Of all the metrics associated with supply chains, OTIF -- on time and in full delivery -- is the ultimate measure of performance. OTIF is a metric that ties directly to trust in supply chain partnerships and most important of all, customer satisfaction.
Let’s take a closer look at OTIF, what it is, what it measures and how it is calculated. That’s not always easy, because manufacturers and retailers often cannot agree on a standard formula. We will look at the increasingly important role real-time data and end-to-end visibility technology is playing in improving not only OTIF but other metrics as well. After all, regardless of whether you’re a manufacturer, shipper, retailer or carrier, if you have visibility into clean, standardized data captured in real-time by state-of-the-art trackers, you can measure the metric. And if you can measure the metric, you can improve it.
What is OTIF, How to Calculate and How did it Come About?
Simply put, OTIF is a supply chain metric that measures a supplier’s ability to fulfill its delivery promises, meaning a customer receives exactly what was ordered, in the amount requested, at the correct location, and within the agreed upon timeframe.
Walmart created the concept of OTIF in 2017 to track supplier performance, drive store improvements, and increase customer satisfaction -- a fitting nod to the legacy of its founder, Sam Walton, who once said: ”There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by taking their business elsewhere.”
On the surface, it would seem that calculating OTIF is rather straightforward:
(Delivery Time) - (Confirmed delivery time)
(Cases matching the criteria) / (Total number of cases)
However, there is no all-encompassing standard definition. Retailers and manufacturers often calculate OTIF in different ways.
How OTIF is viewed by Retailers & Manufacturers
The lack of a standard OTIF definition leaves manufacturers and retailers at odds over how to measure and apply the metric. “Because each retailer has a different definition, manufacturers must meet a variety of different delivery standards and keep up with each retailer’s changes to its individual definition,” according to McKinsey. “... Does “on-time” mean on the date requested by the retailer, or the date promised by the manufacturer? Does it mean within the specific delivery slot allocated to the shipment, or any time inside a broader, agreed-upon time window? Should “in-full” be measured at the level of complete orders, line-items or individual cases?”
Any misalignment between retailers and manufacturers often leaves carriers stuck in the middle, as both sides push them for improved performance based on inconsistent data.
McKinsey also points out that retailers are fining suppliers for orders that fail to confirm with OTIF, meaning they miss the delivery window (late or too early) or are incomplete. McKinsey analysts estimate that those penalties could exceed $5 billion annually in the consumer packaged goods space alone.
Using OTIF to Measure Performance
OTIF and a carrier’s ability to deliver shipments on time carry significant weight when retailers are evaluating potential partners. Perhaps the carrier is not allowing enough time for transit or, when they’re assigning loads, they’re choosing drivers who do not have the right hours of service. However, the use of OTIF as a measuring stick extends well beyond carrier performance.
The fact is, OTIF failures can be traced to any number of factors, including poor manufacturing processes and management practices, substandard warehousing practices, or a lack of planning by one or more of your supply chain partners. So, while OTIF takes center-stage when it comes to making or missing service levels for final deliveries, the stakeholders can use OTIF to investigate other areas of the supply chain.
What is a good OTIF Benchmark?
Ideally, companies would shoot for 100% compliance with OTIF. However, because we live and work in a world where disruption runs rampant and many environmental factors are well beyond our control, a solid benchmark score is somewhere in the 80% or 90% range, according to FourKites. As this metric continues to develop, the benchmark will continue to rise. Walmart has steadily increased its target annually from 75% in 2017 to 87%.
How to Improve OTIF with Better Visibility & Metrics
Standardized, clean data regarding real-time location and ETAs that is aggregated and made available through a single pane of truth that is readily accessible by all stakeholders will help them identify potential delays. They then can take action to mitigate them, including sending a replacement shipment that would arrive on time. Real-time visibility and data will also help retailers avoid stockouts and help manufacturers and logistics service providers optimize warehouse and distribution center performance by eliminating slow the process of manually chasing down status updates via phone and email. Greater visibility will also facilitate joint performance management by manufacturers, retailers and, yes, even carriers. Working together to identify root causes and corrective actions, and agreeing to acceptable benchmarks will facilitate accurate industry-wide comparisons. For more information, read our white paper, “How to Improve OTIF & 15 Tips for On-Time and In-Full Delivery.”
Improve OTIF & Other Metrics through Tive Visibility Solutions
The key to improving OTIF? Everyone being on the same page, proactively collaborating and managing around in-transit shipments using real-time data insights and end-to-end visibility. That’s power you can harness to drive not only OTIF improvements but overall supply chain optimization as well. That is the whole premise behind Tive’s world-class visibility solutions. Your mission is our mission too: To ensure all your shipments arrive OTIF. Schedule a demo today to learn more about how our world-class trackers and software can help you achieve that goal consistently and improve other supply chain metrics as well.