How Walmart’s OTIF Policy Creates New Baselines for Suppliers

Tags: Supply Chain Management, Logistics, Retail Logistics, Supply Chain

Matt Elenjickal is CEO, FourKites, 888-466-6958

Wal-Mart Stores Inc. caught many shipping companies off guard when it released its new “On-Time In-Full” (OTIF) policy. This program mandates that if any shipment arrives early, late, or on-time but not packaged properly, the shipper will be charged 3 percent of the total items’ value.

It was only a few months ago that Walmart initiated and mandated that shippers and their carrier customers must meet a two-day shipping window instead of its previous four-day window, as well as raised its compliance rate from 90 percent to 95 percent. The OTIF requirements now add to this already existing pressure for suppliers. This aggressive policy is without a doubt here to stay, and is only that much more important given the broad implications of the Amazon and Whole Foods deal. Shippers, carriers, and 3PLs should expect other large retailers to start implementing OTIF policies as well.

Starting in August 2017, Walmart will require full-truckload suppliers of fast-turning items to arrive by the specified date 75 percent of the time, 100 percent 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.

Shippers and third-party logistics companies have always dedicated themselves to improving on-time performance. However, over the last year, the conversation has taken a new direction; now, being early can almost be as bad as being late.

Precision has always been a primary focus with estimated time of arrivals (ETAs). However, ETAs can change in the blink of an eye give myriad environmental and business factors facing shippers and their drivers, like road conditions, traffic, truck specific routing constraints, and weather. By eliminating excuses for any ETA other than what was agreed upon, OTIF requires shippers to seek a stronger, predictive, real-time solution to the challenge. It is essential that companies partner with their tech vendors to not only provide visibility and exception management but also exception prevention.

The technology stack that companies are using today is deep and complex. While OTIF’s impact on shippers, carriers, and third-party logistics goes beyond visibility, the policy mandates them to better automate and synchronize the entire shipping experience, all the way from production to distribution. By using intelligent tracking, paired with a predictive ETA algorithm, shipments, at the load level, can be optimized based on the customer’s service level agreement.

While the OTIF policy may seem aggressive and drastic, it is not impossible to adapt and comply profitably. Shippers who integrate intelligent visibility platforms into their delivery process, have the tools to not only comply, but also exceed, the expectations of OTIF.

The old adage was “you can’t be late if you’re early.” That doesn’t work anymore. Now, you must be accurately, predictably, and reliably on-time, and that takes new tools and strategies.