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Fines seen to raise Walmart prices

Experts review retailer’s penalties for suppliers’ shortfalls by Serenah McKay | May 12, 2021 at 2:12 a.m.

The fees Walmart Inc. imposes on suppliers that don't deliver goods on time and in full are among the many factors that have shoppers paying higher prices at checkout, retail supply-chain experts say.

With the nation's economy gradually reopening as the number of covid-19 cases fall, retailers continue working hard to keep their stores and e-commerce sites stocked. But suppliers are squeezed between trying to meet that demand while seeing their own costs rise.

An article Friday in The Wall Street Journal said suppliers have had to raise prices on consumer goods because of retailers' on-time and in-full fines. Retailers then pass along these increased costs to customers, the article said.

But Donnie Williams, executive director of the University of Arkansas' Supply Chain Management Research Center, said it's not as simple as that.

Prices vary according to the cost structure throughout the supply chain at any given time, Williams said.

"The reality is right now, costs are increasing across the supply chain in terms of raw material costs, labor costs, transport cost, and yes, on-time in-full costs if suppliers can't meet the key performance indicators that are being implemented by retailers," Williams said.

"If suppliers are seeing an increase in their costs, they will have to pass those along to the retailers, who will have to pass it on to the consumer," he said.

Bentonville-based Walmart started its on-time and in-full program in 2017, and the benchmarks for deliveries to distribution centers have gone up several times since then. Suppliers that don't meet the current delivery threshold of 98% are fined 3% of the value of the goods that miss the target.

The company waived the penalties in the early days of the pandemic as panicked shoppers picked store shelves clean. But Walmart reinstated the fines in June, according to a letter Walmart sent to suppliers in August. The letter thanked suppliers "for your continued focus on stocking our stores and together we will continue to make an impact on behalf of customers."

Walmart sent suppliers another letter on Sept. 1 informing them of the new 98% requirement for both on-time and in-full deliveries that would start Sept. 15. That letter was from Scott McCall, chief merchandising officer for Walmart U.S., and Greg Smith, executive vice president of Walmart U.S. Supply Chain.

At the time, a spokesman for Hub Group, parent company of logistics firm CaseStack, said the 98% benchmark would pose a challenge for suppliers because the pandemic had put many of them behind in production and had changed shopping behaviors.

A Walmart spokesman said Monday that the company appreciates its suppliers "and the work they are doing to help improve availability by ensuring that all the products we've ordered accurately arrive on time for the customer."

"The customer is at the center of everything we do," the spokesman said, "and one of the best ways we can help them save time and money is by having the products they want, when they want them, both online and in stores."

Williams said Walmart was an early adopter of on-time and in-full, and many companies followed suit. According to supplier consulting firm MVP Logistics, such programs are "the next step for big retailers."

MVP Logistics defines "on time" as meaning the manufacturer or other supplier delivers its items on the prearranged day. "In full" means the full purchase order is delivered.

Formulas for calculating on-time and in-full vary according to an organization's goals, the company said, but in general they measure the efficiency and accuracy of delivery or logistics in the supply chain.

That lack of a standard calculation for on-time and in-full across the retail industry is problematic for suppliers, Williams said, although the metrics are similar.

The idea behind on-time and in-full is ensuring product availability on the shelf for consumers, Williams said.

"If suppliers struggle to get their products to the retailer consistently on time and with the full order of inventory, then the retailer will pay the the ultimate price by losing a customer," Williams said.

"The fines, in essence, ensure the retailer gets the inventory that it ordered from the supplier, in hopes that the supplier doesn't give the inventory to a competitor," Williams said. "It's a bit of gamesmanship, but a very real issue in a competitive retail environment."

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