Like most shippers, Wal-Mart Stores is looking for a delivery guarantee from its suppliers. Unlike most others, the world’s largest retailer now is demanding one.
While many retailers were scrambling last week for any space they could find out of Asia, Wal-Mart implemented its strongest delivery requirements yet on suppliers in the United States, imposing new deadlines for getting goods to distribution centers as well as tough penalties on those that miss the mark.
As of last week, U.S. companies shipping goods to Wal-Mart distribution centers must begin to deliver within a four-day window leading up to a “must arrive by date,” or what the company calls its MABD. The requirement will initially apply to suppliers shipping prepaid and truckload freight to Wal-Mart DCs.
Those who deliver less than 90 percent of their loads each month within their delivery windows will be assessed a “reimbursement” charge totaling 3 percent of the cost of goods sold. The charge applies to shipments arriving before the four-day window closes — called “MABD-3” — as well as after the deadline date, Wal-Mart spokesman John Simley said.
It’s a tough requirement and because of Wal-Mart’s outsized scale, the requirements and the push by a large range of shippers and carriers to meet them will reach deep into supply chains across the country and overseas. The latest action by a company famously innovative — some might say obsessive — about gaining control of its supply chain also is being closely watched in a retail business increasingly focused on tight management of distribution channels.
“This is about trying to maintain a steady and productive flow of goods through the supply chain, so we’re ready to receive the things we’ve ordered,” Simley said. “Anything that deviates is a problem. ”
Other retailers have similar MABD programs, Wal-Mart points out, but Wal-Mart’s size — it imported 720,000 TEUs of freight in 2008, 62 percent more than Target, the second-largest containerized importer — magnifies the mandate’s impact.
Shippers will have to adjust their ordering, production and shipping schedules to meet Wal-Mart’s deadlines, and work with trucking partners to expedite freight. Shippers doing business with Wal-Mart may have to impose new delivery targets on their own suppliers and improve their sourcing and demand forecasting, driving efficiencies out from receiving docks across supply chains.
The mandate will force some suppliers to rethink how they ship to Wal-Mart, said James Harris, president of High Impact Analytics, a consulting firm that specializes in helping shippers comply with MABD programs at Wal-Mart and other retailers.
“First, suppliers must evaluate their data to make sure they have correct lead times” for each site they ship to, he said. Some shippers may want to make fewer shipments to build greater truckload density, and add a “grace period” when shipping to locations where they’ve had difficulty making delivery targets. “You may have to work with Wal-Mart to change the way your products are routed through their supply chain, and that’s going to be a difficult conversation for some suppliers,” Harris said.
Unless they’re flexible enough to adapt to Wal-Mart’s mandate, shippers will have more than costly penalties to worry about. They risk losing Wal-Mart as a customer. “The vast majority of our suppliers are pretty good,” said Simley, who expects penalties to be rare. “There are some who have opportunity for improvement.”
Shippers are certainly concerned, said a trucking executive who requested anonymity. His company provides transportation services to Wal-Mart and its suppliers.
“This is definitely one of those examples of how when Wal-Mart hands down a requirement, people rush to comply,” he said. “It is going to necessitate that carriers and suppliers work even more closely together because there’s so much at stake.”
The program raises many questions for shippers, said Steve Banker, an analyst with ARC Advisory Group. “If a supplier gets penalized for poor carrier performance, will it pass the penalties along to the carrier? How would this influence carrier procurement?” he asked in ARC’s Logistics Viewpoint blog.
Shippers will have to consider carefully which carriers they use to ship to Wal-Mart, and may have to work new language on liability for shipments that miss their MABD into carrier contracts.
Can Wal-Mart charge shippers a “reimbursement” penalty? If they’ve hired the carrier that arrives late, yes, Simley said. “If Wal-Mart hired the carrier, then they’re off the hook,” he said.
That may be an incentive for some shippers to give Wal-Mart greater control over its inbound inventory and let the retailer pick up freight at their loading docks using its own for-hire carriers or private fleet. “If they don’t have a truck, we’ll come and get it,” Simley said. Wal-Mart’s 7,200 tractors give it the fifth-largest fleet of trucks in the country, according to SJ Consulting estimates. “We’re trying to schedule full-load shipments throughout our system,” Simley said, and hauling more freight from suppliers would help fill more of its trailers.
That effort to consolidate more loads into full truckloads is part of Wal-Mart’s effort to improve its supply chain efficiency and, along the way, improve the company’s environmental footprint.
|When the freight hits the dock, MABD requirements are about who controls the supply chain — the supplier or the customer, in this case, Wal-Mart.
Wal-Mart is among a large range of retailers trying to gain a better grip on their own destiny by managing their own inbound inventory. Across the retail industry, suppliers often still choose the transportation vendors that deliver freight to their customers, said Gary Girotti, vice president of the transportation practice at Chainaltyics. Retailers in a weak economy are trying to change that. “Every retailer we’re talking to has some sort of vendor inbound conversion going,” Girotti said.
The MABD requirement is a loading-dock-level extension of Wal-Mart’s overarching strategy to accelerate “speed to market” by streamlining sourcing, procurement and inbound transportation and reducing inventory. It follows and complements many supply chain initiatives, from increasing its use of radio frequency identification technology to hybrid trucks.
Last week, Wal-Mart followed through on plans unveiled last year to consolidate sourcing and increase direct purchasing by creating four Global Merchandising Centers. It also began to integrate its logistics, real estate and store operations divisions in the U.S. and reorganize its U.S. territories.
Even with relatively strong sales in a weak economy, the company is cutting back in some areas — it recently said it would close 10 Sam’s Club stores, in a rare moment of retrenchment. But as it drives down inventory and streamlines its logistics network, Wal-Mart is increasing the variety of goods it sells, including products sold online and delivered to U.S. stores for pickup by a customer. That will make MABD window compliance more critical.
“It all boils down to the customer experience at the store,” Simley said. “Our customers depend on finding products in our stores at the time they need them.”
Trucking companies that haul freight for Wal-Mart’s vendors are working to help them meet the requirements. “We’ve been proactive with our customers who ship to Wal-Mart,” said Ed Conaway, executive vice president of sales at Con-way Freight.
The requirement may also bring an opportunity to bolster beaten-down yields at those trucking companies that can meet the commitments. Shippers “have to decide between two things: either to use a carrier that can make the delivery windows or to get their goods shipped earlier,” Conaway said.
Averitt Express and ABF Freight System have pages on their Web sites dedicated to retail MABD compliance. “We have our own standard operating procedures for MABD shipments, as well as a team of associates dedicated” to MABD compliance, Averitt said on its Web site. ABF created an online MABD compliance planner that helps shippers plan production and shipping schedules for each order based on its MABD. The system can automatically flag Wal-Mart shipments for expedited service.
Wal-Mart’s MABD program does offer shippers some wiggle room, Harris said. “There’s a fair amount of grace built into the Wal-Mart program,” he said. “At other retailers, these programs can seem more like a profit center. Wal-Mart not only provides the details you need for compliance, they provide the tools needed to track compliance.”
Also, shippers wouldn’t be charged the 3 percent penalty unless its total value would exceed $1,000 a month.
“There are some things that are beyond the supplier’s control,” Simley said. “We recognize if there’s a weather event, that it’s not their fault. Ultimately, we’re trying to get the stuff to the store. The only real metric that matters is the customer.”
Contact William B. Cassidy at email@example.com.