Over the past several years, on-time in-full (OTIF) has grown in importance throughout the logistics industry. Its growth and adoption has been 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. Especially those within the food and beverage and CPG verticals.
This article covers the definition of OTIF and its importance within supply chain. Plus, how to calculate, benchmark, and measure OTIF as a supply chain KPI, and much more.
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 of OTIF originated in 2017. It was then that Walmart began evaluating suppliers based on their ability to deliver orders on time – and levied fines on those that couldn’t comply. OTIF is now widely used to judge the performance of the supply chain. Particularly 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 rapidly 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 supply chain 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 data consolidation. Accurately capturing, collecting, and consolidating the data from within your carrier base is near impossible without the right tools. Then the challenge is to aggregate that data into a single place, so you can properly validate it for quality and consistency. Platforms like FourKites, make this process easy. And with FourKite’s suite of advanced analytics solutions, can help you monitor that data and assess performance over time. Including identifying bottlenecks and other issues that are negatively impacting your OTIF 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. The FourKites platform collected pallet- and SKU-level information from the customer. With that data, the platform tracked both the on-time performance of their loads and the in-full metrics. By referencing that tracked data the customer was able to challenge and resolve disputes from a number of customers who didn’t have data on their end to validate claims of an OTIF violation.
Real-time visibility is a necessity for an efficient, cost effective supply chain. And considering fines from OTIF violations can easily amount to tens of thousands of dollars each month, the ROI of a real-time visibility solution becomes apparent rather quickly.
OTIF is really two different metrics combined together into a single acronym. Let’s break it down:
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 can vary depending on how individual companies measure the metric. 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 happy to accept 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.
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 or a warehousing delay? Maybe it’s 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. Perhaps they’re sending drivers who don’t have the right hours of service. Visibility can help you find out.
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.
In an ideal world, companies would strive for 100% compliance with on-time in-full across their customer base. But this is the real world, do 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 supply chain adoption throughout the industry. Because of this, Walmart’s standards can act as a fairly good barometer of best practices in this still-developing space.
In the years since rolling out OTIF in 2017, Walmart’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. And as of 2020 Walmarts’ OTIF expectations have shot up to 98%!
OTIF standards are somewhat of a moving target. Requirements will vary across industries and can even vary across individual retailers. With these increasingly high expectations, companies should focus on getting their OTIF score as high as possible. And aim for the highest degree of consistency across their customers. A higher OTIF supply chain capability will help you get more business and keep that business once you’ve secured it.
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:
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. With that intel they can quickly implement contingency plans before a delay impacts their OTIF score.
More and more logistics companies turn to data science platforms to streamline their operations. With these platforms they’re able to make much more informed decisions than rivals who still rely on outdated 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.
These steps really do pay off. Smithfield, a FourKites Customer, improved its on-time performance from 87% to 94%. How? Smithfield improved visibility across all the moving parts of its supply chain. Smithfield ships about 1,000 truckloads of product per day in the US alone. They contract 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 on-time in-full 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.
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. That way, 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. 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. FourKites customers were able to monitor orders via a single pane of glass that captured up-to-the minute information on order 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. Without it, you’re left shooting in the dark.