Congratulations! Your products have been deemed a good fit for nationwide customers, and your business is worthy of partnerships with giant retail outlets like Publix, Walmart, Kroger, Amazon, Albertson’s, and Aldi.
We know that all the distributors and retailers you sell wholesale to are important but landing a major “big box” retailer is a bit more specialized. Whether you’ve just started, or have been a supplier for a few years, it’s a different business to the one we all grew up with. While the pressures a big box store faces are the same as the rest of the retail sector, the scale of its operations is much larger and the competition is more intense. Its size is a double-edged sword—its footprint of stores and operations means there are more places to be affected by market disruptions, yet it has the resources to not only weather the storm, but profit from it too.
While there are many advantages to being a supplier to a major retailer, the opportunity often comes with its own unique challenges. These retailers often demand a lot of their suppliers and are quick to issue fees and chargebacks if you don’t meet their demands. To be successful as a big box supplier, you need to spend some time educating yourself about the challenges major retailers face in today’s marketplace and what that means for the companies that partner with them. Additionally, there are some proven tips and tricks to help you navigate these challenges and get the most out of the relationship.
The situation today
The retailers that came to power in the 1980s and 1990s with the advent of the “big box” need to innovate because they face a very real threat: Amazon and the rise of omnichannel retailing.
Amazon has been at the forefront of a revolution in the consumer shopping experience. They offer one-click payments, same-day delivery in certain geographies, multiple delivery and collection options, and even dash buttons. All of these features are reshaping customer expectations. Amazon’s dominance of the retail landscape, especially during the 2020-2021 pandemic, has been nothing short of epic.
This has forced many retailers to revise how they serve customers, by switching from building stores to focusing more on e-commerce to drive growth. That does not mean that retailers are abandoning their brick-and-mortar business. Having stores across the country allows companies like Walmart to be closer to more people in the U.S. than any other retailer. In 2020, the mega-retailer has a 15.9% market share, versus Amazon’s 8.8% market share. So, although Amazon offers a great experience, large retailers are closer to consumers. A customer can find anything in Amazon and get it the next day. With a Walmart down the street, if a product is in stock, that same customer can get it same-day pickup.
That means that it is essential to big retailers for products to be in stock. As Steve Bratspies, the chief merchandising officer for Walmart US, told the Wall Street Journal, “When we receive the product that we ordered, we see better sales.”1
In other words, if a customer cannot find what they want, they will go somewhere else. Not only does the retailer lose that sale, it also loses the opportunity to sell complementary products, or perhaps something that simply catches the shopper’s eye on the way to the checkout.
So, retailers will do everything to make sure that their shelves stay full and that customers can find what they want, when they want it. It is here that suppliers come in. If not enough stock is ordered, that’s a retailer issue. But if not enough stock is delivered at the right time, that’s a supplier issue. At the same time, as brick-and-mortar retailers look to economize, they’re rethinking where they hold stock. Retailers are using their stores as warehouses, primarily to avoid the need for additional warehouse space. This tactic makes them more cost-efficient and agile in the current market. It is also why OTIF (“on time, in full”) is so important to retailers. To deliver efficiencies in their extended supply chains, retailers are holding less inventory in each of their consolidation centers and distributing it evenly using the actual store locations.
Ramifications for suppliers
So, as retailers seek to compete with Amazon (and Amazon itself seeks to continue to stay in front of competitors and continue to push the envelope), they find themselves operating in an environment of ruthlessly seeking efficiency.
That means as a supplier, you must deliver when Walmart (or whoever the major retailer is) wants it, not when you feel like it. That’s because your flexibility eats into retailers’ margins. It’s where the measurement of OTIF comes in—delivery on the actual due date, with exactly the right amount. There is no grace period, and there’s limited leeway.
If suppliers struggle to comply, then chargebacks kick in. For Walmart that currently means 3% on all shipments below the threshold of 98% accuracy. (Amazon, with its must-arrive-by-date mandate, may appear slightly more lenient, but it has a similar level of chargeback on both late and early deliveries.) On top of that, Walmart charges a levy of 2% for purchase order (PO) and advanced ship notice (ASN) violations (such as failing to confirm a PO or not sending an ASN in good time).
This 98% expectation covers all Walmart categories (general merchandise, consumables, food, and health and wellness) as well as all transportation methods (such as prepaid, collect, full truckload, and less-than-truckload). Any performance falling short of the 98% goal will result in penalties charged back to the supplier.And it keeps getting trickier. Historically, suppliers were judged on how consistently their deliveries were on time and how complete they were. Now, those two parts will be evaluated separately. As a result, suppliers need to have data that can be fed back into a stringent evaluation process to identify further efficiency opportunities.
Suppliers face additional challenges (and opportunities) as their big box retailers become international operations. For example, as you grow within Walmart, there may become opportunities to supply its subsidiaries in Canada or even further overseas. However, these opportunities bring mandates to comply with local regulations and legislation, both in terms of your products and your business practices.
Combine all these strict freight and distribution requirements with the effects of COVID and the resulting capacity crunches, and suppliers are definitely feeling the pressure.Drilling further down
So far, what we’ve discussed applies to all shippers. Yet every business is different, and there will always be specifics that only certain types of suppliers need to focus on. In this section, we’ll take a brief look at three types in particular: newer consumer packaged goods (CPG) companies, less-than-truckload (LTL) shippers, and those dealing in perishables (such as fresh food).
Newer CPG shippers. With the introduction of consolidation centers and the end of stores holding inventory, the onus of predicting consumer demand is passed on to CPG companies. As a result, even if you do not sell direct, you now need to know who your end customers are, how they shop and when, and what might lead to spikes in demand. Handling spikes in demand, such as what we saw during the COVID pandemic, is a challenge for all CPG shippers, but it is particularly challenging for those newer businesses that lack the capacity that more established brands may have to store safety stock. If you are not able to bear the cost of holding extra inventory, it is crucial that you have really clear insights into your end customers, coupled with efficient internal processes and a lean supply chain. Falling afoul of chargebacks will quickly eat into profits, making it vital that shippers can accurately predict consumer demand.
LTL shippers. If you’re an LTL shipper, you may be saving money by not paying for half-empty trucks, but you have less control over how the carrier gets to your distributor compared to if you were a full-truck shipper. Have you looked into consolidation options? Deciding the financial breakeven point for parcel, LTL, or consolidation can be difficult, and planning for these different modes is challenging. That means you may have to build in additional time to your shipment planning to ensure that you comply with OTIF, which will have ramifications for your own production processes and supply chain.
Perishables shipper. While targets may be tight for long-life or nonperishable goods, OTIF goals are even stricter for suppliers that deal in products that have a limited shelf life. That two-day window becomes one, which puts the emphasis on the shipper to be absolutely accurate with its deliveries. Food and drink—particularly those that need to be kept in controlled, refrigerated environments—need to be on the shelf for as long as possible, in order for them to be available as long as possible to customers. If they get closer to “use by” or “best before” dates, consumers are less likely to purchase them, leading to last-day discounting and wastage.
The upside
Given all these requirements, it might seem like becoming a grocery or superstore chain supplier is nothing but hardship and facing the constant threat of chargebacks. While it may be challenging, it’s also a golden opportunity to get your products into the hands of millions of consumers at hundreds and thousands of stores, both in the United States and abroad.
It isn’t all about the sales opportunity, however. With retailers looking for efficiencies, suppliers are forced to either follow suit or fall off. By aligning your own systems and processes with the demands of OTIF, you will end up a leaner, meaner, and more competitive machine. This means less wastage in your operations, resulting in less outgoings and more profit.
At a time when all sectors are undergoing huge disruption, this streamlining sets you up to thrive, rather than simply survive. While it is demanding, the practices and processes that you adopt will unlock long-term gains for your business.
To help suppliers with that process of optimizing their operations and satisfying these important customers, we have assembled 13 ways to turn a good supplier into a great one:
1. Take advantage of the data. Most major national retailers want their supply chain to be as efficient as possible, so they are willing to share the data they have to help you shape your operations. This can provide you with an opportunity to learn more about your end customers. If you don’t sell direct, it can be a challenge to get tangible customer intelligence. Major national retailers, however, are often more than willing to share information such as on-shelf availability and point-of-sale insights.
2. Work from the customer backward. If you don’t want to suffer chargebacks, you need to think about your timings from the end customer backward. The customer buys your product after it’s been on the shelf “x days,” so how long prior to that do you need to be delivering it to the distribution or consolidation center? How long does it take to get from your warehouse to that point?
3. Trust but verify. Chargebacks hurt, so make sure they’re justified. Big box retailers may be huge, but they aren’t infallible. They use a lot of automation, which means sometimes chargebacks are applied due to mistakes in their processes, rather than your failed compliance. For instance, a carrier may have delivered your shipment OTIF, but the distribution center (DC) may not have unloaded it that day. The only way you can contest a chargeback, however, is to have full and complete records of your own showing how you delivered OTIF against the buyer requirements. Having a trusted logistics partner to audit your scorecard and compare it to carrier manifests is critical and could be the difference between receiving a chargeback and having the proof needed to challenge it successfully.
4. Plan your load to match your customer’s needs. If you supply multiple products, think about how they are loaded on the pallet or in the truck. It’s no good having the back half of the truck full of products for distribution centers further down the line, or shorter life products nearer the bottom of the pallet.
5. Consider the box. People need to know what’s inside your boxes and packaging. That means distribution center employees, yes, but it also means customers. How will it look on the shelves? At Walmart’s Supplier Summit 2019, former CEO of Walmart US Greg Foran said that packaging should be designed not just for impact but also for efficiency. Fonts should be large and easy to read, and bar codes should be easy to find.2
6. Look for ways to cut down on transit time. Fuel and transport costs are the great unknown, tied to everything from crude production levels to the political situation in the Middle East and South America. With so many factors out of your control, you want to optimize those factors that you do have control over. One way to cut down on travel time and cost is to limit how far away your inventory is from your customer’s warehouse locations. If Walmart is selling your product predominantly in California, why not get as close as possible to the Colton, California, consolidation center? Limit the variables and you have a more efficient operation.
7. Keep an eye on LTL delivery appointment scheduling. Most LTL carriers will not allow you to pre-schedule appointments, preferring to wait until your freight has arrived at the consolidation terminal to schedule deliveries. It will then be co-loaded with other deliveries bound for your customer, with appointments based on the trailer the carrier has allocated for that day. It’s therefore vital that you—or more likely your logistics partner—can work closely with both the carrier and the scheduling system to make sure your deliveries are scheduled so that they meet your OTIF goal. By doing so, you will be better placed to identify exceptions (such as when the carrier cannot accommodate the delivery) and to adjust your OTIF goal without penalty. Most suppliers don’t realize this adjustment option and miss the opportunity. It is important to note, however, that adjusting OTIF must not be abused and is for exceptions only. Your lead logistics service provider is expected to have the right connections and expertise to manage it professionally.
8. Don’t base carrier decisions solely on cost. Mode selection is critical. Having a partner that can help you plan parcel, LTL, and consolidation is a key to overall success. Reliable carriers are worth their weight in gold. We have heard horror stories about carriers and shippers that fall into a tense relationship because neither can clearly understand what the other is actually trying to achieve. The number-one mistake people make when selecting a carrier is to think that being efficient equals choosing the cheapest option, when it’s actually about having every part of your chain operating reliably. There are carriers that will drop prices to get business on board. Ask yourself: If you’re viewed simply as a low-paying customer needed to fill a lane or load, will your OTIF compliance be the carrier’s top priority? You want a good price, certainly, but it’s more important to find a partner that’s aligned with your objectives.
9. Embrace digital: Every big box retailer is investing billions in its technology; that means manual processes and paper documents are disappearing. Digital tools like electronic bills of lading are becoming the norm. You can’t operate a 21st century business using 20th century tools. To compete in today’s market, you’ll need the right technology underpinning your operations. Your technology needs to provide a foundation that gives you visibility and control and allows you to see and optimize every aspect of your business. Technologies such as tracking and other digital freight tools help give you control. Do you really want to be the only shipper that has a paper docket while the rest are on the trucker’s mobile device being quickly and easily scanned at the dock or DC?
10. Ensure everyone lives by OTIF. It’s all well and good that your logistics team is being held to OTIF, but when the penalties impact the rest of your business, isn’t it really a matter for everyone to pay attention to? Everyone should be working back from the customer, not just the logistics team. The production team, for example, should realize how its decisions and actions affect OTIF. If you’ve got a lead time of two weeks to produce new stock, that’s not just a manufacturing factor, it’s a supply chain one too.
11. Let your retailers educate you. Most major supermarket, superstore, and big box retail chains run a sophisticated education network designed to support suppliers. These retailers realize that it’s in their best interest to help you operate to the best of your abilities. Make sure you are taking full use of the classes, academies, and tools they provide.
12. Pay attention to sustainability programs. While OTIF is vital, it’s not the only thing your retailer is concerned with. Nearly every retailer is taking huge strides in making its entire operation as sustainable as possible, which includes setting targets for its suppliers. These requirements are only going to get stricter, so it’s a good idea to know what they are and keep yourself aligned to them. There will come a point where being 100% OTIF compliant, with customers buying your products in droves, won’t save you if you have a huge carbon footprint and are unsustainable.
13. Write a great OTIF action plan. The 21st century big box chain lives on data, which means evidence. Write a great OTIF action plan, and you will have evidence on how you will improve standards. But how do you do that if you’ve not done one before? Googling isn’t an option here—you need qualified, experienced support. Hiring the right people is one route, but they won’t come cheap, and can you justify having them on staff as permanent employees? Another option would be to outsource this task to a competent third party—one that has experience helping suppliers build efficient supply chains for a major retailer. Having a supportive partner that has done this, time and time again, for all sorts of different businesses and sectors, means you get access to the right experience and support, tailored to your unique requirements.
Get to work
As we said before, the hard work starts now. Remember, you aren’t alone—many CPG companies experience difficulties keeping up. Walmart raised all OTIF expectation percentages as of September 15, 2020, and compliance stands at 98%. Walmart and other big-box retailers, however, want you to do well, so listen, learn, and take the opportunity that awaits.
Look at your own network—your own suppliers and operations—and see how they can work together to support your business with big-box retailers. Technology and the nuances of logistics and supply chain operations are vital here. Working with partners that have the connections and first-hand experience and understand both the business and technology can make the difference between success and failure.
Notes:
1. Jennifer Smith and Sarah Nassauer, “Walmart Toughens Delivery Demands for Suppliers,” Wall Street Journal (March 6, 2019): https://www.wsj.com/articles/walmart-toughens-delivery-demands-for-suppliers-11551914501
2. Kim Souza, “Walmart supplier summit focused on wining at omnichannel growth,” Talk Business & Politics (February 28, 2019): https://talkbusiness.net/2019/02/walmart-supplier-summit-focused-on-winning-at-omnichannel-growth/?fbclid=IwAR1nIFx5ZXM0O4QzNZgI6i6unnMlHhYWeegKt7vOiChc6xIMZjzCq44NyLU
