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A recent article featured on the ASQ (American Society for Quality) web site and originating from the Arkansas Democrat-Gazette notes that Wal-Mart has tightened its delivery windows for suppliers. Wal-Mart will impose a 3% penalty, based on cost of goods, if a supplier shipment arrives at a regional distribution center outside of a prescribed four day delivery window, either early or late.
The notion of delivery penalties is not new in retail but the fact that Wal-Mart has now tightened the window has a lot of connotation for many suppliers to retail. As Wal-Mart goes, so does the rest of the industry. This strategy is driven by Wal-Mart’s desire to continue to decrease its own inventory levels, transferring that burden to suppliers.
The article rightfully points out that Wal-Mart usually does not tighten-up policies without the input of suppliers. However, as we all know, big business and large volume suppliers tend to have much more influence than smaller suppliers. Large global CP firms such as Colgate Palmolive, Kimberly Clark, Procter and Gamble and others have dedicated supply chain planners who can tap into Wal-Mart’s Retail Link information system, as well as various sophisticated supply chain planning, replenishment and logistics systems to coordinate and track shipments. Small and medium business oriented suppliers often do not have such resources. That thought caused me to ponder that the supply chain stakes for these SMB suppliers continues to escalate, while these same smaller firms stand to lose the most financially with any late delivery penalty as high as 3%.
The Gazette article notes that truckers try to avoid loads that come with built-in penalty fees related to early or late delivery. And why not, since shippers can often tender a shipment at the last moment expecting or even demanding that a carrier expedite a shipment, irregardless of weather or other unplanned conditions along the route. The notion of the “last mile” is often interpreted with that game of musical chairs, when the music stops, the entity holding possession is the one out of the game.
As carrier Transplace has done, more and more transportation and logistics providers will need to continue to reach out to shippers and suppliers in providing more “predictive” reporting relative to exception events. But all of this information needs to be captured in a supply chain information repository. With these higher stakes, SMB’s themselves will need to focus more on “predictive’ rather backward looking planning processes. Today it could be Wal-Mart’s delivery window, tomorrow it could be a major customer in a foreign market.
The use of MRP or MPS planning logic which attempts to satisfy a customer delivery date without factoring all sorts of dynamic and often changing constraints across the entire supply chain can often fail to adopt to strict delivery window needs. Small suppliers can no longer use “rules of thumb” planning, such as it usually takes n days of ship time, or production has always required two weeks or order lead time. A more predictive planning tool is often a better alternative, one that allows rapid re-planning based on near real-time events, or that can allow for what-if analysis, when the planning system is alerted to a delay in production or shipment activity. If a supplier stands to lose 3% by being early or late, the planning system needs to be able to factor that logic against all other alternatives.
Before, SMB’s had little choice but to try and swallow a very expensive ERP focused supply chain planning system that was originally designed with classic MPS/MRPlogic, and additionally offered lots of overhead IT infrastructure to maintain. Today, the situation is far different and the good news is that there are more software-as-a-service (Saas) or hosted planning applications available that not only are tailored for SMB needs, but also offer more forward-looking predictive analysis capabilities.
The key takeaway for SMB firms is to get serious about predictive vs. reactive supply chain management and fulfillment capabilities.
Disclosure: Kinaxis is one of other paid sponsors for the Supply Chain Matters web site.