OTIF, or on-time in-full, refers to the performance of shippers or suppliers fulfilling orders to their customers. It is a simple calculation, but behind it is a complex topic, one that shippers should give close attention to improve their relationships with retailers, avoid losses in sales from items being out of stock in stores, and avoid fines due to low OTIF performance.
Different retailers will have different OTIF guidelines, plus other key performance indicators (KPIs) that they track. If shippers are also monitoring these KPIs, they can see where their points of weakness are and use this to strategize how to improve OTIF.
This article answers questions on exactly what OTIF is, what it means in the supply chain, how to calculate OTIF, and why it is important to understand. Plus, it provides tips on how to improve OTIF and shows how shippers that use digital freight brokerages get advantages that can help their OTIF performance.
What is OTIF in Supply Chain?
OTIF is a KPI used by big box retailers and store distributors to evaluate the performance of their suppliers, as with a scorecard program. (“OTIF” can either be pronounced as a word, said by spelling out the initials, or stated as “on time, in full.”)
The short history of OTIF starts with Walmart, the first retailer to introduce the OTIF KPI, back in 2016 and implemented it in 2017. Walmart wanted to create a standardized way to measure two pieces of information vital to distribution centers and stores regarding their suppliers—their performance in getting orders fulfilled without issues at the time of delivery and without discrepancies on the items or quantities received.
OTIF is a percentage that retailers would like to be as close to 100% as possible. Of course, 100% would be an ideal scenario where there are no mishaps, but unexpected circumstances arise eventually for any shipper. Suppose a shipper has had numerous orders during the time that goes into the OTIF calculation. In that case, a single order that does not arrive on time and in full will not cause any major problems between the retailer and the shipper. However, if the OTIF rate continues to drop, this brings a risk to the shipper.
How is OTIF Calculated?
The simple calculation for OTIF is the number of orders completed on time in full divided by the total number of orders. If there are 100 orders, a 98% OTIF rate would mean two orders did not arrive on time and in full.
OTIF calculation gets more complicated when retailers have differing requirements for what they consider on time and in full. Every order has a must-arrive-by date (MABD)—the deadline when stakeholders expect the shipment to arrive at its destination. Retailers may stipulate some orders, like perishables, arrive exactly on the MABD, not sooner or later. In contrast, others get a larger window of time, like within two days of the MABD, allowing orders to be delivered early without penalty. In full means the contents of the shipment match what was ordered exactly—the correct SKUs and the correct quantities.
The following are the possible combinations of on-time and in-full, with the calculated OTIF as a result.
|No: X% of order quantity delivered
|No: X% of order quantity delivered
As this table shows, the OTIF calculation is always 0% if the delivery occurred late. If it was on time, OTIF is the percentage of the order quantity delivered in full. However, this leads to the question, is in full referring to cases, line items, or orders as a whole?
Take the following example: An order has two different line items, one delivered in full and one not, assuming that everything was delivered on time.
|Delivered Quantity (Assuming On Time)
|In-Full Calculated According to:
This example shows that in-full calculation using cases is the preferred method for both retailers and shippers because calculation using line items or complete orders incentivizes shippers to send partial orders to avoid a low OTIF rate.
What is a Good Benchmark for OTIF?
While any retailer can use a different OTIF benchmark, we can use Walmart as an example. When they began OTIF calculation in August 2017, Walmart used 75% as the goal with a four-day delivery window for full truckload shipments from large suppliers. They increased this the next year to 85% with a two-day window and gradually increased their OTIF requirements until 2020, when it reached the current 98% delivered on the must-arrive-by date.
Any shipper meeting an OTIF goal of 98% or 99% is among the top-performing companies. Generally, 90% or greater OTIF is a good benchmark, or even upper 80%. Percentages much lower than this are associated with risks and leave plenty of room for improvement for the shipper.
What’s at Stake with a Low OTIF?
In addition to how a high OTIF benefits shippers and retailers, a low OTIF leads to consequences that companies want to avoid. This includes immediate effects on the business and impact realized in the long term. Here are three main problems for a shipper with a low OTIF.
Fines are a direct consequence of the shipper failing to deliver orders on time and in full. The goal for retailers is to avoid out-of-stock products, and the risk of this increases when orders arrive late or incomplete. On top of this, retailers strive for efficient operations at their distribution centers. If too many deliveries occur at a completely different time frame than the retailer planned, this could create congestion, delays, and inefficiency. Retailers impose fines to discourage their suppliers from delivering early, late, or incomplete orders.
Fines may be a flat fee or a percentage of the cost of goods for the order not delivered on time and in full. A fine of 2% for a $150,000 order would come to $3,000. Over a month of shipments, this can quickly add up to tens of thousands of dollars in fines, depending on the occurrence of late/incomplete orders and the cost of goods. Any shipper looking to reduce costs would have a tremendous opportunity to do so by improving a low OTIF score.
Loss of Sales
Loss of sales is the consequence of a low OTIF that affects retailers as well as shippers. By design, the OTIF scorecard and penalties incentivize suppliers to align with the retailers’ goal of avoiding out-of-stock products. Retail customers are likely to take their business elsewhere if they cannot find what they need, and the retailer loses the sale.
The shipper also has the loss of sales to incentivize them to deliver on time and in full. There is often no opportunity to recover lost sales from out-of-stocks. Shippers lose out on more sales each day their products are unavailable to customers. OTIF calculations may have started as a way to help the retailer, but the loss of sales for one brand may not hurt the retailer if they have other brands on the shelves. Customers placing online orders are directly offered a competing brand if the one they want is out of stock. When the customer accepts this substitution, the shipper misses the sale, but the retailer does not.
Risk to Retailer Relationships
Taking the previous point a step further, if customers purchase a competitor’s product when one supplier’s items are out of stock, the retailer may eventually end the relationship with that supplier. They may choose to work with more reliable suppliers to keep the shelves stocked.
A low OTIF strains the relationship between retailer and supplier. When late/incomplete orders occur frequently, it is challenging for the retailer to work with the supplier and continue to manage their inventory smoothly. The first items they will likely replace are those that are often out of stock. Some retailers take the approach of carrying only a limited assortment of products. It is even more important for the suppliers that work with these retailers to maintain a high OTIF.
Why It’s Important to Have a High OTIF
It is in the shipper’s best interest to have a high OTIF, first and foremost, to avoid the consequences of a low OTIF—fines, loss of sales, and risk to retailer relationships. Shippers can reduce costs, increase revenue, and increase their customer base just by focusing on improving OTIF.
But there is another big reason why a high OTIF is important to shippers, and it has to do with what OTIF reveals about business operations. In many ways, OTIF performance indicates the success of the rest of the shipper’s supply chain and logistics. If they manage to improve a low OTIF performance, it is because they improved the factors of their supply chain that affect OTIF scores down the line.
Some of these factors include:
- Communication with partners
- Performance from partners
- Supply chain visibility
- Supply chain optimization
A low OTIF may result from deficiencies in any combination of these factors. Essentially, when shippers dive into researching the root causes of a low OTIF score, they reveal their points of weakness in the supply chain. This means that a high OTIF comes with the benefits of excelling in communication, performance, visibility, and optimization, that is, a finely-tuned and streamlined supply chain capable of handling customers’ demands.
Tips for Improving OTIF
How exactly do shippers improve OTIF rates? It starts with analyzing the data that goes into the OTIF calculation, both on time and in full, to help identify the root causes.
Questions to Ask When Analyzing On-Time Data
- Are there communication issues with the retailer?
- Are there communication issues with carriers?
- Are appointments scheduled too early or late?
- How is the carriers’ performance?
- Do they arrive early or late?
- Do they make the scheduled appointment?
- Do they allow enough time between pickup and delivery?
- How often do unforeseen problems occur?
- Are there any carriers that consistently perform poorly?
Questions to Ask When Analyzing In-Full Data
- Are there issues regarding supply or inbound logistics?
- Are there planning issues regarding demand?
- Are there communication issues regarding orders?
- Where in the process are errors occurring?
- Are orders picked accurately at the warehouse?
- Are there mistakes made at consolidation facilities?
- Are there any frequently-occurring reasons for error?
Here are six more tips for identifying areas of improvement for increasing OTIF rates.
Address lead time
Evaluate whether any changes can be made to give more lead time to avoid rush orders, decrease errors, and accurately meet order and delivery requirements.
Leverage data to align operations
Examine logistics data such as tracking and performance metrics to identify where operations like production and transportation can be in better alignment.
Communication methods with suppliers, warehouse partners, carriers, and retailers should be effective and efficient while minimizing errors.
An all-encompassing solution that enables you to to track a load’s location and condition in real-time throughout the transportation journey can have a significant role in improving OTIF. Data regarding temperature, trailer humidity, shift monitoring, and route optimization provide actionable insights that help reduce wait time, detention costs, and more.
Use preferred partners
Choose to work with carriers, warehouses, freight brokers, and other supply chain partners that offer a high quality of service and deliver reliably on their promises.
Get a single source of truth
Data should be collected in one system or solution to ensure stakeholders base decisions on all data available, and this also allows a faster response when issues occur.
How Digital Freight Brokerages Help Shippers Improve OTIF
When shippers use a digital freight brokerage, they gain access to the resources this network provides, like quality capacity, that helps them improve the on-time aspect of OTIF. Here are three benefits a digital freight platform like Hwy Haul brings to a shipper’s OTIF performance.
Access to digital data and monitoring for every shipment
Every data point a shipper could need is automatically collected by a digital freight platform, which can then inform future opportunities to improve OTIF.
Optimized transportation supports an optimized supply chain, which means orders are more likely to deliver on time. A digital freight broker uses specialized algorithms to get loads delivered faster and more efficiently.
Faster process for securing capacity
Digital freight platforms can connect shippers with capacity faster without reliance on a middleman. Shippers can quickly secure the capacity they need in a time-sensitive situation when there is a risk of not delivering on time.
Improve OTIF Performance with Hwy Haul
To deliver on time and in full, shippers depend on access to transportation capacity and supply chain partnerships that make it possible to provide reliability and accuracy with their orders. As a digital freight platform, Hwy Haul can help shippers improve their OTIF rates, providing freight matching and optimization with real-time tracking and visibility.
Connect with us today for more information on how Hwy Haul can help OTIF performance.