The Wall Street Journal reports that companies such as Walmart and Kroger “are increasingly demanding their suppliers deliver on time, imposing fines for late shipments as they try to keep customers satisfied and better compete with online retailers like Amazon.

“Kroger Co. is fining suppliers $500 for every order that is more than two days late to any of its 42 warehouses, and Wal-Mart Stores Inc. is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time, according to the retailers. They began issuing most fines in August.” Walmart reportedly also has indicated that offending suppliers could lose shelf space if they don’t improve.

According to the story, the tightening terms are because of $75 billion in losses that accumulate each year because of out-of-stock or unsaleable items; at a time when tougher competition is leading to shrinking margins, retailers are looking for any possible way to remain competitive and generate revenue any way they can. While “the issue is a costly one for suppliers, as making necessary improvements to meet tighter delivery windows is time-consuming and complicated,” manufacturers don’t have much choice, even if it squeezes margins on their end.

KC's View: This strikes me as one of those cases where efficiency and effectiveness dovetail. Companies have to be efficient about getting the right merchandise onto store shelves in a timely fashion, so that retailers can effectively serve the needs of their customers.

One of the first things I look at when I go into a store is how much empty space there is on the shelves. Out of stocks are a dead giveaway of a store that is not getting it done as well as it can/should.