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OM in the New: Wal-Mart Introduces OTIF Inventory

July 31, 2017

 

Packages move along a conveyor belt inside a Wal-Mart fulfillment center.

“Long known for squeezing its vast network of suppliers, Wal-Mart is about to step up the pressure,” reports Businessweek (July 24, 2017). The focus this time is delivery scheduling, and the company’s not messing around. Two days late? That’ll earn you a fine. One day early? That’s a fine, too. Right on-time but goods aren’t packed properly? You guessed it–fined.

The program, labeled On-Time, In-Full, or OTIF, aims to add $1 billion to revenue by improving product availability at stores. It underscores the urgency Wal-Mart feels as it raises wages, cuts prices and confronts a powerhouse rival in Amazon that’s poised to grow with its planned purchase of Whole Foods. Says a retail expert, “They’re trying to squeeze and squeeze and squeeze.’’

The initiative builds on progress Wal-Mart has made in reducing inventory and tidying its 4,700 U.S. stores after the back rooms became so cluttered it often stored surplus products in cargo trailers parked out back. The new rules begin this August, and the company said they will require full-truckload suppliers of fast-turning items — groceries, paper towels — to “deliver what we ordered 100% in full, on the must-arrive-by date 75% of the time.” Items that are late or missing during a one-month period will incur a fine of 3% of their value. Early shipments get dinged, too, because they create overstocks.

By February, 2018, Wal-Mart wants these deliveries to be “OTIF” 95% of the time. Its previous target was 90% hitting a more lenient 4-day window. “Variability is the No. 1 killer of the supply chain,’’ says a senior Wal-Mart exec. While big suppliers should be able to invest in fancy inventory-management systems to get up to speed with the new rules, smaller businesses will feel more pain. Some don’t even know what “OTIF’’ stands for.

Classroom discussion questions:

  1. What are the implications of OTIF to suppliers?
  2. Why is Wal-Mart introducing this inventory strategy?
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