Wal-Mart Just Turned Up the Heat on Its Vendors to Better Compete With Amazon

Wal-Mart executives will ask vendors to deliver more merchandise on time, or face fines, in effort to keep their shelves stocked and compete with its rival Amazon.

Executives want large suppliers to deliver full orders within a one- or two-day window 85 percent of the time, a jump from the previous 75 percent threshold, Wal-Mart's chief merchandise officer Steve Bratspies told The Wall Street Journal. The window for smaller suppliers will also increase to 50 percent, from 33 percent. Vendors that miss the mark will be fined 3 percent of the cost of the late items starting in April. Wal-Mart executives plan to announce the changes at the annual conference for suppliers this week.

"This is not a 'Hey, let's see how unreasonable we can be,'" Bratspies told the Journal. "We need the product that the customer wants when they want it."

While the new rules are intended to keep Wal-Mart's shelves stocked, they put the onus on vendors to invest more in the supply chains. At a time when freight costs are already rising as suppliers and manufacturers race to find transportation for speedy deliveries, the new requirements are bound to hit with a thud.

"Trying to find a truck in today's environment is next to impossible," Cathy Roberson, an analyst with Logistics Trends & Insights LLC, told the Journal. "Fuel surcharges are going up and the suppliers are going to have to pay all of this." Indeed, the costs attached to last-minute deliveries have increased 20 percent compared with winter of last year.

Wal-Mart executives told the Journal that precise delivery thresholds allow the company to better predict the flow of products while keeping shelves stocked. Wal-Mart first introduced fines for late delivery last year in the hopes of battling against online retailer heavyweights like Amazon.