Lately, many suppliers have noticed an uptick in SQEP and OTIF fines from Walmart, and many are wondering what’s behind the increase. Today we want to shed light on the state of supply chain standards at Walmart, including common fine types, top causes of fines, and how suppliers can prevent fines in the first place.
What are the most common fees issued for SQEP and OTIF violations?
SQEP: Walmart issues deductions on a monthly basis for SQEP defects, and fine structures are dependent on the type of defect.
OTIF: Walmart issues deductions on a monthly basis for poor OTIF performance (if that particular month falls below the goal, which is typically 98%) and uses a 3% COGS calculation on cases unfilled or early/late.
What’s actually behind SQEP and OTIF fines?
Once you know what kind of fines you’re facing, you might wonder what the big deal is. Why is Walmart bothering to fine you for compliance with these standards, and why have they been increasing lately?
SQEP: Compatibility with automated systems
At recent Walmart supplier events, leaders showcased Walmart’s recent significant investments in DC automation through their partnership with Symbotic. These new automated ways of working include features like automated receiving, palletizing, and depalletizing. These automated systems require suppliers to strictly comply with standards for packaging and pallet quality to ensure that products can be processed at the automated DCS—non-compliant inventory cannot be received by the new systems. Tom Ward, Chief eCommerce Officer, said, “We’re building capacity and automation to increase the speed of fulfillment—we need you to meet us there.”
These new systems require accuracy in:
- Purchase orders
- Pallet quality
- Load stability & segregation
OTIF: Fill rate issues
Fill rate issues due to supply chain pressures on raw goods and manufacturing continue to be the top causes of OTIF fines. Additionally, suppliers getting items delivered On-Time is still being challenged by limited appointment and equipment availability and increased on-yard dwell times.
How can suppliers prevent SQEP and OTIF fines?
- Review Walmart’s Supply Chain Standards to make sure all your pallets, labels, and packaging are meeting the guidelines. Pay close attention to the specifics of what is required to be included on labels and carton markings.
- Monitor the Fix-It Portal to understand what defects are happening at the DC level and provide correction to the tickets you receive. This is the best way for suppliers to understand what auditors are seeing at the DCs and to partner with Walmart on finding or creating solutions.
- Proactively communicate any qualified exemptions to Walmart.
- Make use of PO Cancellation codes to attribute accountability to the right part (Walmart or Supplier).
The bottom line: the customer experience
Behind the SQEP standards, automation, and OTIF fines is one goal for Walmart—creating a fast and frictionless shopping experience for the customer. Faster speed to shelf is more important than ever. To achieve this, Walmart needs items to make their way to the right store, DC, or FC on time, in the right quantities; they need them to be packaged, palletized, and labeled correctly so they can be processed quickly on their way in so they can quickly make their way out of the warehouse, onto physical and digital shelves, and into the hands of the customers who need them.
How Harvest Group can help
Our team is proactively communicating with our clients about potential SQEP and OTIF fines and keeping them informed about changes taking place in the SQEP program. We also constantly monitor defect trends within the SQEP dashboard and work with suppliers to create solutions and mitigate the risk of fines.