SQEP, Walmart's Supplier Quality Excellence Program, charges suppliers a fee for each defect Walmart finds when a shipment is received at a distribution center (DC). The defects cover purchase order and ASN accuracy, barcodes and labels, and packaging, pallet, and load quality. SQEP charges are billed separately from OTIF fines, so one bad shipment can produce both.
This guide is for frozen and refrigerated food suppliers who already see SQEP deductions on their Walmart invoices. It's also for brands that just landed Walmart business and want to know the rules before their first shipment. If you're new to Walmart, our page for emerging brands and startups covers how we help new suppliers set up their freight.
Quick Summary
Walmart's Supplier Quality Excellence Program (SQEP) charges suppliers for defects found when freight is received at a Walmart distribution center. Three phases are live: PO accuracy and ASN, barcode and labeling, and packaging, pallet, and load quality. A fourth phase, scheduling and transportation, has been announced but not launched. Most SQEP charges combine a $200 administrative fee per defect type on a purchase order with a small per-case, per-pallet, or per-load charge, billed separately from OTIF fines.
What Are the SQEP Phases?
Walmart rolled out SQEP in phases, and three of the four are live today. Each phase adds a set of defect types that Walmart's distribution centers check at receiving and charge for.
Phase 1: PO Accuracy and ASN
SQEP launched with Phase 1 on February 1, 2021, and the ASN checks followed later that year. Phase 1 checks that the shipment matches the purchase order and the advance ship notice (ASN). An ASN is the electronic record a supplier sends before the freight arrives, listing what's on the truck. Common Phase 1 defects include overages, items missing from the PO, wrong pack sizes, shipments against a canceled PO or line, and ASNs that are missing, late, or different from what was received.
Phase 2: Barcode and Labeling
Phase 2 checks case barcodes and labels. Walmart requires a scannable ITF-14 or GS1-128 barcode on at least two sides of each case. Label information has to match the item setup in Item 360, Walmart's item management system. Phase 2 also covers hazmat labels. Coldstream does not handle hazardous materials.
Phase 3: Packaging, Pallet, and Load Quality
Phase 3 checks how freight is packed, palletized, and loaded. Defects include weak or oversized cases, loose stretch wrap, pallet overhang, poor-quality pallets, and loads that shifted in transit. Load-level defects come from how the trailer is loaded and secured. In a Coldstream pool, our warehouse partners build the consolidated load, and they build Walmart loads every week. Our team coordinates that work with the transportation side.
Phase 4: Scheduling and Transportation
Walmart has announced a fourth phase covering scheduling and transportation. As of October 2026, Phase 4 has not launched, and Walmart hasn't published its defect list. Late arrivals are already charged today through OTIF.
Ship Walmart Freight Through a Managed Pool
Our Walmart pools handle MABD scheduling, holiday schedule changes, and load coordination for frozen suppliers, which cuts the freight-side defects that turn into chargebacks.
Which Walmart Chargebacks Show Up on a Supplier's Invoice?
Walmart suppliers see three main kinds of compliance charges: SQEP defect charges, OTIF fines, and document charges for ASN errors. Document charges are part of SQEP Phase 1. They're worth tracking on their own because they start in your EDI (electronic data interchange) system, before any freight moves.
| Charge | Program | What Triggers It | How It's Calculated | Where You See It |
|---|---|---|---|---|
| SQEP defect charge | SQEP Phases 1 to 3 | A defect found at receiving | $200 administrative fee per defect type per PO, plus $1 per case, $4 per pallet, or $20 per load affected | SQEP Dashboard in Retail Link |
| OTIF fine | OTIF | Cases that arrive outside the delivery window or short, when the supplier's monthly score falls below target | 3% of the cost of goods on the non-compliant cases | OTIF scorecard in Retail Link |
| ASN and document charge | SQEP Phase 1 | An ASN that's missing, late, or different from the shipment | A flat fee per PO for some ASN defects; others follow the $200 plus $1 per case formula | SQEP Dashboard in Retail Link |
Defects caught by automated scanning at the DC usually carry the per-case charge by itself. Defects found by a manual inspection carry the $200 administrative fee as well. Walmart's current OTIF targets are 90% on-time for prepaid freight, 98% on-time for collect freight, and 95% in-full. Suppliers who fall below a target are fined on their non-compliant cases, and our OTIF guide covers how Walmart calculates the score. In our Walmart pools, our team handles OTIF compliance support, and our warehouse partners handle ASN procedures, which addresses the timing and ASN rows of this table.
What Does One Late, Damaged Shipment Cost?
One shipment can produce an OTIF fine and several SQEP charges on the same purchase order. Say a frozen PO arrives a day after its Must Arrive By Date (MABD) with three pallets flagged for overhang and an ASN that lists the wrong count on 40 cases:
- Pallet overhang: $200 + ($4 x 3 pallets) = $212
- ASN mismatch: $200 + ($1 x 40 cases) = $240
- Late arrival: an OTIF fine of 3% of the cost of goods on every late case, if the supplier's monthly on-time score falls below Walmart's target
The SQEP charges on this PO total $452 before any OTIF fine is added. A supplier who ships every PO with the same pallet build and the same ASN process pays those charges again on every PO. The late arrival is the charge a carrier controls most directly, and Fix 1 below covers how to stop it.
Fix 1: Stop Late-Arrival Charges With Window-Based Routing
Late arrivals stop when the delivery plan starts from the MABD and works backward to the ship date. The MABD is the last day a Walmart PO can arrive at the DC and still count as on time. Working backward means setting the pickup date from the DC appointment, the transit time, and the pool's departure schedule, then planning production to finish before that pickup.
A carrier booked on the spot market, one load at a time, can drop a load when capacity tightens. A missed pickup usually turns into a missed delivery window.
In our Walmart consolidation program, our team handles the scheduling side. We receive PO data directly from Walmart and build departures around each PO's MABD. We also handle holiday LTA changes directly with Walmart. LTAs, or lead time adjustments, are how Walmart moves delivery windows around high-volume holiday weeks. Walmart publishes its supplier requirements through Walmart Supplier Resources. Our fleet is asset-based, so the truck assigned to your pickup is one we own and dispatch.
Fix 2: Stop In-Full Misses Before the Truck Is Loaded
In-full misses usually start at production or inventory, when the product ready at pickup is less than the PO quantity. A short shipment counts against OTIF in-full. Shipping more than the PO quantity creates a SQEP overage defect. Both happen when the product on the dock and the PO quantity differ on pickup day.
A consolidation pool runs on a set departure schedule. Knowing that schedule weeks ahead lets a supplier plan production so the full PO quantity is ready at the cutoff. Our guide to Walmart consolidation pools explains how pool departures work.
Our team works with customers' production teams on this timing. A production run that finishes late usually misses the pickup. A PO that ships short to catch the truck still gets scored as an in-full miss.
Fix 3: Stop Labeling, Pallet, and Load Defects
Barcode, label, and pallet defects start at the supplier's facility, before pickup. Load defects start when the trailer is loaded. The supplier-side checks that prevent most Phase 2 and Phase 3 charges are:
- Barcodes: A scannable ITF-14 or GS1-128 barcode on at least two sides of every case.
- Labels: Case label information that matches the item setup in Item 360, including pack quantity and product description.
- Item data: Pack size, case dimensions, and TI/HI (cases per layer and layers per pallet) in Item 360 that match what you actually ship.
- Packaging: Cases sized to the product and strong enough to hold their shape on a loaded pallet.
- Pallet build: No product past the pallet edge, stretch wrap tight to the load, and pallets in good condition.
Load quality depends on how the consolidated trailer is built and secured. Our warehouse partners are experienced with Walmart's receiving requirements, including ASN procedures. Our team is the coordination point between warehouse operations and transportation. A supplier in one of our pools works with one partner on both the warehouse side and the transportation side.
Fix 4: Dispute the Charges You Don't Owe
A SQEP charge or OTIF fine can be disputed when a supplier's records show the defect or late arrival never happened. Walmart handles disputes through its supplier portals, and both the deadline and the portal depend on the charge type. Some deadlines are measured in weeks, so file as soon as a charge posts and check the dispute rules for that charge type in Retail Link.
Disputes recover charges Walmart applied in error. A charge for a defect that did happen stays on the invoice, which is why Fixes 1 through 3 save more money than this one.
For on-time disputes, the strongest evidence comes from carrier records: proof of delivery, appointment confirmations, and arrival times. Ask any carrier what it records on each load and how quickly it can hand those records to you. Our pool customers see their on-time and in-full performance as shipments move, so a questionable charge can be checked against the shipment while the details are fresh.
The Coldstream Experience
Our team at Coldstream runs 98%+ on-time delivery across our frozen freight and manages Walmart consolidation pools from two active hubs, in Worcester, MA and Holland, MI. Two more pools, in Kingman, AZ and Hattiesburg, MS, are in development and not yet live. We service all 48 contiguous states, and a supplier in any of them can join a pool with a 9-digit Vendor ID. We handle communications with Walmart directly and begin receiving a new supplier's PO data within about two weeks.
One of our largest customers came to us after growing quickly and running into both production and on-time problems. Their OTIF scores sat in the 70% to 80% range, and OTIF fines arrived constantly. Within a month of joining our program, we had essentially eliminated their on-time-related fines. Working with their production team, we cut their in-full fines by about 80%.
Key Takeaways
- SQEP charges Walmart suppliers for defects found at receiving, billed separately from OTIF fines.
- Three SQEP phases are live: PO accuracy and ASN, barcode and labeling, and packaging, pallet, and load quality. Phase 4, scheduling and transportation, has not launched.
- Most SQEP charges combine a $200 administrative fee per defect type on a PO with a per-case, per-pallet, or per-load charge.
- Late arrivals and short shipments trace back to routing and production timing, and both can be planned backward from the MABD.
- A charge can be disputed when the supplier's records show Walmart applied it in error, and each charge type has its own deadline and portal.
Frequently Asked Questions
What is SQEP?
SQEP is Walmart's Supplier Quality Excellence Program, which charges suppliers for defects Walmart finds when freight is received at its distribution centers. It covers purchase order and ASN accuracy, barcodes and labeling, and packaging, pallet, and load quality.
What are the SQEP phases?
The SQEP phases are Phase 1, PO accuracy and ASN; Phase 2, barcode and labeling; Phase 3, packaging, pallet, and load quality; and Phase 4, scheduling and transportation. The first three are live. Walmart has announced Phase 4 and has not launched it.
What are SQEP defect charges?
SQEP defect charges are fees Walmart deducts for each type of defect found on a purchase order. Most combine a $200 administrative fee per defect type with $1 per affected case, $4 per affected pallet, or $20 per affected load. Defects caught by automated scanning are usually charged per case without the administrative fee.
How much are Walmart OTIF fines?
Walmart OTIF fines are 3% of the cost of goods on each case that arrives outside its delivery window or short. The fine applies when a supplier's monthly score falls below Walmart's targets, which are 90% on-time for prepaid freight, 98% on-time for collect freight, and 95% in-full.
Can you dispute Walmart chargebacks?
Walmart chargebacks can be disputed through Walmart's supplier portals when a supplier has records showing the charge was applied in error. The deadline and the portal depend on the charge type, and some deadlines are measured in weeks, so file as soon as a charge posts.
How do I check my chargebacks in Retail Link?
Walmart suppliers can check SQEP charges in the SQEP Dashboard in Retail Link, which breaks defects down by type and purchase order. OTIF performance appears in the OTIF scorecard in Retail Link. Walmart also posts supplier tools and program updates in Supplier One, so check there when a standard changes.
Final Thoughts
Most SQEP and OTIF charges trace back to one step in the order: the PO quantity, a label, a pallet, a pickup, or the arrival window. Coldstream is an asset-based, employee-owned frozen carrier, and our Walmart pools handle scheduling, Walmart communications, and load coordination for frozen suppliers. If Walmart deductions are cutting into a product line, request a quote and our team will talk through where your charges are coming from.
