Over the past several years, on-time in-full (OTIF) has grown in importance throughout the logistics industry, largely driven by major companies like Walmart. Setting an on-time in-full KPI is important, as fines can very easily reach seven- or even eight-figure expenses for product-based companies, such as those within the food and beverage and CPG verticals.
In this post, we’ll go over the OTIF definition and its origins, its impacts throughout the industry to date, and some ways that you can best meet rising expectations for on-time in-full within your supply chain.
What is on-time in-full (OTIF)?
On-time in-full (OTIF), is a supply chain metric for measuring performance in the logistics industry. OTIF generally refers to a supplier’s ability to deliver product within prescribed delivery windows and at full quantities ordered.
The concept originated in 2017 when Walmart began evaluating suppliers based on their ability to deliver orders on time – and levied fines on those that couldn’t comply. It’s now widely used to judge the performance of the supply chain when it comes to inventory planning, inventory optimization and order fulfillment.
OTIF was designed to improve store operations within Walmart itself and quickly led to a series of major changes as it was quickly adopted by other retailers and companies. Most notably, because it penalized loads arriving early as well as late, it gave rise to a greater need for executing supply chain operations with pinpoint precision – and in the process necessitated more accurate insight into the status and disposition of supply chain assets than ever before.
Companies that enforce OTIF standards don’t always validate the fines they issue, leading to disputes. Much like detention, better visibility can help resolve these disputes for both parties.
With OTIF, one of the biggest challenges to reliably calculating your score is actually consolidating the data from within your carrier base into a single place, then validating that for quality and consistency. Once you do so, platforms like FourKites, with a suite of advanced analytics solutions, can help you monitor that data to assess performance over time, and identify bottlenecks and issues that are negatively impacting your score with your target customers.
One FourKites customer in the CPG industry has already used these capabilities to improve OTIF performance with its major retail customers. By sending FourKites pallet- and SKU-level information that lets the platform track both the on-time performance of their loads in addition to the in-full component, the customer was able to challenge and resolve disputes from numerous customers who did not have the data on their end to validate claims of an OTIF violation. When you consider that these fines can easily amount to thousands or tens of thousands of dollars each month, the payoff of having such a system in place becomes immediately apparent.
How is OTIF calculated?
OTIF is really two different metrics combined together into a single acronym. Let’s break it down:
- On-time is a service metric that tracks how closely a delivery came to meeting its agreed-upon delivery appointment time.
- In-full refers to the quantity of the product itself, and measures whether customers are receiving more, less or the exact amount they requested.
OTIF fines are usually assessed as a percentage of the value of each early, late or incomplete shipment. For instance, Walmart, which changed how it penalizes shippers when they make partial deliveries, fines shippers that fail to meet the company’s OTIF requirements by charging 3% of the cost of the goods sold for each miss. Companies shipping to Walmart and other retailers not only pay an upfront cost for missing delivery windows; they also potentially risk losing space on a store’s shelves.
Customer rules around OTIF vary depending on how the metric is measured by individual companies. For example, a late delivery isn’t the only occasion that might give rise to OTIF-related fines. Some customers, looking to keep their inventories lean, assess penalties when deliveries arrive a day early, while others are satisfied with accepting early arrivals.
In the end, the penalties underscore the growing need for accurate insight into the real-time status and location of supply chain assets – and the increasing value this information holds for the world’s shippers. And that’s where real-time supply chain visibility can help shippers better meet timetables to avoid paying fines. Let’s take a closer look at how this works in practice.
How the OTIF KPI is used to measure performance
When retailers evaluate partnerships, a carrier’s ability to deliver product on-time and in-full looms large in their decision-making. So, if logistics teams aren’t meeting targets set by key customers, they need to adopt the right carrier strategy for that business. If the problem stems from poor planning, poor manufacturing or poor warehousing processes, they need to work more closely with other stakeholders to resolve any issues.
The OTIF KPI offers clear incentive for companies to raise their score as high as possible with the highest degree of consistency. With that goal in mind, real-time visibility platforms make a huge impact by offering transparency so operators can better understand underlying reasons behind any OTIF-related issues. For example, is a low score related to production problems, a warehousing delay, an appointment scheduling issue, or a bottleneck caused by trying to ship too many orders on the same day? Perhaps the carrier is not allowing enough transit time, or they’re sending drivers who don’t have the right hours of service.
Supply chain visibility systems get to the root cause(s) of these issues and help managers plan more proactively. Greater agility, consequently, translates into better decision-making that results in improved OTIF scores.
What is a good OTIF benchmark?
In an ideal world, companies would strive for 100% compliance with on-time in-full across their customer base. Since this is the real world, however, a pretty solid OTIF benchmark to shoot for is the high 80% or even 90% range.
Since its inception in 2017, Walmart has been one of the biggest forces driving OTIF adoption throughout the supply chain industry, making the company a good barometer of best practices in this still-developing space. In the years since rolling out OTIF in 2017, Walart’s standard OTIF target for its suppliers has steadily increased from 75% in August 2017 to 85% in January 2018, to 87% in March 2019.
“In the years since rolling out OTIF in 2017, their standard on-time in-full target for their suppliers has steadily increased from 75% in August 2017 to 85% in January 2018, to 87% in March 2019.”
Given that it’s something of a moving target, and that requirements will vary across industries and even individual retailers, it’s clear that companies should focus on getting their score as high as possible, with the highest degree of consistency possible. A higher OTIF capability will always help you get more business, and keep that business once you’ve secured it.
How can you improve OTIF?
All of this begs the question of how to improve your on-time performance. If you’re asking that question, know that you’re not alone. Fortunately, there are plenty of things you can do to improve your performance over time. Here are a few common ways we’ve seen this done over the years:
- Get a single point of truth. This allows you to notify your customer as soon as a delay occurs, and potentially even allows you to save that load by dispatching another shipment that will arrive on time. Obviously this is a challenge due to the fragmented nature of global logistics, particularly in North America and Europe. It’s not at all a simple matter of having the driver call ahead as soon as he or she has experienced a delay.
- Identify sources of delay on your end. Ideally, you should be closely monitoring your carriers, your distribution centers, your warehouses and all of the other moving parts within your supply chain to be on the lookout for patterns that are impacting your overall OTIF performance. Once you find the areas where delays most often occur, then you can go in and start addressing the root cause of the delay. As we’ve said before, you can’t fix what you can’t see!
- Validate any fees or fines. In addition to identifying the sources of delay within your own operation, you should also keep a close eye out for delays that result from the customers’ actions as well. For example, if you can prove that your truck arrived on time to a given facility, but that it was detained outside that facility due to delays occurring on the retailer’s side, you can prove that the delay wasn’t your fault and dispute any fines the retailer tries to leverage against you for that particular load.
Improvising in real-time to avoid delivery fines
Real-time visibility solutions offer a single source of truth about the status of supply chains. Managers can reference audit trails to pinpoint the actual location of a truck, as well as the actual time that it arrived and left a location. This ability to quickly access the latest intelligence on where things stand can prove invaluable for a company that can quickly implement contingency plans before a delay impacts their OTIF score.
As logistics companies increasingly turn to data science platforms to streamline their operations, they’re able to make more informed decisions than rivals who still rely upon legacy systems. For example, when an algorithm determines the high probability of delay on an order, a recommendation engine can offer prescriptive advice to guide future steps, as the system will know whether a truck is going to be late for a pickup. That allows time to locate another driver on a load or find an alternative carrier to deliver the goods and meet the agreed-upon delivery time.
This last-minute maneuvering may slightly increase transportation expenses, but it helps avoid a late delivery and potentially hefty fines. According to Gartner, shippers that deploy supply chain visibility solutions can reap up to 10% improvements in their performance metrics.Case studies in successful OTIF improvement
Case studies in successful OTIF improvement
These steps really do pay off. To take one of the most extreme examples, FourKites customer Smithfield improved its on-time performance from 87% to 94% by improving visibility across all the moving parts of its supply chain. Smithfield ships about 1,000 truckloads of product per day in the US alone, and contracts with more than 230 separate trucking companies – that’s a lot of moving parts and a lot of disparate systems. By unifying all of those elements into one single supply chain visibility platform, it suddenly becomes much easier for companies to identify the patterns behind their OTIF performance scores.
Another great example is Kraft Heinz. When OTIF first came onto the stage, Kraft Heinz made a number of changes to its operating structure to accommodate the higher expectations, first by prioritizing larger asset-based carriers over one-off brokered loads, then by leveraging FourKites to improve supply chain reliability and strengthen relationships with its partner carriers. In doing so, the company improved its overall OTIF score by 5% over the course of one year.
Once you see improvements like that, then you’re ultimately able to book more accurate delivery times with your retailers and adjust those windows proactively when delays occur. For most retailers, the bottom line is this: If your appointment is scheduled for 10:00, the expectation is that you’re going to be there at 10:00.
Final thoughts regarding OTIF
Even if you’re not delivering on time 100% of the time, that doesn’t mean you’re a poor performer. In looking to improve your OTIF performance, what’s most important is ongoing and effective collaboration between supplier and customer so that managers have the necessary tools to take action when needed.
We saw examples of this play out during the height of the COVD-19 disruptions, when real-time visibility systems helped logistics companies function in the face of global supply chain chaos. Shippers with access to real-time supply chain visibility solutions could securely log in to view orders moving around the globe – all via a single pane of glass that captured up-to-the minute information on their whereabouts. For practitioners of modern supply chain management, it was a real-world reminder that OTIF performance comes down to proactive decision-making and data-driven visibility. Otherwise, you’re left shooting in the dark.