Walmart and Amazon have been at the forefront of pushing the supplier requirements and innovating their supply chain management to be able to respond to the increased customer demand for fast delivery and transparency. As such, both retail giants have moved to focus on automation technology to help with backlogs and better supply-chain management. We did find that geotracking, big data and AI, truck platooning, fully digital supply chains, and the use of robots will be some of the main areas of improvement for main retailers and distributors on the market for the next few years. We also found that in the next few years, there will be a lot of emphasis on tightening the guidelines for supplier delivery in order to better manage their supply chain operations and achieve higher visibility and transparency into their day-to-day operations.
Development of “time of delivery” requirements in the last 5 years
- In 2017, Walmart was the first big box retailer to introduce the OTIF requirements, replacing the MABD requirements for suppliers.
- The aim of the new requirements has been to put emphasis on the content of the shipping and delivering it on time, as there has been a big issue with that in the past.
- If the supplier was not able to comply with the requirements and was either late or the content of the shipment was not properly placed, the supplier was fined a 3% fee of the total value of the merchandise.
- Since 2017, Walmart has actually tightened its OTIF requirements as suppliers have not been able to consistently deliver their shipments on time or consistently deliver full orders. They also decided to split the OTIF in two, separating on time and in full into two separate categories, as it has been challenging charging suppliers for both when a shipment is not correctly handled.
- The food and beverage category in Walmart has been reported to have an OTIF percentage of only 40% while OTIF scores across the board have been as low as 10%
- The new requirements will increase the in-full rate to 97.5% for food and consumables and the on-time delivery will “increase to 87% for full truckload and 70% for less-than-truckload orders on prepaid freight.”
2. Automation Consolidation
- Walmart has also started focusing on introducing a new automation system to help their suppliers with the company’s stringent requirements.
- The program aims to improve the cross-docking backlogs that exist for smaller suppliers.
- In essence, suppliers will be able to use advance shipment notifications to better manage and inform Walmart of the delivery time but they will also have to generate new electronic bills of lading, which are required to move a freight shipment to the consolidation center.
- Walmart will also be implementing an automated counting system that will scan and count the product as it arrives in the center. This means that suppliers will also have to be compliant with the way they label their merchandise in order not to incur any penalties.
- Despite that, suppliers will be able to place larger orders through the system instead of the many small ones under the old manual system.
- Amazon is very adamant when it comes to sustainability and workplace safety.
- All suppliers that work with the company are required to abide by the sustainability requirements set up by Amazon.
- They also have to abide by Amazon’s environmental footprint guidelines in order to maintain their relation with the e-commerce giant.
- To enforce all that, Amazon has set up regular on-site inspections and confidential worker interviews that aim to determine whether the Amazon guidelines are properly implemented.
- However, if a violation of the contract occurs, Amazon does not dismiss their suppliers right away but instead helps them overcome the challenges they are facing that prevent them from implementing the company’s requirements, which is very different from Walmart’s policy of “no disputes”.
2. Automation and specific labeling
- While Amazon heavily outsources its supply chain inventory management, its requirements are quite stringent when it comes to packaging and delivery due to its heavy reliance on automation technology in its distribution centers.
- For instance a shipment must be delivered within 7 days of when the shipment was first placed otherwise it will be rejected.
- Amazon also does not allow shipments to arrive more than 30 minutes late from the registered appointment, otherwise the “freight will be refused at no cost to Amazon.”
- The maximum number of boxes in a single LTL shipment cannot exceed 5,000. For larger requests, a separate inquiry must be submitted.
- Due to Amazon’s high reliance on automation, suppliers must also make sure that their packages are labeled and oriented in a very specific manner in order to be properly scanned and handled by robots.
Trends in Supply Management
1. Increased supplier delivery requirements
- While Amazon and Walmart have been leading in terms of supply-chain innovation, many other companies like Alibaba and Costco, have focused on tightening their supplier delivery guidelines in order to improve the supply chain management and the warehouse effectivity.
- To do that, a lot of the companies are following Amazon and Walmart’s example of implementing stricter and more rigorous guidelines for the delivery of its goods.
- A lot of the retail companies use a variation of Walmart’s OTIF requirements and are following suit to make their process more transparent and efficient.
2. Geotracking implementation
- There has recently been a big push towards implementing more rigorous geolocation technologies to better manage a retailer’s supply chain.
- In essence the goal is to get real-time tracking data on individual parts and goods to improve traceability and transparency.
- Walmart has recently announced that it will be implementing several automation solutions that would allow them to better track and manage their supply chain operations.
- The DoD has also recently implemented a similar technology to manage its 24,000 high-value military assets. While the DoD is not a retailer, it shows that geotracking has tremendous potential to eliminate blind spots and improve in-transite visibility and reliability.
- In essence, geotracking offers “real-time alerts for issues such as tampering, delays or assets that enter or exit predetermined geographical zones.”
3. Big Data and AI
- The use of Big data, AI and machine learning has also been on the radar of many companies, as it can be used with geotracking to further improve the visibility of the delivery process.
- The use of advanced IoT devices allows retailers to gather supply chain information and raw data to transform it into actionable insights that can aid decision-making.
- Another possibility is to focus more on predictive analytics that use machine learning algorithms to complement the geotracking data. This way companies can enjoy visibility into their planned shipments and be able to tell when the shipment left the docks/supplier center, where it is at any given time, and whether it will arrive on time.
- Walmart has already made steps towards implementing predictive analytics through their OTIF requirements but other grocery stores like 7 Eleven have also followed suit.
4. Truck platooning
- Truck platooning is an innovative concept that “allows greater vehicle-to-vehicle communication, enabling trucks to travel at a closer distance than usual while in constant communication.”
- The concept is built upon the idea that trucks traveling closer together will improve the drag and, thus, improving fuel efficiency and reducing fleet cost as drag accounts for 25% of the truck’s fuel consumption.
- While we weren’t able to find any retailers that have noted using the technology, Volvo and FedEx have already run several experiments showing the potential for the technology.
5. Fully digital supply chain
- In a lot of ways, making the supply chain into a fully digital experience is connected a lot to IoT and AI advancements.
- Integrating a fully digital supply chain is highly driven by the changing consumer preferences towards an easier and more efficient shopping experience through digital technologies.
- Incorporating a fully digital supply chain will allow for better management of goods, which, in turn, will be able to provide different services to consumers such as same-day delivery, a fully integrated in-store experience, and so on.
- PwC has noted that incorporating digital technologies into the supply chain can increase a retailer’s revenue by 43% in the long run while decreasing their store and supply chain operating expenses by up to 10%.
- A big part of that is due to the development of warehouse execution systems (WES), which are digital real-time systems within the warehouse “that receive sensor inputs from automation across the system, evaluate according to predetermined guidelines, and respond in near real-time to achieve operational objectives.”
- Retail giants like Costco, Walmart, and Amazon are the biggest pioneers of the move and it is one of the primary reason for their profitability and dominance over the market.
6. Increased use of robots
- The use of robots can be a good replacement for warehouse automation, as they offer flexibility and scalability that increase order picking efficiency and improve accuracy by guiding associates through tasks.
- The great thing about robots is that they are versatile, as they are able to improve logistics and supply chains, perform back-office tasks, improve store operations, be involved in merchandising, sales and marketing, and provide customer-facing experiences.
- The use of robots in the logistics and supply chain can enable retailers to effectively save from “stock-out shortages and losses, and shrinkage due to administrative errors.”
- For instance, Best Buy uses a robot called Chloe that retrieves products from shelves in their warehouse.
- Tesco uses a radio frequency identification (RFID) robots that can scan inventories for their entire store in under an hour compared to seven hours if done manually. However, that ads extra layers of requirements for suppliers as they have to use specific IDs and labeling to differentiate the different products.
While we were able to find that Amazon and Walmart are some of the leaders in changing and innovating the “time of delivery” requirements for supplies and manufacturers, information about future development in that area was harder to come by. We mainly focused on going through industry reports and trusted media sites like Forbes, the Economist, and PwC but we were mainly able to find different trends that are impacting the retail supply chain. We were, however, able to find that it is highly likely that the guidelines on the manufacturer/supplier delivery will tighten in the next few years due to low yields and noncompliance from suppliers by analyzing several press releases and publications from Amazon and Walmart as well as industry reports. We chose six different trends that are most likely to impact the requirements in the future by going through several industry reports and choosing the ones that were mentioned the most.