The on-time in-full program (OTIF) is a logistics compliance program used by Walmart. Walmart recently moved their target from a 70% on-time in-full to 98%. The 98% target began on September 15th. The memo announcing the change was uploaded on Walmart’s supplier portal on September 1st. The press reported that “the memo sent shockwaves through the supplier community” because there was so little time to move from the 70% to the 98% targets. In addition to fines, suppliers that consistently perform poorly risk having their business with Walmart reduced or eliminated.
Suppliers not meeting the new guidance will be fined 3% of the cost of goods. The suppliers most impacted are smaller manufacturers who ship in less-than-truckload (LTL) quantities. LTL’s carriers on-time performance is much lower than full truckload carriers.
OTIF compliance guidelines are fairly straightforward: the shipment must meet the specific date and delivery windows of the retailer – early arrivals don’t count as being on time, be properly packaged and labeled, and what was ordered must arrive 100 percent in full – not delivering either more of what was ordered or less.
It turns out not all small suppliers – manufacturers who ship in LTL quantities – to Walmart are “shocked” or concerned. I talked to two customers of RJW Logistics Group who believe the mandate is fair and achievable.
RJW does what is known as retail consolidation. Instead of suppliers shipping less-than-truckload to Walmart’s distribution centers, the manufacturers ship full truckloads to the consolidator’s warehouse. As the consolidator’s customers receive orders from Walmart – or other retailers, those orders are combined and consolidated by the consolidator with orders from other of the consolidator’s customers. These orders from multiple suppliers are combined into a single full truckload destined to the same retail distribution center (DC).
RJW has five consolidation centers and one cross dock all located on the same campus in Chicago. Chicago is centrally located in the US. This means no shipment out of their facilities must travel across the country. In total, this logistics provider has 2.5 million square feet of warehousing.
RJW’s CEO, Kevin Williamson, made the point that RJW receives orders multiple times per week from Walmart; this allows them to do more than one shipment per week to a Walmart DC if necessary. Among smaller suppliers to Walmart, one shipment to a DC per week is the norm.
A Midsized Manufacturer Saves Millions
One of RJW’s customers that talked off the record is a midsize business in the food and beverage industry. I talked to a member of the company’s leadership team. Prior to working with RJW this company was paying $300-400,000 in fines – to Walmart and other retailers – for late shipments. They are now paying no fines. The fines were a result of the fact that the LTL carriers they worked with only arrived on time at a retailers distribution centers 88-90% of the time. The executive said, “It would not have been possible to hit these tougher shipping standards using LTL.”
The company saved an additional $3 million once they started working with RJW. They were able to close some warehouses, which reduced their fixed costs. Further, not all these warehouses were optimally located in relationship to the location of their contract manufacturing partner’s plants and the retail DCs they shipped to. Now that shipping is done from Chicago, they have also reduced their transportation spend.
This executive also said that RJW’s systems were well connected with Walmart’s inventory and ordering systems. This supplier used to pull down the orders going to a given Walmart DC once a week, and thus only ship once a week; now they do two order pulls per DC a week and two shipments to most DCs. “There are business benefits for Walmart to this, it reduces their inventory and allows them to do a better job keeping their inventory in stock on the shelf.” This executive views OTIF and other similar retail mandates as “necessary” because the goal is to “please the ultimate customer – the shopper who wants to see their products on the shelf.”
Oceans Halo Begins a Retail Consolidation Program with RJW
“New Frontier Foods is the company, Oceans Halo is the brand,” Robert Mock, the CEO explained. Oceans Halo makes foods with seaweed as a key ingredient. Their product families include nori, the wrapper that sushi is rolled in; noodles and bowls; broths; seasonings, sauces and dressings; and drinks. These are organic products. Nutritionally, they are free from ingredients like soy and gluten, that are problematic to some people. Their foods also provide a salty taste with much less salt than is contained in other foods.
The company is also ecofriendly – seaweed farms require no fresh water, no deforestation, and no fertilizer. Finally, Oceans Halo is committed to ocean conservancy, one percent of their revenues are given back to these causes.
This is a fast-growing company doing business with Walmart, Amazon, Whole Foods, Albertsons, Safeway and Kroger in the US, and Tesco in the UK. The company only directly employs seven people, apart from its joint venture manufacturing relationship – manufacturing, warehousing, and logistics is outsourced. The farming occurs in South Korea, where the cofounders manages the supply chain.
Prior to the relationship with RJW, Walmart trucks were picking up their products at their warehouses. That is not the way Walmart likes to run their supply chain; they prefer their suppliers to ship to them. “They have the most efficient supply chain I’ve come across, Mr. Mock said. “If you can ship product in volume to their 42 DCs, then they give you a supply chain forecast unlike anything we have seen from other retailers. Some say that there are high hurdles for performing well on OTIF. But they give you the tools and visibility to plan. If you are able to use the forecast to plan” your production and shipments, “then what you need is a logistic partner that can execute.”
RJW sees the Oceans Halo Walmart orders every day. “They (RJW) is getting orders every day from us and shipping multiple times a day for us. That is cutting the delivery timeline in half, probably more. Every day we pull a report from Walmart and see if our product is on shelf or not on any SKU in the entire mix of stores we are in at Walmart. We can look for out of stocks every day only because they let you log in.” Many other large retail chains make small manufacturers pay for this type of visibality, which Oceans Halo is not always able to do.
“I have a deep new respect for the kind of visibility Walmart provides. It is the most dynamic supply chain system I have seen. Once you understand how it works, you can plan for it. There are not a lot of surprises. They tell me us what they will order 52 weeks in advance. That is great for planning manufacturing.” The forecast can change due to seasonality and other things. It is not a perfect forecast, “but it sure is close,” Mr. Mock explained.
During the pandemic, Oceans Halo was able to continue to be a reliable partner to their retail customers. On the production side, when their plant in South Korea shut down, their plant in the US was still up. When the plant in the US had to shut down temporarily, the Korean plant was up. Demand for some of their products was spiking, and safety protocols did end lowering production capacity in the US plant. But they worked overtime at the factories and shipped extra inventory to the RJW warehouse. While other food manufacturers were having a hard time securing truck capacity, RJW continued to ship and Walmart continued to receive those shipments. While other food companies were struggling to get their existing products to market, Oceans Halo was successfully launching new products.
Both of RJW’s customers were very complementary of RJW. And both made the point that not all retail consolidators perform as well or are as easy to work with as RJW. Mr. Mock said he was a “fan of RJW and the people that work there. The other executive said “RJW did a great job scaling with our business. Excluding the current year we have been on a 20% plus CAGR for the past five years. Their ability to flex to meet our growth has been great.” This executive also used the word “fan.” “I’m a big RJW fan and a big Kevin fan. (Kevin is the CEO). I’m a glowing reference for him.”