OTIF: On-Time, In Full - The Key to Supply Chain Excellence
By Komal Puri | October 13, 2022
The expectation of people is growing more than ever in this fast-paced world. Customers not only expect favorable delivery time but also expect the promise to be kept and parcel delivered on time and in full (OTIF). This blog explores this crucial metric, its impact on the design of your organization’s supply chain, strategies to improve the metric, and the industry benchmarks.
OTIF or On Time In Full is a key indicator of the efficiency and effectiveness of your organization’s supply chain. It evaluates the proportion of deliveries successfully completed, that is the customer receives what was ordered, in the quantity that was ordered, at the correct location, and importantly within the delivery time promised.
Mckinsey defines OTIF as “Case quantity that is delivered to the destination by the requested delivery date, calculated as a percentage of the ordered quantity.”
OTIF as a metric is crucial as it incentivizes accurate, timely, and complete deliveries ensuring organizations stay ahead in this competitive market.
The Significance of OTIF
Improved Customer Satisfaction
With the growth in e-commerce and online deliveries, keeping up your promise to customers is important to not only acquire new customers but also retain them and build lifelong customer loyalty.. Close monitoring of OTIF as a metric not only ensures you deliver as promised but also provides an opportunity to improve further and not only meet but exceed customer’s expectation.
Cost Saving and Operational Efficiency
Monitoring OTIF as a metric while ensuring you keep up your promise also leads to significant improvement in your supply chain efficiency and significant cost savings
Inventory Management: Because accurate and timely deliveries are incentivized, it helps retailers avoid maintaining safe stock thereby reducing storage and warehousing costs.
Transportation and Logistics: Last-mile deliveries make up the bulk of any organization’s logistics spending (sometimes as high as 50%). This includes fuel costs, driver costs, storage, labor, and also the cost of expediting to fulfill orders that weren’t delivered on time or in full, or both.
Demurrage Costs: Poor Supply Chain Visibility often leads to shipments lying idle waiting to be picked up or missing the window of delivery. This invariable adds to the total cost of logistics. Efficient shipment tracking ensures audibility and can sometimes save up to 100% of demurrage charges
Vehicle Wear and tear: Efficient route planning, fewer missed deliveries and fewer returns means reduced wear and tear and in turn less maintenance costs on vehicles.
Organizations that consistently meet delivery promises and wear the OTIF badge as an honor stand out against competitors as reliable, trustworthy, and efficient increasing their brand value and equity in the market
Factors Affecting OTIF Performance
Several factors influence a company's ability to achieve high OTIF rates. These include:
1. Inventory Management: Effective inventory management ensures that products are available when needed for delivery. Inventory inaccuracies can lead to delays and incomplete orders.
2. Transportation and Logistics: Effective transportation and logistics operations play a pivotal role in meeting delivery deadlines. Inadequate route planning or inefficient transportation can lead to the unfortunate consequence of failing to achieve OTIF targets.
3. Supplier Performance: Suppliers play a critical role in OTIF performance. Timely and accurate deliveries from suppliers are essential for meeting customer expectations.
4. Demand Forecasting: Accurate demand forecasting helps in planning inventory levels, production, and transportation schedules, ensuring that products are available for on-time delivery.
What is Industry Standard in OTIF?
Benchmarking OTIF performance against industry standards is essential for measuring success. Common industry standards provide a reference point for companies to assess their performance. However, these standards can vary significantly by industry and the nature of the products being delivered.
Strategies for Improving OTIF Performance
Achieving high OTIF rates requires a strategic approach. Here are some strategies to consider:
1. Demand Forecasting and Inventory Optimization
Invest in demand forecasting tools and techniques to ensure accurate predictions. Combine this with inventory optimization to have the right products available when needed.
2. Efficient Transportation and Route Planning
Utilize advanced route planning software to optimize delivery routes, reduce transit times, and lower transportation costs.
3. Supplier Collaboration and Communication
Establish strong relationships with suppliers and communicate expectations clearly. Collaboration with suppliers can lead to better OTIF performance.
4. Technology and Automation Solutions
Harnessing the power of technology and automation is essential to streamline order processing, tracking, and reporting. Cutting-edge software solutions offer the advantage of real-time visibility into the supply chain, enabling proactive resolution of potential issues before they have a chance to affect OTIF performance.
How to calculate OTIF
Common Key Performance Indicators (KPIs) related to OTIF include :
- On-time Delivery Rate: Ratio of deliveries that were completed on time or one day early or within the delivery window as promised to the customer.
- In-Full Delivery Rate: Ratio of deliveries that were successfully completed with all items from the original order without any being lost, misplaced, or damaged.
- On-TIme and In-Full Delivery Rate: Ratio of deliveries that were completely delivered (all items without damage or loss) and within the delivery time as promised.
To calculate OTIF, find the following :
Total number of deliveries in a defined period
Out of the Total number of deliveries, the number of deliveries that were delivered on time
Out of (2), the number of deliveries that were completed in full (no loss, damage, etc)
Divide this number by (1) to obtain the OTIF rate for that period.
Challenges and Common Pitfalls
Achieving a high OTIF Score can be challenging but not impossible. Awareness of the challenges is the first step in setting up an action plan to meet this ambitious goal.
- Lack Of Visibility: It is critical to maintain the right inventory at the right time. This requires accurate tracking information. The inability to track shipments in real-time, identify delays or exceptions in delivery, or proactively take actions to mitigate the issues arising out of these exceptions can pose significant challenges to your ability to deliver successfully and promptly.
- Legacy Technologies: Outdated, slow, or legacy systems can slow down order processing and fulfillment. Slow label generation response speeds and manual sorters can lead to errors and delays.
- Poor Supplier Performance: Suppliers need to maintain a high standard and put in place strategies to ensure they meet the requisite OTIF. Suppliers who are inconsistent or cannot meet these standards are a challenge in achieving the set goal
- Inaccurate Demand Forecasting: Estimating Demand is a crucial aspect in avoiding stockouts and lost sales. Accurate Estimation needs the power of data and predictive analytics. Getting actionable insights from the data ensures better predictability and accurate inventory management.
- Poor Carrier Communication: Carriers need to understand how they are performing and where they are underperforming. Clear communication of your KPIs and not only setting expectations but communicating when they aren’t meeting these expectations is important.
- No unified vision for service within your organization: Logistics, Fulfillment, Transportation and customer service teams need to have a common and unified version of service in the organization. Misalignment in these standards leads to different reporting of the same metric and a myopic approach to service initiatives.
Role of OTIF in Reducing Supply Chain Complexities
OTIF can be a significant driver in simplifying supply chain operations. By ensuring timely and complete deliveries, companies can reduce the need for complex buffer stock management, rush shipments, and last-minute adjustments to orders. This streamlining of operations leads to a more efficient and cost-effective supply chain.
How OTIF Drives More Value
OTIF is not just about meeting delivery commitments; it's about driving value throughout the supply chain. Here's how to achieve and surpass your OTIF objectives:
Enhanced Customer Loyalty: Satisfying customers by consistently meeting OTIF targets builds strong loyalty. Happy customers are not only likely to return but also recommend your brand to others.
Cost Savings: Streamlined operations and error reduction result in cost savings across various facets of the supply chain, improving your bottom line.
Competitive Advantage: High OTIF rates distinguish you as a reliable and efficient partner in the competitive market, giving you a distinct edge over competitors.
Better Supplier Relationships: Collaborative and productive relationships with suppliers can lead to better pricing and terms, further enhancing your supply chain's cost-effectiveness.
The FarEye Solution
FarEye as a leading logistics tech provider working with retailers and carriers across the globe and in multiple industries understands the importance of OTIF. It can offer a comprehensive solution designed to improve OTIF Scores in your organization.
- Real-Time Visibility: Fareye’s Control Tower provides end-to-end, multi-modal order visibility that summarizes the current state of order fulfillment grouped by milestones and other business metrics. It harmonizes shipment status updates by third-party delivery partners at an order Level to provide visibility on a purchase order. It has an in-built exception management platform that offers a collaborative and proactive approach to managing exceptions. This single point of truth allows you to notify your customer about any potential delay but also nudge your supply chain to take action by dispatching another shipment that can arrive on time.
- Predictive Analytics: FarEye has developed an in-house estimate date/time delivery data model for accurate Delivery Date predictions. The data model can learn from historical data on the route performance of carriers and transporters and predict delivery dates for future deliveries. It also goes a step ahead and can predict potential issues that can disrupt your supply chain operations. This provides you an opportunity to take preemptive measures to prevent the issue from occurring in the first place.
- Efficient Route Planning: FarEye’s advanced routing software can optimize delivery routes by reducing transit times and thereby fuel consumption. The famed dynamic routing algorithm ensures an increase in the Stops Per Route and Stops Per Hour increasing efficiency and reducing lead times.
- Enhanced Communication: FarEye offers seamless two-way communication with both outsourced (3PLs) and own fleets for all delivery-related issues. For its own fleet operators, it can enable live chat and messaging to facilitate real-time communication between drivers, customer support, and the customers themselves. This ensures transparency and proactive communication reducing chances of delay or miscommunication.
- Scalability: FarEye is a leading intelligent delivery platform serving leading retailers and logistics providers across the globe. Our platform is used by small and medium companies to large enterprises.FarEye guarantees to accommodate your growing business and order volume and the platform can scale as your business grows offering 100% uptime and continuous support for your evolving needs and objectives
Analyze your data to identify sources of delay: Analyze delivery operational data, monitor business trends, visualize big data, and get timely insights to drive crucial business decisions with FarEye Analyze. Track over 35+ metrics and identify patterns that are impacting OTIF performance. Identification of these areas ensures you can narrow your focus to that aspect of your business, identify root causes, and take steps to improve them. Essentially, you can fix what you can see!
In Conclusion, OTIF (On Time In Full) is not just another metric but can become the cornerstone of your success in supply chain management. Meeting and exceeding customer expectations is crucial for enhanced customer loyalty and building a trustworthy brand in the market. This will not only reduce your cost of acquisition but ensure repeat business driving your customer lifetime value up!
By implementing the strategies mentioned above, actively monitoring KPIs regularly, and taking suitable action from the insights derived organizations can elevate their OTIF Scores and drive more value to everyone in the supply chain.
To revolutionize your supply chain, delight your customers, and stay ahead of competition, contact us today!
Komal Puri is a seasoned professional in the logistics and supply chain industry. As the Senior Director of Marketing and a subject matter expert at FarEye, she has been instrumental in shaping the industry narrative for the past decade. Her expertise and insights have earned her numerous awards and recognition. Komal’s writings reflect her deep understanding of the industry, offering valuable insights and thought leadership.