If you’re looking to supercharge your supply chain’s efficiency, then mastering Key Performance Indicators (KPIs) is essential. So, let’s focus on the king of supply chain KPIs: On-Time, In-Full (OTIF). This powerful metric is your go-to gauge for how timely and accurate your supply chain delivers. What’s more, OTIF isn’t just about deliveries. Indeed, it also offers exceptional insights into your entire supply chain. This includes from the very moment an order is placed all the way through to its final destination. So, by harnessing the power of the OTIF metric, you’ll be on your way to smoother operations, slashed costs, and delighted customers.

In this article, I’ll examine the significance of OTIF and guide you through its calculations. Furthermore, I’ll share essential insights and answer questions on how best to measure OTIF to meet and exceed your particular operational goals. This includes considerations like: early arrivals, delivery windows, promised dates, and universal standards to name a few. Lastly, I’ll highlight the advantages and cautions of using OTIF.

1. What is OTIF, How to Calculate, and Why is It Important?

On-Time, In-Full (OTIF) is a performance metric that evaluates how well sellers deliver orders to their customers accurately and on time. Below is a definition of OTIF.

“… 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.”

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What I like about the OTIF benchmark is that it is truly a supply chain metric that measures what is most critical across many logistics functions. This includes order placement to order fulfillment through final delivery. Also, indirectly it is measuring other logistics functions such as planning, supplier management, and procurement. At least on the surface, this multi-functional metric is simple to measure. The OTIF calculation is as follows: 

OTIF (%) = (on-time, in-full orders / total number of deliveries) x 100

So, the closer your OTIF rate is to 100%, the better your supply chain operation is doing! Indeed, OTIF matters because it answers three crucial things:

• are customers getting what they want?
• is inventory moving efficiently?
• are operations running smoothly?

Today’s customers, whether they’re businesses or consumers, won’t wait around for late or incorrect shipments. They’ll simply find another supplier. That’s why tracking OTIF isn’t just about measuring performance—it’s about staying competitive in a market where perfect delivery is the expectation, not the exception. For a more detailed discussion on how to measure OTIF and why it is important, see Interlake Mecalux’s article, OTIF: on-time, in-full order delivery.

^{“… the closer your OTIF rate is to 100%, the better your supply chain operation is doing!”}

2. Walmart Successfully Pioneered the OTIF Metric as a Way to Increase Supplier Performance.

It was just in 2017 that Wamart launched the first-ever On-Time In-Full (OTIF) initiative. Within inner supply chain circles, the Walmart OTIF initiative has become legendary as a way to manage suppliers and achieve supply chain excellence. Basically, Walmart (as many other companies are now doing) is using this metric to measure supplier performance and apply financial penalties if their OTIF benchmark is not met. Indeed, this has proven key for Walmart for keeping items in stock. So, especially for companies with a lot of suppliers, following Walmart’s example goes a long way toward achieving supply chain excellence.

By setting stringent OTIF requirements, Walmart achieves consistency and reliability of its inventory replenishment processes. Additionally, this initiative not only improves the efficiency of Walmart’s supply chain operations but also encourages suppliers to tighten their delivery schedules and improve their forecasting. To illustrate, below is what can happen when a Walmart supplier fails to meet both the On-Time and In-Full standard for a purchase order (PO).

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Example of Walmart Suppliers’ OTIF Terms and Penalties to Drive Performance

• Delivery Terms. PO states that the supplier will ship 100 cases that will arrive on January 10. With 3% penalty, if late.
• Late Delivery. Supplier’s shipment is one week late, and only 85 cases were shipped.
• Short Delivery. Also, the supplier only shipped 85 cases, 15 cases short.

Calculations of Late Penalty. So in this case the delivery terms had an OTIF metric of > 90% with a 3% penalty if not met. As a result, the buyer (Walmart) would fine the supplier as follows:

• 3% cost of goods for the 85 cases that arrived late (penalty for not on-time)
• 3% cost of goods for the 15 cases that did not ship (penalty for not in-full)

I thank 8th and Walton for this excellent example from their article, Walmart OTIF: A Supplier’s Guide to On-Time In-Full. Additionally, this article provides a detailed discussion of how Walmart uses the OTIF metric to keep items in stock from their thousands of suppliers.

So, Walmart uses the OTIF metric like described above. The question is, should all businesses use OTIF and the same business practices as Walmart to achieve supply chain excellence? The right answer depends on your business circumstances and goals. See below on how best to implement OTIF in your supply chain.

3. How Best to Use Supply Chain Data To Implement the On-Time, In-Full Metric.

Getting OTIF right starts with good data. First, you’ll need to track the following: suppliers’ delivery times, the promised data, and shipment is complete (In-Full) based on your purchase order (PO) delivery requirements. Indeed, modern tracking systems have the capability to tell you where your supply chain is falling short. Better yet, when you share this data with your partners – from suppliers to carriers – everyone can work together to fix problems faster. In the next section, we’ll look at how to prioritize OTIF goals for your particular business and how best to measure based on your goals.

a. First, Identify Your Primary Objective For Using the OTIF Metric.

To best use the OTIF metric for your particular supply chain operation, you need to identify what you are trying to achieve. For instance, Walmart’s use of the OTIF metric is to enhance their supplier’s performance and accountability. For your supply chain operation, this may be a concern, but it may not be your top priority. Now, identifying the primary reasons for using an OTIF metric will determine exactly what aspects of on-time and in-full that you should measure and prioritize. So, to assist you in determining your priorities, below is a list of OTIF goals.

Reasons For Implementing an OTIF Metric

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• Enhance Supplier Performance and Accountability. Encourage suppliers to achieve higher standards of performance and stronger accountability. Indeed, this is Walmart’s focus.
• Improve Inventory Management. Provide feedback for inventory control. Thus, helping to minimize both shortages and excesses.
• Increase Forecast Accuracy. Refine forecasting models by providing data on delivery success rates. Thus, this leads to more accurate and reliable production scheduling.
• Achieve Delivery Reliability. Improve the customer’s delivery experience and gain their trust.
• Reduce Costs Associated with Late Deliveries. Minimize the costs associated with late deliveries such as return charges, bad customer reviews, and high customer churn.
• Identify Bottlenecks and Delays. Conduct post-diagnostics analysis to uncover and address the root causes of bottlenecks and delays. Thus, this facilitates smoother and more efficient operations.
• Enable Proactive Exception Management. Leverage OTIF measurements in real-time to proactively manage potential exceptions..
• Optimize Overall Supply Chain Performance. Use the OTIF metric to serve as a catalyst for overall supply chain optimization. As a result, this helps to pinpoint areas for process enhancements and strategic decision-making.

So, once you determine the primary reason for using OTIF metrics, the next step is to determine how best to measure OTIF to achieve the desired results.

b. Consider These Eight Factors When Establishing an OTIF Metric for Your Supply Chain Operation.

As businesses strive to enhance their supply chain efficiency and service, both understanding and accurately measuring OTIF is paramount. As such, there are many things to consider when setting up to measure OTIF. For instance, are you tracking inbound shipment against POs or outbound shipments to your customers? What data is available and how to accurately measure OTIF? In fact, it is amazing all the things to consider when measuring OTIF. See below for insights and answers to key questions for both effectively measuring OTIF and taking corrective action to improve your OTIF rate.

Eight Insights and Essential Questions to Ask for Effectively Measuring OTIF

1. OTIF vs Inventory Availability: Are They the Same?
2. Is Arriving Early Bad?
3. How Big Should the Delivery Window Be?
4. Measuring On-Time Dates Correctly: Delivered, Promised
5. Is It Better to Measure Based on the Shipment’s Case Count or By the Purchase Order’s Product Item Count?
6. Consequences of Setting OTIF Standard Too High Or Too Low
7. How Poor Data Quality Affects Both OTIF Measurements and the Ability to Take Corrective Action.
8. Do We Need an Universal Standard for OTIF Or Just Make It Understandable?

For more detailed advice on maximizing the effectiveness of measuring OTIF, see my article, Establishing An OTIF Metric for Supply Chains: Practical Advice You Need To Know.

4. Advantages and Cautions for Using OTIF.

An operation’s OTIF not only reflects its ability to meet its delivery commitments but also is an indicator of the overall health of its supply chain operations. Specifically, utilizing OTIF effectively offers businesses a clear snapshot of their logistical prowess, highlighting areas of strength and pinpointing opportunities for improvement. However, while OTIF can drive substantial benefits, it is important to navigate its implementation thoughtfully to avoid potential drawbacks. Below are the principal advantages and cautions of using OTIF as a key performance indicator.

OTIF Advantages and Cautions

• Direct Cost Savings: Lower Shipping Costs & Fees and Frees Up Capital.
• Increases Customer Satisfaction and Trust.
• Lowers Supplier Network Cost By Measuring and Incentivizing Better Performance.
• Increases Operational Velocity While Decreases Volatility.
• Improves Administrative Efficiencies and Increases Negotiation Power.
• Increases Cross Functional Cooperation And Interoperability.
• Major Cautions With Using OTIF Metric: Poor Data, Bad Measurements, Overzealous Use.

For a detailed examination of the advantages and cautions of the OTIF metric, see my article, The Powerful OTIF Metric For Logistics: Spectacular Advantages, Its Cautions.

The Powerful OTIF Metric For Logistics: Spectacular Advantages, Its Cautions

More References.

Also, for more reference and discussions on measuring the OTIF metric, see Slimstock’s article, Is OTIF The Right Way to Measure Availability?. Additionally, Zipline Logistics has a great article on how to improve your OTIF rate – 15 Tips to Improve On-Time and In-Full Delivery (OTIF). Lastly, for more on delivery KPIs, see my article, The Best On-Time Delivery KPIs to Make Your Customers Delighted.

The Best On-Time Delivery KPIs To Make Your Customers Delighted

Lastly, do you need help with an innovative solution to make your supply chain analytics actionable? I’m Randy McClure, and I’ve spent many years solving data analytics and visibility problems. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. Moreover, I specialize in launching new analytics-based strategies, proof-of-concepts and operational pilot projects using emerging technologies and methodologies. If you’re ready to supercharge your analytics or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.

For more from SC Tech Insights, see the latest on these topics: Data, Interoperability, Decision Science, Shipping.