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Measuring The OTIF Metric: The Best Ways To Focus On Uplifting Supply Chain Excellence

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, harness the power of the OTIF metric, and you’ll be on your way to smoother operations, slashed costs, and delighted customers.

In this article, I’ll unpack the significance of OTIF and guide you through its calculations. Furthermore, I’ll share seven key insights to ensure you devise an effective strategy to successfully implement this metric into your operation.  Lastly, I’ll highlight the advantages and cautions of using OTIF.

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

How use the OTIF metric

On-Time, In-Full (OTIF) is a performance metric that evaluates how often suppliers deliver orders to their customers accurately and on time. Below is a good working 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 fulfillment from order placement 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 an OTIF rate is to 100%, the better the supply chain operation is doing.

To conclude, the reason supply chain managers should use the OTIF metric is that it measures how well a logistics organization is achieving customer satisfaction, managing inventory levels, and operational efficiency. What’s more, in today’s fast-paced market, both businesses and consumers expect quick and precise deliveries. Thus, OTIF is not just a measure of performance, but it is increasingly a critical component to furthering a company’s competitive edge. 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.

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, this Walmart 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).

Example of How Walmart Uses OTIF
  • PO states that supplier will ship 100 cases that will arrive on January 10.
  • Supplier’s shipment is one week late, and only 85 cases were shipped.
  • Also, the supplier only shipped 85 cases, 15 cases short.

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:

  1. 3% cost of goods for the 85 cases that arrived late (not On Time).
  2. 3% cost of goods for the 15 cases that did not ship (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, this is how Walmart is using the OTIF metric. However, the question to ask is should all businesses use this OTIF metric in the same way to achieve supply chain excellence. I think the best answer to this question is that it depends on your business circumstances and what you are attempting to achieve.

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

To effectively implement the OTIF metric, businesses must harness the power of logistics data. This involves tracking a variety of variables, including delivery times, order accuracy, and inventory levels. By utilizing advanced analytics and shipment tracking systems, companies can gain insights into their supply chain performance and identify areas for improvement. Data-driven decision-making allows for agile responses to logistical challenges, enhancing the ability to meet OTIF standards consistently. Furthermore, transparent sharing of supply chain data between logistics organizations fosters collaboration and collective efforts towards achieving supply chain excellence.

1. 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 reason for using an OTIF metric will determine exactly what aspects of on-time and in-full that you should measure. So, to assist in identifying the best reason for using an OTIF metric, below is a list of reasons.

Reasons For Implementing an OTIF Metric
  • 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.

2. 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, 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:

7 Considerations When Measuring OTIF
a. OTIF vs Availability: Are They the Same?

OTIF and inventory availability may seem the same when you first look at them, but they actually measure different things in getting products to customers. Indeed, OTIF is about making sure customers get exactly what they ordered, both on-time and in the correct quantity.

On the other hand, inventory availability checks if products are there and ready to ship. Just because you always have stockage items available doesn’t mean they will always reach customers on time or in the right amount. For example, sometimes shipments are late or delivered in the wrong quantity. Positively, this affects the OTIF score, but not inventory availability rate. Lastly, there are more nuances and complications with measuring OTIF. For example, how should you measure backorders and partial deliveries.

b. Is Arriving Early Bad?

For consumers, an early delivery is usually welcomed, especially if you informed them in advance. So, arriving early can seem like a proactive approach, but it isn’t always beneficial in the context of OTIF. This is especially true for businesses that receive and store goods. Here, early deliveries can disrupt their operations. This is because early deliveries can result in unexpected storage needs or other logistical challenges such as special equipment availability or dock space required. So, when setting up an OTIF metric it is critical to decide if early arrival needs to be measured or not.

c. 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.

d. 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. 

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 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.

e. 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 what if there is a modification to the order where cases or product quantities change. Indeed, there are many things to consider to achieve consistency and accuracy when measuring shipment orders “in-full”.

f. 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. So, the standard should be challenging yet achievable. Further, 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.

g. 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.

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.

  1. Direct Cost Savings: Lower Shipping Costs & Fees and Frees Up Capital.
  2. Increases Customer Satisfaction and Trust.
  3. Lowers Supplier Network Cost By Measuring and Incentivizing Better Performance.
  4. Increases Operational Velocity While Decreases Volatility.
  5. Improves Administrative Efficiencies and Increases Negotiation Power.
  6. Increases Cross Functional Cooperation And Interoperability.
  7. 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.

The OTIF metric drives improvements in supply chain coordination and prompts proactive management of potential disruptions.  Its impact on enhancing customer satisfaction cannot be overstated, as it delivers the dependability that customers crave. Moreover, the OTIF metric fosters stronger bonds with partners and suppliers through its commitment to clear, data-centric communications and enhanced interoperability. However, there are cautions of overemphasizing OTIF in supply chain operations. 

Click here for the details on the incredible advantages of integrating OTIF into your supply chain. Further, I’ll also identify the cautions to guard against when using this powerful supply chain metric. Let’s start with defining what OTIF means.

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).

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

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