OTIF: Wal-Mart’s Policy Puts New Burdens on Suppliers, but Offers New Opportunities for Logistics Providers

“On-Time, In-Full” Policy Hits Vendors with Non-Negotiable Fines for Slight Infringements.

Times are tough for Wal-Mart right now. The largest retailer in the U.S., which for years ruled the market with its “Everyday Low Price” guarantee, has been getting consistently beaten by Amazon in the price department. In order to try to offset this, Wal-Mart has sought to move much of the burden onto their suppliers. This has come in the form of not only cost adjustment for their goods, but also strict new rules regarding their supply chain set to go into effect this month.

As Wal-Mart tries to gain a foot up in the battle with Amazon (as well as weather the Great Retail Apocalypse of 2017), one of the main areas that they have sought to overhaul is inventory. Faced with overflowing stockrooms, Wal-Mart has made drastic efforts to “tidy up” their shelves by reducing their inventory. Unfortunately, rather than investing in a much needed reverse supply chain, they have begun targeting suppliers with a new policy that hands down harsh penalties for failure to comply.

That policy is “On-Time, In-Full” (or OTIF). OTIF levies non-negotiable fines on vendors for any number of reasons: late shipments, early shipments, shipments that are on-time but for which the packaging is slightly off. Basically, any shipment that does not meet its initial conditions to the detail can, and likely will, be met with fines.

While Wal-Mart is neither alone in implementing such conditions in the name of inventory reduction (Target Corp. has rolled out similar policies over the course of the last year), nor is it the first such supply chain overhaul that they’ve forced upon their vendors, this is by far the most aggressive example to date.

Spokespeople for both Wal-Mart and its suppliers have put on a smiling face when talking about OTIF, all in the name of proper inventory management, as well as increased customer satisfaction and an improved personal shopping experience. This is not without good reason: Wal-Mart’s logistics network remains the largest in the retail market, with over 150 distribution centers throughout the U.S. Sales from Wal-Mart make up too large a percentage of its suppliers’ sales for them to rebel in full.

Still, those suppliers are not happy about OTIF. While some of the bigger brand names are able to invest in the kind of high-end inventory management systems that will allow for easy acclimation to the new policies, smaller businesses have no such recourse. This puts an immense amount of pressure on them. While they can’t afford to move their product from off the shelves of Wal-Mart, they may find that they can’t afford the cost of shipping to them either.

While OTIF is bad for suppliers, it does present new opportunities for third-party logistics (3PL) operations. These providers are better equipped to offer a range of options, as they are not locked into restrictive supply chains. By offering independent solutions to these shipping challenges, smaller logistics providers may be the ones that overcome the hurdles presented by Wal-Mart and other large retailers, by way of discovering and implementing new and innovative solutions.

Aeronet Worldwide® is one such logistics provider. Since 1982, Aeronet has worked with clients in a number of major markets, including retail. It provides time-definite, high-value service for any and all cargo, in every part of the world. When it comes to meeting regulations in a timely manner, Aeronet is second-to-none.

Leave a Reply

Your email address will not be published.