OTIF is a supply chain metric that measures a supplier's ability to fulfil its delivery promises on time and in full. If shipments are on schedule and include the correct number of goods, they can get a high OTIF rating and foster customer satisfaction. If you work in manufacturing, supply, logistics or retail, you might benefit from learning more about this helpful tool. In this article, we discuss what OTIF is, the expectations and components of this concept and the importance of establishing a good OTIF score for your business.
OTIF refers to a supplier's ability to deliver shipments according to schedule and quantity expectations. Carriers who meet OTIF standards ensure the right amount of products arrive exactly when customers expect them, and they typically use real-time insights from software to do so. Also known as perfect order proficiency, this rigorous key performance indicator (KPI) measures the efficiency and accuracy of a company's supply chain and logistic systems. It's applicable in all industries, but especially in manufacturing. For suppliers, OTIF is critical to maintaining customer satisfaction and generating income. When retailers and consumer packaged goods (CPG) companies assess partnerships, a carrier's ability to deliver OTIF is a huge part of the decision-making process. Retail stores need shipments on time and in full to maintain on-shelf availability of goods for customers and keep control of their inventory numbers, both of which impact profitability. In addition, retail customers demand a wide selection of products and a plethora of promotional offers. As the demand for precise delivery has increased, it's important that manufacturers, retailers and carriers work together to create reliable and adaptable supply chains. Here are the formulas for the OTIF elements:
The expectations of OTIF are simple but strict. Here are the two primary components of OTIF, with explanations:
On time
To be on time according to OTIF, shipments need to arrive on the requested delivery date or at a pre-determined time. What counts as "on time" can vary by company, so suppliers determine the specifics with the retailers they serve. The on-time component of this metric measures how closely a delivery comes to meeting its appointment. Being on schedule is important for many reasons, including the fact that goods can be ready to buy for customers. In addition to avoiding being late, it's important to avoid being too early, as early arrivals can affect distribution systems and operations and consume industry capacity. If a shipment is early, a retailer has to find a way to store the extra inventory, which can come with its costs. As OTIF is so important to inventory planning and order fulfilment, many retailers charge penalty fines to suppliers to fail to deliver both on time and in full. This proves how critical OTIF is to a supplier's ability to maintain customers and a revenue stream.
In full
If a delivery is in full, it means that the customer gets the amount of product they ordered. While some retailers are okay with getting more than their request, this may put a strain on their inventory storage capacities. This can also lead to income loss for the supplier, as they are providing extra products for no payment. For these reasons, the correct batch size is important for all entities in a supply chain. Delivering in full means that retailers and customers have what they need when they need it
Suppliers often use real-time visibility software to track OTIF data closely. This allows them to improve their score over time by tracking locations and times and identifying and eliminating bottlenecks and other issues. There are many important reasons for establishing OTIF expectations and success at your company, including:
Supporting customer satisfaction
Having a high OTIF score is a way that a company fulfils its promises. If it expresses a certain delivery time and quantity, customers expect this to be true. By meeting those expectations exactly, suppliers can build trust with customers and improve satisfaction rates. Customers are more likely to support businesses that offer clear information about what to expect and implement methods to prevent delays in shipments. They're also more likely to work with a business again and remain loyal to it over time, which can provide a regular revenue stream for a carrier.
Saving time and money
Establishing OTIF expectations is part of optimizing your overall logistics process, which can save time and money. A powerful, efficient supply chain means there is no waste of labour or resources. In addition, suppliers to deliver on time and in full can avoid late or early financial penalties.
Fostering collaboration
Clear OTIF expectations and strong OTIF strategies can make it easier for participants in the supply chain to cooperate with one another. If everyone understands the rules and regulations for delivery shipments, trading partners can work together well in an efficient system and avoid late penalty disputes. Collaborative relationships create value for retailers, suppliers, carriers and other companies involved in logistics planning.
Solving issues
Establishing OTIF expectations is a great idea for a supplier because it can enable them to identify and solve specific issues in their logistics processes. If they use a real-time visibility platform, they can track information on a minute level, such as where a truck is or when exactly a truck arrived at a retail store. If there are delays, operators can determine the underlying reasons behind these issues. For example, they may be related to the product itself, warehousing, appointment scheduling, transit time or drivers.