Wal-Mart has called out its suppliers with new rules, backed up by fines, for vendors that don’t deliver on-time and in-full (OTIF), according to Bloomberg BusinessWeek. The publication reported that the company wants to add $1 billion in annual revenue through increased product availability in stores.
According to the story, Wal-Mart has informed suppliers that they must deliver what was ordered 100% in full, and on the due date 75% of the time. Late or missing items will trigger a fine; early shipments will be penalized too, to reduce working capital outlays and the cost to store and manage excess stock. That’s going to cost some vendors money—Bloomberg reported that OTIF scores were as low as 10% for the company’s top 75 suppliers, and none had achieved Wal-Mart’s long-term target of 95% OTIF.
Supply chain planning and optimization software is key to achieving the full complement of OTIF metrics—delivering the expected product, in the quantity ordered, at the right location, and at the agreed-upon time. These solutions help match production and inventory with forecasted demand, then improve distribution based on optimizing delivery routes and available transport.
That’s not how many companies still plan and schedule today. At ABS, Italy’s top specialty steel producer and part of the Danieli Group, planners were simulating production requirements with spreadsheets, making continuous manual readjustments that were not aligned with overall business goals. Supply chain planning and optimization software vendor Quintiq, part of Dassault Systèmes, worked with ABS to help it hit its target of 100% delivery OTIF. Swift, iterative scheduling and rescheduling based on key performance indicators helped ABS achieve business control and effective response to its dynamic business environment, said Daniela Maucher-Gossweiler, a Quintiq executive.
Quintiq also worked its magic with the ELVAL Group, an Athens, Greece-based specialist in flat-rolled aluminum products and a division of VIOHALCO, a Belgian-based holding company of metals processing firms. Since implementing the software, ELVAL’s backlog decreased by more than 50% and it improved OTIF. It shrank delivery lead times by up to 50% and made big gains in inventory and work-in-process.
These companies don’t deliver to Wal-Mart, but it’s the same equation in CPG: the uncertainty of demand—yet imperative to meet demanding OTIF metrics—makes it essential that companies harness technology. “Computer-based resource optimization running in real time or near real time is the logical answer,” said Kris Kosmala, GM for Asia Pacific at Quintiq. “Along with real time optimization, real-time analytics are a must.” Kosmala added that the optimization engines running inside these solutions must continually improve delivery routes and sequences to deliver at the lowest possible cost.
To achieve OTIF, all functions of the supply chain—forecasting, order receipt, procurement, production, warehousing, and delivery—must work in concert, enabled by planning and optimization technology. For Wal-Mart vendors, the clock is ticking. But that’s true for all suppliers—their customers don’t want to lose sales because they lack inventory, or hold bloated stocks that waste money and space.