Fines, Fines, Everywhere There’s Fines

Wal-Mart recently announced it is increasing its requirements for suppliers to meet delivery windows to avoid fines.  According to The Wall Street Journal:

At an annual conference for suppliers this week, Wal-Mart executives plan to announce that large suppliers need to deliver full orders within a specified one- or two-day window 85% of the time or face a fine of 3% of the cost of delayed goods, said Steve Bratspies chief merchandising officer for Wal-Mart U.S., in an interview Monday. Previously, suppliers had to hit a 75% threshold to avoid fines. For smaller suppliers the on-time threshold will move to 50%, up from 33%. The change will take effect in April. (WSJ 1/29/17 https://www.wsj.com/articles/wal-mart-tightens-delivery-windows-for-suppliers-1517266620?mod=searchresults&page=1&pos=1&mod=djemlogistics )

Wal-Mart needs to have products on its shelves to compete with online retailers.  Lost sales caused by stock-outs don’t come back.  Wal-Mart also wants its suppliers to hold inventory as long as possible to improve cash flow.  In the world of big data, Wal-Mart is going to manage its inventories as tightly as it can.

Given the freight challenges of today’s environment, this is a pretty big ask.  Wal-Mart’s suppliers are going to push down on their freight companies as well as their suppliers.  My guess is the costs associated with tighter delivery requirements will be absorbed for the first several months until companies figure out the true amounts.  Once they do, costs are going up.  Another arrow in the quiver supporting the “inflation is here” thesis.  Don’t ignore the signs.

If you’ve got time, check out the links for two versions of the song, “Signs,” from which I created my title.  I’m usually partial to original versions but Tesla’s live version is incredible. (It contains explicit lyrics).

https://www.youtube.com/watch?v=bDw4lsPDEho  https://www.youtube.com/watch?v=uYsBDmqJfjQ

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