Strategy: Walmart will start fining its suppliers for early and late deliveries (WMT)

Walmart is taking new measures to ensure that suppliers of fast-turning items, like groceries and paper towels, are delivering orders on time

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Walmart is taking new measures to ensure that suppliers of fast-turning items, like groceries and paper towels, are delivering orders on time, beginning in August, Bloomberg reports.

The new initiative, dubbed On-Time, In-Full (OTIF), requires suppliers to deliver the ordered products 100% in full on the scheduled delivery date, 75% percent of the time — a standard that will be raised to 95% by February 2018. An OTIF score will be determined over a one-month period, and both early and late deliveries, as well as improperly packed goods, will be subject to a fine of 3% of the shipment's value.

Creating an efficient supply chain is crucial for Walmart, which has a massive network of 150 distribution centers in the US. Some of its 75 largest suppliers — which include Unilever and Procter & Gamble — have had OTIF scores as low as 10%. While late deliveries can cause out-of-stocks, leading to lost sales as customers turn to competitors for the missing items, early deliveries can also be damaging. Overstocks have led to several Walmart locations storing surplus inventory in cargo trailers parked behind the store.

Supply chain operations are becoming an increasingly important focus area for retailers, as online and omnichannel orders complicate inventory management. Target implemented a policy akin to Walmart’s OTIF initiative as it revamped its supply chain last year. Although managing large store networks, in addition to e-commerce fulfillment operations, is difficult, stocked shelves and fast delivery are critical to customer satisfaction. As Amazon builds out its logistics network, it will be crucial that retailers optimize supply chains to fend off competition from the e-commerce giant.

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