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Understanding and Prioritizing OTIF in a Technology Supply Chain

Over the past five years, emphasis on On-Time, In-Full (OTIF) measurement has gained increasing prominence as a key performance indicator (KPI), particularly in tech supply chains. Walmart adopted OTIF as the primary metric by which supplier success was measured, implementing steep penalties for suppliers who failed to meet their targets. Although it had existed before Walmart honed in on it, when OTIF became the top logistics priority for the world’s largest retailer, it had trickle-down effects across the globe.

 

What Does OTIF Measure?

OTIF measures the percentage of your shipments delivered on-time and in-full, evaluated against agreements reached by both suppliers and customers. It’s primarily focused on customer satisfaction but is also an excellent barometer of overall logistical health.

By itself, OTIF is an umbrella term used to describe end results based on the entire supply chain. However, it can be broken down and evaluated at every stage in the process. When this happens, the term “OTIF” is typically preceded by the step or activity it describes. For example, delivery OTIF, supplier OTIF, receipt OTIF, picking OTIF, and dispatch OTIF are all constituent measurements used to gauge performance at specific points in a supply chain.

 

What is the Impact of a Low OTIF?

There is often an immediate financial impact: some customers impose fines for not meeting OTIF targets. Walmart, for example, penalizes suppliers with three percent of the value of shipments that are late or not delivered in full.

Additionally, consistently low performance decreases competitiveness and could cause existing customers to look elsewhere. At the least, a reputation of underperformance undoubtedly undermines a supplier’s ability to procure new clients.

Conversely, suppliers who have a reputation for reliable logistics processes and a firm grip on forecasting, procurement, and delivery can use this as a competitive edge, leveraging it for continued business growth.

 

What Drives OTIF Performance?

Three primary factors determine whether OTIF goals are achieved. The first is purchasing, which becomes increasingly complicated as more purchasing stages are added throughout the chain. Efficiently planning procurement decisions is critical to setting the rest of your supply chain up for success.

The second is warehouse performance, which is determined by numerous factors, from staffing to order pick time. Inbound shipments to the distribution center can also substantially impact your overall OTIF; if you don’t receive the product on-time, in-full, you won’t be able to turn it adequately.

Finally, the carrier must get the product to the customer undamaged and on schedule. Particularly in the winter months, substantial delays could occur at this stage.

 

How Can You Improve or Optimize OTIF?

The first step in hitting OTIF targets is knowing what to measure. Defining what “on-time” and “in-full” mean could be different, depending on who you’re dealing with. Is “on-time” strictly defined as the scheduled date, or is there a one to two day grace period? Does “in-full” apply to all orders, or are special orders removed from the calculation? Learning how your customers and subcontractors define their metrics can preclude a substantial amount of frustration, and aligning your definitions with theirs can pave the way toward success.

After determining where you’ll be evaluating OTIF components, you should decide how frequently you check scores. Although scores are often published quarterly or monthly, many distributors assess internal OTIF every day. The more regularly you evaluate your performance, the more accurately you can pinpoint what went wrong where and quickly take action to address it.

Finally, how you measure success can be the lynchpin that determines whether your company grows or languishes. Using antiquated logistics processes that rely heavily on manual input is a recipe for consistently low OTIF scores. Without real-time visibility into the health of the supply chain, it will be challenging to attain and maintain solid OTIF scores.

 

Prioritizing OTIF

The first step toward achieving a consistently high OTIF is understanding the metric itself. You should understand how your customers use it, how they define success, and whether there are differences in measurement standards. Next, establish internal OTIF processes and real-time visibility within your own organization and supply chain, checking your scores daily and immediately addressing any potential problem areas.

Digitization is crucial to this entire process. We’re at a tipping point: the technology to revolutionize logistics processes exists and is being used but has not yet been widely adopted in many areas. Those who embrace digitization gain a competitive edge, while those who fail to act will quickly fall behind.

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