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

Harnessing the power of the OTIF (On-Time, In-Full) metric is one of best ways to achieve supply chain excellence. Indeed, it 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. 

Join me as I detail 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.

What is OTIF?

The OTIF Metric for supply chain excellence.

On-Time In-Full (OTIF) is a critical performance metric that measures the efficiency and accuracy of supply chain operations. It’s a barometer of supply chain excellence. Indeed, OTIF reflects how well logistics companies, retailers, and suppliers align their operations with customer expectations. What’s more, a high OTIF score indicates a streamlined, customer-centric approach to logistics.

So, 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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For a more detailed discussion on the mechanics of OTIF, see this piece, What is OTIF, How to Calculate, and Why is It Important?

Advantages and Cautions for Using the OTIF Metric.

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. A high OTIF rate is a clear indicator that a supplier can outperform its competitors. Additionally, 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.

7 Advantages and Cautions for Using OTIF Metrics

1. Direct Cost Savings: Lower Shipping Costs & Fees and Frees Up Capital.

Adopting OTIF as a core benchmark in supply chain management can lead to significant tangible cost savings. By striving to meet OTIF targets, companies can directly cut down on the costs associated with stockouts, rush shipping, and customer dissatisfaction. Below are areas where using OTIF metrics can directly drive cost savings across the supply chain:

  • a. Lower Transport Costs. With improved order deliveries, shipment return charges will go down. Also with increased supply chain discipline, there will be a reduction in the number of shipments to include express shipments required.
  • b. Detention Cost & Demurrage Cost Reduction. With better shipment visibility, shipping containers are used more efficiently, delivery windows are met, and drivers are not left waiting. Thus, this can significantly reduce costs for many supply chain operations.
  • c. Reduced Inventory Carrying Costs. With increased predictability of delivery times, safety stocks can be better optimized.
  • d. Transportation Working Capital Reduction. Shortening delivery lead times, means that suppliers can be paid faster. Thus, this reduces the need for working capital for suppliers. 

2. Increases Customer Satisfaction and Trust.

High OTIF performance is synonymous with reliability, a trait highly valued by customers. Take the example of a specialty food distributor whose commitment to OTIF excellence resulted in a 15% increase in repeat orders. Indeed, customers develop trust when their orders arrive as expected, without delay or shortage. Hence, this leads to improved satisfaction and loyalty. This not only strengthens the customer-supplier relationship but also enhances the brand’s reputation in the market. Further, a high OTIF rate will lower customer churn rate, thus lower retention costs.

3. Lowers Supplier Network Cost By Measuring and Incentivizing Better Performance.

The OTIF metric serves as a powerful tool for driving supplier performance improvements, which in turn can lower overall supplier network costs. By measuring suppliers’ adherence to delivery schedules and completeness of orders, businesses can identify high performers and incentivize them accordingly. Additionally, the OTIF metric provides a quantitative measure for identifying and weeding out ineffective suppliers.

A practical example is a retailer that implemented a tiered incentive program. Here, the retailer rewards suppliers with higher OTIF scores with more favorable payment terms and larger order volumes. Hence as suppliers strive to improve their OTIF performance to reap these rewards, the retailer benefits from more reliable deliveries and reduced need for costly last-minute adjustments. Further, this strategy not only optimizes the supply chain but also fosters a performance-based culture among suppliers. Thus, this leads to a more cost-efficient and effective supplier network.

4. Increases Operational Velocity While Decreases Volatility.

A high OTIF rate is indicative of a supply chain that’s both swift and stable. For instance, a global auto parts supplier by leveraging OTIF can reduce lead times by 20% while simultaneously increasing consistent on-time deliveries. 

This increase in operational velocity, coupled with decreased volatility, means that products move through the supply chain more quickly and reliably. Further, increasing predictability enables both operational efficiencies and planning opportunities. Thus, costs are reduced throughout the supply chain to include overall production costs.

Further, the use of OTIF metrics enables supply chain partners to improve information sharing, thus improving forecasting, inventory management, and coordination. Additionally, enhanced visibility also helps to quickly identify and address bottlenecks, contributing to overall supply chain resilience.

5. Improves Administrative Efficiencies and Increases Negotiation Power.

Maintaining a high OTIF rate streamlines administrative processes and facilitates a stronger negotiation position when working with suppliers. 

  • a. Increases Administrative Efficiency. With enhanced supply chain visibility, order processing and tracking is streamlined as well as less clerical labor is needed to handle disputes.
  • b. Strengthens Negotiation Leverage with Carriers. By documenting on-time performance, this increases opportunities to negotiate lower freight rates with carriers and eliminate under performing carriers.

6. Increases Cross Functional Cooperation And Interoperability.

An OTIF metric isn’t just for measuring logistics performance. Indeed,  it’s a catalyst for cross-departmental collaboration and incentivizing data sharing. 

  • a. Increases Cross Functional Cooperation. For instance, a consumer goods company saw improvement in their OTIF scores after integrating their sales, operations, and logistics teams. By fostering better cooperation, the company ensured that sales forecasts, production schedules, and delivery plans were more closely aligned. Thus, leading to a more cohesive and effective supply chain.
  • b. Advances Data Interoperability. Indeed, Measuring OTIF is an incentive to enhance data interoperability and visibility within the supply chain. By requiring accurate and timely data to measure OTIF effectively, companies are motivated to invest in technologies and processes. As a result, information flows become more seamlessly across the supply chain. 

7. Major Cautions With Using OTIF Metric: Poor Data, Bad Measurements, Overzealous Use

While OTIF offers a wealth of benefits, there are limitations to its measurement that we must acknowledge. For example, a retailer might penalize suppliers based on incorrect OTIF scores due to data entry errors. Thus, this can strain valuable relationships. Moreover, an overemphasis on OTIF can lead to short-sighted decisions that neglect other important factors, such as cost and quality. Thus, to balance OTIF with a comprehensive suite of metrics that together provide a holistic view of supply chain performance. To list, below are several limitations with measuring OTIF and using it as a sole driver of supply chain excellence. 

  • a. Varying OTIF Standards. Indeed, there are good arguments both to have uniform OTIF standards and to tailor OTIF measurements depending on the operation. The key is that both parties have a common understanding of the OTIF standard.
  • b. Low Quality of Data. If the data is incomplete, ambiguous, or inaccurate, the effectiveness of the OTIF metric becomes limited, or worse, skewed in reporting results.
  • c. Seasonality and External Factors. When using OTIF, analysts need to take into consideration external factors such as natural disasters and increases in volumes prior to a major holiday.
  • d. Using OTIF as a Sole Performance Indicator. The OTIF metric is a key supply chain metric, but should be used in conjunction with other metrics. For instance, other key metric areas include inventory turnover, order accuracy, and accounts receivable to name a few.
More References.

For additional references on how OTIF can reduce costs, see roambee’s article, Calculating Logistics Cost Reduction Through OTIF (On-Time and In-Full) Delivery and Celonis’ article, OTIF explained: The what, why and how of optimizing for on-time in-full delivery

Additionally, for a more detailed discussion on improving data interoperability and shipment visibility in the supply chain, see my articles, Let’s Breakthrough The Data Interoperability Nightmare: It Is The Best Way To Unlock Supply Chain Innovation and Supply Chain Visibility Of Cargo: Know Your Need And The Surprising Challenge To Secure It.

Lastly for more on OTIF, see my article, Measuring The OTIF Metric: The Best Ways To Focus On Uplifting Supply Chain Excellence. In this article, find out more about the significance of OTIF as well as best practices on how to measure and implementation strategies.

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.

Click here, to better understand the significance of OTIF and how it is calculated. Furthermore, I’ll share seven key insights to ensure you devise an effective strategy to successfully implement this metric into your operation.

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