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 seven frequently asked questions (FAQ) 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: 

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

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.

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

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 to achieve supply chain excellence? The 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. You’ll need to track the following: when your suppliers’ deliveries arrive and if the shipments are complete based on your purchase order (PO) delivery requirements. Indeed, modern tracking systems can show you exactly 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 Seven 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? Indeed, there are many things to consider. For a more detailed discussion, see below for frequently asked questions about measuring OTIF.

FAQ About Measuring OTIF

1) OTIF vs Inventory Availability: Are They the Same?

OTIF and inventory availability might sound similar, but they track different things. Think of inventory availability as just checking if items are in stock. OTIF goes much further – it measures if those items actually reached your customer when and how they wanted them. Indeed, a warehouse full of products won’t help your OTIF score if trucks arrive late or ship wrong quantities. Plus, OTIF gets tricky when you deal with backorders or partial shipments. At the same time, these situations don’t affect your inventory metrics at all.

2) Is Arriving Early Bad?

It depends on whether you need to measure early deliveries. While your average consumer might love getting a package sooner than expected, businesses often don’t. Think about a busy warehouse – an early truck means finding unexpected storage space, scrambling for equipment, or juggling dock schedules. That’s why when setting up your OTIF system, you need to decide upfront: should early deliveries count as “on-time” or not? The answer depends entirely on your customers’ needs.

3) How Big Should the Delivery Window Be?

The size of the delivery window is a balancing act between flexibility and precision. For instance, a large delivery window might ease the pressure on the supplier. However for a business that is receiving the goods, this can lead to inefficiencies with both warehouse operations and dock scheduling. Also for residential deliveries, long delivery windows can unduly restrict consumers to having to wait at home for a delivery. Conversely, a narrow window requires a high level of operational efficiency and coordination for both parties. In the final analysis, the optimal delivery window should be mutually agreed upon. Further, delivery window specifications should reflect the capabilities of the supplier and the needs of the customer, ensuring a harmonious supply chain operation.

4) Measuring On-Time Dates Correctly: Delivered, Promised.

Accurately measuring dates associated with OTIF is critical, but challenging. For instance, it is critical to measure delivered and promised dates correctly. In many instances, carriers or receiving operations do not provide an accurate delivery date and time. In other cases, the promised date is either not clearly understood or recorded. So in these situations, OTIF cannot be accurately measured. 

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Positively, all parties, both the shipper and the receiver, need to agree on what measurements will be used to determine a successful delivery. Let’s take the example of a truck delivery to a warehouse. Does delivery mean: when the truck enters the yard, or when the trailer is dropped, or when the trailer is unloaded? Even more challenging, how do you account for delivery schedule changes by either the supplier or the receiver?

Also, if you are measuring OTIF by the PO, how do you account for shipments spread over several weeks or months? Moreover, should you consider each delivery individually or only when the final load arrives?  Again, there are many things to account for to measure OTIF correctly and achieve your desired objectives. Indeed, these factors need to be considered and understood by all parties.

For a more detailed discussion on measuring on-time deliveries, see my article,  Measuring Ecommerce On-Time Delivery: Instructive Advice To Best Avoid Pointless Mistakes.

5) Is It Better to Measure By the Case or By Product Item Count?

Choosing whether to measure OTIF by the case or by product item count depends on the data availability, the nature of your products and the preferences of your customers. Measuring by the case might be efficient for uniform products. Also, this has the benefit of not disclosing sensitive data about the product being shipped. On the other hand,  item count can offer a more detailed perspective that can lead to improvements across the supply chain. Another factor to consider is the possibility of modifications to the order, such as changes in case or product quantities. Indeed, there are many things to consider to achieve consistency and accuracy when measuring shipment orders “in-full”.

6) Consequences of Setting OTIF Standard Too High Or Too Low.

Setting the OTIF standard too high can be aspirational but may lead to constant failure to meet unrealistic targets. As a result, this can lead to supplier frustration, customer disappointment, and unnecessary costs. On the other hand, setting it too low may not drive improvement, nor result in a competitive service offering. So, the standard should be challenging yet achievable. Moreover, a metric should not be set in stone. Indeed, the metric should be geared toward continuous improvement without compromising service quality. Further, setting the OTIF metric needs to be balanced with customer needs, the competition, and costs to achieve the metric standard.

7) Do We Need an Universal Standard for OTIF Or Just Make It Understandable?

While a universal standard for OTIF would foster industry-wide consistency, this may not be the best approach. Indeed with the wide variety of supply chain operations across different sectors, a one-size-fits-all approach may be impractical as well as not meet operational needs. Indeed, what is most important is to ensure that the OTIF metric is clear and understandable within your specific operation. Specifically, it needs to be tailored to meet your customers’ needs, and reflective of your logistical capabilities. Positively, transparency and communication with stakeholders about how OTIF is measured and interpreted are essential for its effective application. For a more detailed discussion on the merits of standardizing OTIF measurements, see McKinsey’s article,  Defining ‘on-time, in-full’ in the consumer sector.

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. 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

For more reference and discussions on measuring the OTIF metric, see Slimstock’s article, Is OTIF The Right Way to Measure Availability?. Also, 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.

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