:
- Did the shipment arrive on-time? Walmart assigns a specific drop-off window for each delivery. The delivery is considered on time if it arrives within the window. Early and late deliveries may both be subject to monetary penalties charged back to the supplier.
- Did the shipment arrive in-full? The expectation is that what the supplier delivers to Walmart matches what is listed on the purchase order (PO). Any discrepancies, whether in quantity or product, may result in monetary penalties charged back to the supplier.
How Is OTIF Calculated?
OTIF is calculated on the percentage of the times deliveries hit the assigned delivery widow and the percentage of the physical freight that was accurate (see Walmart OTIF Guidelines below).
Monetary penalties are also calculated on a percentage of the order. If a supplier fails to meet the OTIF guidelines on a delivery, they are fined 3% of the cost of goods in the order. What’s important to note is how the 3% is drastically different whether you’re falling short on the on-time versus in-full metric.
For example, assume you’re selling cases to Walmart at $1.00 per case. This month, your PO shows you are to deliver 100 cases to Walmart.
You only deliver 90 cases (all on-time), but still 10 cases short.
- On-time score = 100% (90 cases received within compliance window)
- In-full score = 90% (cases received/cases ordered)
- OTIF penalty = $0.30 (10 cases short, $1.00/case multiplied by 3% penalty)
Now let’s look at the same example, but this time you were able to deliver all 100 cases. However, the shipment arrived a day late. The penalty would look like this:
- On-time score = 0% (0 cases received within compliance window)
- In-full score = 100% (cases received/cases ordered)
- OTIF penalty = $3.00 (100 cases late, $1.00/case multiplied by 3% penalty)
It’s easy to see how consistently delivering incomplete shipments late can add up across hundreds of thousands (or even millions!) of dollars’ worth of merchandise and cut into your profit and loss statement.
What Is a Good OTIF Score?
Hitting 100% on both the on-time and in-full metrics is ideal. As of September 2020, 98% is the set goal. A common question from Walmart suppliers is “If we’re not delivering at 98% yet, how low can our on-time and in-full metrics be to still be in a good range?”
This can only be answered by your Walmart merchant team. Why? Outside factors impacting the supply chain can provide lenience in Walmart’s view on acceptable OTIF performance.
For example, if there are major disruptions happening in the supply chain, performing at 65% In-Full may be understood for a time. However, with no uncontrollable factors contributing to a poor performing supply chain, this same number could get your items removed from the Walmart modular.
Walmart recognizes there can be uncontrollable disruptions in the supply chain. Disastrous weather can stop shipments completely. The 2020 pandemic changed consumer demand on select items and brought unforeseen shortages. During such events, Walmart factored the events into OTIF performance or waived penalties altogether.
Why Does OTIF Matter?
The end goal of OTIF is simple: ensure the item is in-stock at any time the customer wants it.
Sales, profit, in-stock, positive customer experience, and most everything in retail depend on a smooth supply chain. OTIF puts the supply chain under the microscope and shows where improvement is needed. A better supply chain leads to more sales and a better OTIF score. Flaws in the supply chain come back to Walmart suppliers as monetary penalties. As much as Walmart wants to be profitable, the company does not like issuing OTIF penalties.
In fact, Walmart would rather see nothing in terms of supplier paying penalties. Suppliers have been removed from the modular for poor OTIF performance though they were paying tremendous penalties each month. Walmart wants items on the shelves, not suppliers paying penalties.
The decision to penalize suppliers for not complying with OTIF expectations was never for Walmart to make money. It was to stress the importance of suppliers improving their supply chain to keep Walmart shelves and warehouses stocked with merchandise. Having items fully in-stock guarantees the items will be available when the customer chooses to buy them.
Walmart OTIF Guidelines
Supplier expectations for OTIF changed each year since its debut. Performance percentages varied by store categories, transportation, and performance metric. However, Walmart raised all OTIF expectation percentages as of September 15, 2020.
All freight characteristics for Walmart’s OTIF are now at 98%. This simply means all supplier deliveries are expected to arrive on their MABD (Must Arrive By Date) 98% percent of the time and suppliers must deliver at a minimum of 98% of all cases ordered.
The 98% expectation covers all Walmart categories (General Merchandise, Consumables, Food, Health and Wellness) as well as all transportation methods (prepaid, collect, full truckload, less than truckload, etc.).
Any supplier performance falling short of the 98% goal will result in penalties charged back to the supplier.
Note: while we normally think of OTIF guidelines for brick-and-mortar stores, the 98% expectation also applies to Walmart.com suppliers.
When OTIF guidelines were first put in place, many Walmart.com suppliers were not challenged with the same OTIF goals the store suppliers had to meet. Different online categories would have 70% or 85% expectations.
Also, their case count (quantity they shipped) did not have the same impact on their sales. If they received a fine for being short on 100 cases shipped, it was very different compared to what the store’s fine would be for being short on a million cases shipped.
Today, whether you have products only in stores, only online, or both, the OTIF guideline is a 98% expectation.
How to Improve OTIF Performance
If your OTIF performance is not meeting Walmart’s expectations, the result will be fewer sales and higher penalties. Before the monthly penalties become too great (and the risk of losing product placement on the modular becomes real), take the necessary steps to improve your OTIF performance:
1. Understand Your Walmart OTIF Scorecard
Walmart allows suppliers to track their OTIF performance in Retail Link® with the OTIF Scorecard. It’s a great tool to monitor potential issues and see how your company may be penalized.
If you have questions about the Walmart OTIF Scorecard, the 8th & Walton team will go over it with you during a free consultation.
2. Fix Purchase Order (PO) Issues First
In-full accuracy links back to what is listed on the PO. Make it a regular practice to verify the product being shipped to Walmart and the quantity match what is stated on the PO.
If you are out of an item requested on the PO, do not substitute. This will result in a penalty. Item data on the PO must be accurate.
Walmart may change or even cancel a PO. Work with your team to be notified automatically of any PO changes or cancelations.
3. Talk With Your Walmart Merchant
Are you producing enough products today to meet your Walmart merchant’s expectations in six months? What new promotions, marketing initiatives, or store growth will impact orders?
Knowing your merchant’s plans allows you to forecast accurately and plan better shipments. Develop a strategy together to improve your OTIF score.
4. Consider Using a Third-Party Consolidator
Small and mid-sized suppliers can get crushed trying to keep up with OTIF penalties each month. Turning supply chain tasks over to a third-party logistics and consolidating firm can save your business time and payroll dollars.
Aside from warehousing and transportation, most third-party firms handle your appointment schedules and reduce charges by consolidating your partial truckloads with other suppliers. This creates one full truckload arriving at the Walmart store or distribution center.
Third-party consolidators currently approved by Walmart already understand Walmart’s expectations for OTIF, documentation, notices, stock transfers, shipment status updates, and more. Partnering with them can quickly improve supply chain performance.
5. Stay Up-to-Date on OTIF Changes
Walmart will notify suppliers in advance of changes in OTIF expectations. It is important to monitor communications from the company in Retail Link® as well as staying in touch with your Walmart merchant team.
For up-to-date information on improving your supply chain and OTIF score, consider taking a class from 8th & Walton. Content to help you brush up on supply chain excellence is updated as Walmart updates its guidelines.
Adherence to the Walmart OTIF supply chain expectations will improve your in-stock and result in better sales. If your OTIF performance begins to slip, penalties can grow and you risk having your product removed from Walmart’s modular.
Make OTIF a priority in your organization by using the tools and scorecards in Retail Link® and working with your Walmart merchant team.
To learn more about OTIF classes or to work with a Walmart expert, 8th & Walton has dedicated teams for all levels of suppliers. Contact us today to set up a free 15-minute consultation about your OTIF needs.