What It Takes To Become A Walmart Supplier
Walmart and Sam’s Club will bring on board literally thousands of new suppliers every year. These new suppliers are only 2% of the manufacturers that attempt to become a supplier to the world’s largest retailer. Manufacturers across the globe work hard to join this elite club. While they will work pricing and sales pitch to perfection, they often over look a critical part of the program every Walmart Supplier must bring to the table to finalize the deal. We are talking about their program to handle returns, end-of-life product, and recalls.
Due to the huge number of companies wanting to pitch their service, Walmart developed a process to “qualify” potential suppliers. This process is detailed and can be difficult to navigate for those who are unfamiliar with the “Walmart way.” Having a product that would look good on a store shelf is just the beginning. A manufacturer’s ability to provide a comprehensive support program for their goods is as important to Walmart or Sam’s as is the item and the price.
Once a supplier has the required paperwork in hand and has completed the online questionnaire, they can then attempt to set up a meeting with a Walmart Buyer. This meeting will determine if your item will be sold in a Walmart or Sam’s club, or not. All the stories you’ve heard about going to the Walmart Home Office to pitch your product are true. For many, their company’s future will come done to 45 minutes with a Buyer who is tired, overworked, and has no time to waste. You have a limited window to get the Buyer excited and you must be prepared to make the most of it.
Just imagine; the meeting is going well, the Buyer seems excited about your item, you talk about price and seem to be close to a deal, then you get blind sided. The Buyer asks, “How are you going to handle returns?” The meeting comes to a complete stop. If you don’t have an answer the Buyer will ask you go do you homework and come back another time. Have fun flying home, knowing that you will have to reschedule another trip to Bentonville and try again to make a deal. All the way home you will be kicking yourself for not having the answers to the Buyer’s questions. If you had a plan to handle returns you would be flying home with a deal.
Within the Supplier’s Agreement, there is a large section that address returns. However, according to Walmart associates this is often overlooked or poorly addressed, which reduces the supplier’s chances of success. You will need to be prepared to quickly explain how you will handle returns and negotiate the terms in the returns section of the Supplier’s Agreement. You will need to have a plan to deal with customer returns, end-of-life, and recalled products.
There are two requirements in the returns section of the Walmart Supplier Agreement, and eleven different variations of returns terms that you’ll need to quickly negotiate with the Buyer. The processes and terms used can vary greatly depending on the product. In addition, the terms for end-of-life and recalls are often different from terms to cover customer returns or damage.
Do not assume that these terms are inconsequential just because they only apply to returned goods. According to a study conducted by the Aberdeen Group in 2010, manufacturers spend between 9% and 14% of sales on returns. Poor preparation and negotiation of return terms can have a huge impact on the bottom line of a new Walmart or Sam’s supplier. In fact, the returns terms can impact a manufacturer’s bottom line by as much as five percent of sales. It is worth the extra effort to get it right.
Remember the motto of the Boy Scouts of America – Be Prepared. If you want to be part of the 2% of manufacturers that become Walmart or Sam’s Club suppliers, do your homework. You will need to have a program to deal with customer returns, end-of-life, and recalls. You will also need to have a competitive returns fee structure in hand and ready to quickly discuss with the Buyer. The purchase price is critical but it is not the only number you will need to have in hand.
To find out more about how the terms and conditions of a Walmart Supplier’s Agreement and the program you will need to have ready for you meeting with the Walmart Buyer, check out our Walmart Supplier Returns Program.
RL Podcast #12 – Tips for Peak Returns Season
In this podcast Curtis Greve shares best management practices for peak returns season. During the first quarter, many retailers and manufacturers will receive 30% to 60% of their total annual returns volume. This is the critical time of year when reverse logistics managers can really add significant value to their company. With the seasonal spike in volumes in both customer returns and recalls, it is important for returns operations executives to focus their teams on the key areas of the reverse logistics process to ensure they maximize the value of assets flowing through the reverse logistics pipeline.
Many returns managers make the cardinal mistake of focusing all their time and attention on receiving product. While receiving is important, that is just the start. If management’s attention stops there, a cascade of issues will irrupt and a lot of money can be lost. In today’s podcast Curtis discusses three key areas that should be top priorities for every returns operations manager:
- Liquidation
- Shipping
- Quality
For over 25 years Curtis Greve and Jerry Davis have ran returns operations for manufacturers and retailers around the world. Listen to today’s podcast to learn critical management tips for peak returns season.
The Reverse Logistics Podcast
The Reverse Logistics Podcast
CES 2011 Report
Jerry Davis and I spent the day working the 2011 Consumer Electronics Show (CES). Reports are that it has record attendance and from what we could tell, that doesn’t seem to be an exaggeration. There is an estimated 126,000 plus in attendance. So 
what are the big items this year? 3D TV’s seemed to take center stage. Every major TV manufacturer had a major display of 3D TV’s .
Other hot items include smart TV’s, web enabled TV’s, and various new tablet PC’s that will compete for IPad market share. Another new interesting line was Sony’s new line of HD 3D digital cameras. Great panoramic 3D digital pictures will be a big hit in my house. Another interesting item was 3D computer screens. This will be great for games, YouTube video’s and other applications.
The attendees have much more of an international flare as well. There were many executives from around the world testing every item they could get their hands on. Everyone had at least one set of 3D glasses that were the give away of choice for a number of manufacturers. I suspect the next big fashion item will be designer and prescription 3D glasses to use while watching 3D TV’s. On a final note, there seems to be a feeling of optimism about 2011. Manufacturers are building inventory and retails seem to be buying. We’ll find out soon enough if the recovery is on way but based on this year’s show, it is looking good.
Christmas Returns Checklist – 31 Things To Do
Whether you are a retailer or manufacturer, Christmas returns are on the way and executives responsible for handling these returns should get prepared. The 31 Point Christmas Returns Checklist below will help ensure that all preparations have been made for processing Christmas returns. There is something to do for every day in December.
The 
Christmas Returns Checklist
- Update defective returns based on sales since Thanksgiving
- Update seasonal recall volumes by SKU and vendor / OEM / ODM
- Review existing processed inventory waiting to ship
- Prioritize shipments by value and cube to reduce inventory and create space
- Contact primary and secondary temp agencies and review requirements
- Review management staffing and organization chart for the first quarter
- Review volume estimates and plans for outbound shipping with carriers
- Contact the provider of storage trailers and ensure adequate supply will be available
- Inspect temporary space that will be used during peak season
- Review plans for temporary space and storage trailers with Loss Prevention
- Contact top 20 vendors / ODM’s to review plans and estimates
- Review manpower plans for quality assurance and inventory control
- Review plans with Systems to ensure NO major systems changes are planned during peak season or with any systems that directly interface with the RMS
- Review plans for leasing temporary fork lifts and other power equipment
- Review all parts supplies and ensure procurement plans and sourcing is ready
- If additional shift are anticipated, procure addition lift batteries if needed
- Review shipping plans and requirements with top salvage buyers
- Review inbound sortation plans and shipping plans with internal Liquidation Department
- Test all risers, security systems, and emergency procedures immediately
- Schedule preventative maintenance ASAP for all equipment and conveyor systems prior to January
- Review first quarter manpower plans by function, by shift
- Review plans & volumes with recyclers and with waste management companies
- Send any special instructions to all stores, branches, etc.
- Notify all stores, branches, customers, and/or vendors contact information during peak
- Review plans of all outsourced repair vendors,
- Get reports of existing backlogs for all repair vendors or outsourced support areas
- Review weekly communications plans with key internal and external teams
- Review aged files for any claims or disputes to clear up prior to year end
- Meet with financial support systems management and review plans
- Contact high volume vendors and ask if they have any plans to shut down during the first quarter for retooling
- Have a merry Christmas! – Enjoy your family while you can!
With a good plan for peak returns season, and working through the 31 point Christmas Checklist, you can be assured the reverse logistics function is well prepared for this most critical time of the year.
How To Develop a Reverse Logistics RFP
You’ve just gotten approval to outsource reverse logistics. The first step is to put together an RFI/RFP and send it out to your evoked list of potential service providers. When developing this RFP, there are basically two approaches companies can take in selecting a third party logistics provider. The first approach is the “Commodity Pricing” approach. This is used by companies that, for a number of reasons, are going to base everything solely on price. The lowest, BELIEVABLE price will get the deal. Most of the Commodity Pricing RFP questions concern establishing credibility and position in the market. Of course, the final version will be based on exacting specifications that require a firm price.
Often the fina
l RFP will have a completed contract that has to have pricing filled in and signed when returned for final review and selection by the buying company. Companies that issue Commodity Pricing RFP’s don’t care how much is profit, what the provider’s cost is, or what assumptions were built in by the service provider. They seldom pay attention to critical elements such as yeild rate, scrap, or disposition statistics. Their only concern is their cost. For some it could be a cost per unit, others look at total dollars out of pocket, and some ask for a monthly dollar amount for fixed expenses and a firm cost per unit based on volume. This approach works great if the solution calls for a “commodity service” that is not customized, and with little or no variation in residual value of goods flowing through the reverse pipeline.
However, if the valuation of returned goods could vary significantly based on how the product is processed, the Commodity Priced approach can end in disaster for both the company and the provider. Disaster strikes when the condition or make up of the goods returned are not as expected. And just like when you drop buttered toast on the floor, it ain’t going to be in your favor. The 3PL ends up either spending a lot more time and money trying to process the goods or they take short cuts to avoid losing their shirts. Regardless, it is a big problem for both the third party service provider and their customer.
The second approach to developing reverse logistics or reclamation RFP’s is called the “Relationship” approach. If you are going to outsource a reverse logistics that requires flexibility on the part of the provider and the rate of variability is high, you want to select a provider that you trust. You will need a provider that will work with you and is willing to agree to contract language that will tie the provider’s interest to your interests. Relationship contracts are often volume based. Many times contacts are cost plus with a budget cap, based on a mutually agreed to set of assumptions. These contracts are much more complicated than a fixed priced agreement but they can result in much better service over the long haul.
Watch out, though, contracts with assumptions and variability require a lot of effort and oversight to ensure everything is on the up and up. If you are outsourcing returns management to an industry expert, you better have an internal expert working for you, otherwise you could be taken to the cleaners. One client was getting charged $400 per hour for additional software customization, even though the contract clearly stated that systems charges were fixed. The customer was “confused” because the contract was cost plus so when the system invoices came through they were never questioned.
If your company is going to outsource and you are developing the RFP or you are ready to select the third party provider, ask yourself the following questions:
- What type of RFP and contract is typical for the industry?
- How much variability occurs that is out of our control?
- How predictable are the basic metrics?
- What is an acceptable yield rate for repaired & refurbished goods?
- What is the expected scrap rate for product by category?
- What kind of additional “value adds” are you looking for the service provider to bring?
- How long do you anticipate the contract and associated relationship to last?
- What was the justification used to get approval for the project?
- What risks can be controlled if included in the contact? Shrinkage, mis-ships, worker’s comp, health insurance increases, union organizing efforts……
For those looking to outsource reverse logistics, take a look at RL Quote on the Reverse Logistics Association’s web site. This is a great tool and can ensure you get access to the best in class service providers in the field of reverse logistics. Their members provide reclamation services, refurbish and repair services, software, operations and consulting. This is the best source to find 3PL’s who specialize in reverse logistics.
The key component in developing an RFP and later, the contract, is to ensure that you have someone on your side of the table that is as knowledgeable as the third party service provider sitting on the other side of the table. There are many details involved in outsourcing reverse logistics. Having an experienced negotiator that understands these details can be worth millions over the life of a contract. If you are equally matched and you end up with a professional service provider that hits it out of the park, the benefits outsourcing will far exceed the expectations.
The Five “Rights” of Reverse Logistics
At the core of every reverse logistics process, there are five fundamentals that you must get right in order to ensure you maximize the value of the assets flowing through your reverse supply chain. By “maximize the value of assets” I mean to process returns the most cost efficient manner that results in the highest net recovery value for each item. In order to do this, you must have the five fundamentals “Right”.
The “Five Rights of Reverse Logistics” are:
Identify the right source of the returned assets – Determining who returned the product is perhaps the most critical step in any returns or reclamation process. In a returns process, the receiving process is what triggers the financial transaction with the customer. The customer can be impacted directly, or in the case of retail returns, the store’s inventory will be negatively impacted. Crediting the right entity for the assets they returned is critical.
Diagnose the right condition of the goods returned – By condition, we are talking about whether the item is new, used, defective, abused, etc. Recognizing the condition will drive proper dispositioning of the goods. Properly diagnosing the condition of any returned asset will impact the OEM / ODM, subsequent recovery rates if liquidated, or will increase disposal costs. If, for example, an item is new and has never been used, it might be returned to the OEM / ODM for full cost credit. But if the condition is mis-diagnosed, it may end up in the dumpster. This results in a loss of value on the item plus additional rubbish removal fees.
Determine the right disposition of goods processed in the reverse pipeline – There are only six dispositions for any asset flowing through any reverse logistics pipeline. The six dispositions are:
- Return to OEM / ODM for full or partial cost credit
- Return to warehouse for distribution next season
- Sold on the secondary market for anywhere between 2% and 90% of original value
- Donated to charity
- Recycled
- Destroyed – sent to a landfill or incinerated
As you can clearly see, determining which “disposition bucket” returned goods end up in will have dramatic impact on whether a company pays additional costs or if they receive significant credit for parties down the line.
Design the right process to efficiently process returned assets in a timely fashion - Returns processing is critical to ensuring companies maximize the value of goods flowing through their reverse logistics / reclamation pipeline. Many companies do not appreciate the importance of timely processing of returned goods. Keep in mind that returned assets are not like wine. They don’t get better with age. Typical returns don’t come in good packaging and their condition will deteriorate over time, as will their value. For example, electronic returns will lose 10% of their value per month on the secondary market. Similarly, the percent of product that has to be recycled or thrown in the dumpster will grow the longer product sits on the dock. Processing goods efficiently and learning to deal with seasonal spikes is critical to the overall contribution from the reclamation center or returns process.
Ensure the right amount is charged to the right party for the processed returns – Once the goods have been received, sorted, and processed, the final step is to ship product to the next party in the reverse supply chain. With returns, this is more complicated than in distribution because the value of the goods will vary based on disposition, the ship to point will depend on the disposition, and the charges for the items depend on the returns agreement and the party receiving the goods. There are some companies that give credit for goods but only want specific models sent back to them. The other models not returned to the OEM / ODM might be recycled, destroyed, or liquidated. The variations are endless and often there are consolidation fees, disposal fees, and packaging fees that complicate the final billing even more.
For the uninitiated, returns can be a confusing and costly part of their supply chain. If, however, you approach developing your reverse capabilities around the Five Rights of Reverse Logistics, you may find significant amounts of hidden profits you can recover.
Two Ways to Process Seasonal Returns Efficiently
For manufacturers of seasonal goods, the biggest challenge when it comes to processing returns is dealing with seasonal peaks in volume. Companies that provide seasonal products can get as much as 80% of their returns within a 30 to 60 day window. Many online retailers and catalogers face the same challenge. High seasonal sales means high return rates in a compressed period of time.
When designin
g a returns processing facility, the size of the facility and fixed assets employed is setup to accommodate roughly 80% of peak volume. While this works well for most companies that have small spikes in their rate of return, for manufacturers of seasonal products, online retailers, specialty retailers, and catalogers this approach would result in having a lot of excess space and equipment for nine or ten months out of the year. The annual costs would be prohibitive and a waste of money.
For companies that must process big spikes in returns volume, there are two options that will be much more cost effective. The first option is to outsource part or all of the processing during the peak returns period. If you are thinking about this option, there are a few things to keep in mind:
- Ensure processing requirements are documented in detail and given to the third party processor prior to any pricing or contract development
- The documented processes should become part of the contract as a defined scope of work
- The scope of the project must be clearly defined with estimated inbound volumes, outbound volumes by processing category, pricing, approval processes, start and end dates
- The third party must guarantee a minimum amount of processing space and storage space at a specific location
- Pricing should be a flat monthly rate for fixed expenses such as rent, utilities, etc, plus a cost per unit for each disposition – scrap, refurbished, new, clean, or what ever the various conditions of the goods you expect to receive
- Expectations for “A stock”, “B stock”, “Scrap”, and overall yield rates should be clearly stated and pricing should be based on these expectations
- Startup costs and decommission costs should be clearly specified
- Productivity incentives and penalties based based on volume adjusted budgets should be included in the contract
- A clear change order process must be documented to address any unanticipated processing requirements that may be outside of the scope of the agreement
- Ensure appropriate insurance coverage is in place for the inventory that will be processed
- Avoid any lean provisions that might impact how processed inventory is handled, this includes specifically baring the third party from holding merchandise over payment disputes etc.
- Develop a communications plan that will provide direction to customers, vendors, suppliers, and internal team members
The second option to consider is to set up and operate temporary return centers yourself. In order to seriously consider setting up a temporary facility and operating it internally, you must have the infrastructure to support the operation and the management that can focus exclusively on the temporary operation. Once you determine you have the internal support needed and the leadership, you will want to ensure you keep the following in mind:
- Define capital assets and personnel that will be required for each week the temporary facility will be open
- Define lead times and availability for both, in detail
- Identify sources for fixed assets and facility labor
- Develop contingency plans for space, equipment, temporary employees and management in case volumes are significantly higher than anticipated
- Identify SPOC (single point of contact) to plan, oversee and report on the project
- Ensure lead times for identification and contracting of temporary space, equipment, and employees are sufficient
- Identify mile stones from the start of planning to decommissioning
- Establish weekly meetings/calls to communicate progress in planning, startup, processing, and decommissioning of the temporary facility
- Define “Red Flag” process that will be used to communicate issues during the event
- Develop a communications plan that will provide direction to customers, vendors, suppliers, and internal team members
Whether you choose to outsource seasonal returns’ processing or set up a temporary solution and manage it yourself, one of the best things you can do is to conduct an “After Action Review” within 30 days after decommissioning. This meeting should include everyone who had anything to do with the temporary facility and notes should be taken and sent to everyone to ensure they improve the process the following year. Whether you are going to outsource or do it yourself, the key to handling seasonal returns processing successfully is to “Plan Your Work and Work Your Plan.”
Rx Recall Rule #1- Do the Right Thing
In a previous post, the importance of having a well defined recall process in place was discussed at length. Our series on “Five Components of a Recall Action Plan” pointed out that the most important component of any recall process is communications. This is true for any manufacturer involved in any recall but especially for drug manufacturers involved in a recall. Perception is often more important than reality when it comes to how a recall is processed. Perception is nothing more than the reaction to the manufacturer’s communications concerning the recalled product.
A good exam
ple of this is the recent noise out of Washington DC concerning a recall of Motrin tablets by Johnson & Johnson. In a recent article titled “U.S. House Widens Inquiry of J&J’s ‘Phantom Recall’ by Drew Armstong appearing on Bloomberg.com, J&J is pummeled by a Representative Edolphus Towns, a New York Democrat and the committee chairman of the The House Oversight and Government Reform Committee – “Rather than doing the right thing and announcing a recall, we have learned that the drug company hired contractors to basically sneak into stores to purchase the products as if they were legitimate customers…”
The actual facts have yet to come out and J&J is not talking to reporters. The impact, however is significant, even if the “phantom recall” was real or not, or if there are adverse reactions to the recalled Motrin or not. According to the article on Bloomberg.com “J&J shares declined $1.76, or 2.9 percent, to $58.01 at 4 p.m. in New York Stock Exchange composite trading. The company has declined 9.8 percent since the recall of the children’s medicines was announced.”
J&J is a reliable, honest company. Inmar, the company that was described as “sneaking into retailers” is a top notch 3PL and very honest as well. Based on my experience with pharmaceutical recalls, there is a very high likelihood that the Motrin in question poses no risk to the public at all. There is also a greater likelihood that the only reason this is in the news is for headlines and political gains at the expense of J&J.
While the details of what J&J really did, along with their internal and external communications are not public record, it is clear that appearing and actually being completely open and honest is their only path to avoid future problems. As pointed out in the article, the facts are going to come out sooner or later. The impact poor communications and attempting to cut corners to get a product off the market is clear. As pointed out in Mr. Armstrong’s article “You’ve got a company that’s considered one of the premier companies, that’s spent something like 100 years building its reputation,” Les Funtleyder, an analyst with Miller Tabak & Co., said yesterday in an interview. “This is the kind of thing that can hurt that.”
Dealing with the public fallout over this recall is one headache that J&J can’t cure with a couple of Motrin.
Reverse Logistics Podcast #9 – Merchandise Exit Strategies
The most important question that an executive in charge of reverse logistics can ask about a new item is “What is the merchandise exit strategy?” It is easy for a company to get excited about a seasonal item or the newest widget in their product line, but it is important for them to think about the exit strategy. Just like an investor who is going to acquirer a company, manufacturers and retailers need to have a clear exit strategy for their goods.
In today’s podcast, Curtis Greve talks about how to develop an exit strategy for products and critical factors to consider when working within an organization to develop merchandise exit strategies. Whether it is a seasonal item that is part of a guaranteed sales agreement, an item with a limited life span like a computer or fashion item, or if it is an item that is coming to the end of it’s life and is going to become obsolete, having a well thought out exit strategy could significantly improve that item’s contribution to the bottom line.
The Reverse Logistics Podcast
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