What is OTIF and why should businesses consider it?
In the supply chain, OTIF stands for “on time in full” and means delivering the correct goods in the right quantity to customers on the date promised. Adding this key performance indicator (KPI) to your supply chain allows businesses to measure themselves while being able to evaluate the performance of all the participants in the commerce ecosystem. Ultimately it allows the measurement of a business’ ability to deliver on their promise while capturing the highest gross margin on their inventory investment.
How to measure OTIF:
OTIF measurements pose challenges for organizations regardless of their type or industry. It is a crucial metric that reflects the supply chain's contribution to the customer experience, impacting brands, wholesalers, retailers, manufacturers, and distributors, both online and offline.
While there is no single solution to measuring OTIF, it is often the result of multiple factors affecting the overall performance. Suppliers, inventory visibility, and other variables beyond direct control can influence OTIF.
By analyzing key performance indicators and identifying failures across various categories, businesses can understand the story behind their numbers. Failures generally fall into four categories: People, Process, Participant, and System, helping pinpoint areas for improvement.
There are several factors that lead to delays/discrepancies and ultimately failures in OTIF in a business. Those can include but are not limited to:
- Issues with inventory visibility,
- Linear order execution,
- Logistics updates,
- Exception handling,
- Supplier performance.
An underlying OTIF strategy is essential and it’s critical to consider all aspects of the business and its ecosystem when looking at the cause of issues and how to address them:
- Expectations with suppliers and 3rd party participants: Set clear expectations, improve communication and resolve any issues that are impacting OTIF. Establishing the same KPIs sets the goal but also works to “ferret-out” where the failures exist.
- Technology for real-time monitoring: Implement technology that delivers Specific, Measurable, Actionable, Realistic and Timebound (S.M.A.R.T.) results and provides regular reports to the relevant stakeholders. More importantly, this offers monitoring that signals exceptions that can be actioned upon in real-time, saving a potential failure.
- Inventory optimization: Understanding your global inventory positions is the #1 critical element to success in OTIF. You cannot promise with certainty without knowing your inventory availability and location in real-time with accuracy.
- Customer service-level agreements (SLAs): Communicate with customers, understand their needs and prioritize them. Make sure that your system (OMS) can model their SLAs and is executable therein.
- Continuous improvement: This comprises end-to-end visibility and systems to monitor and capture success and failure that improve OTIF performance. And lastly, it means to be able to quickly replicate success factors across the enterprise by regularly reviewing the progress and adjusting as needed. Meet frequently (quarterly) with all constituents to your supply chain initiatives, successes and failures.
An improvement of 5% in the OTIF rate for a company can have a significant impact on its operations and bottom line. Here are a few ways that an improvement of 5% in OTIF could benefit a company:
- Customer satisfaction and loyalty,
- Inventory cost, accessibility and utilization,
- Fulfillment, rates and exception handling,
- Supplier relationships and expectations.
How can an OMS help improve OTIF?
After measuring OTIF, businesses should analyze the tech tools capable of improving performance. An Order Management System (OMS) is a great example of software able to improve a company's OTIF successes.
It consolidates all the information needed to make strides in OTIF improvement and orchestrates and executes all the activity required to meet promises and client commitments.
The four pillars of order management
- Inventory (real-time): Global inventory visibility is critical for OTIF improvement and the business’ ability to recognize and account for inventory ‘not owned’. This means knowing inventory positions network-wide across all sources (even those in transit) and understanding the viability to promise against it. This allows the company to quickly adjust when exceptions are discovered (e.g. min / max, stockouts, overages, etc.) not only from the perspective of promising but also recognizes the inbound side of the equation that may require an intervention to support raw materials and production.
- Orchestration (Channel Agnostic): Order orchestration (not linear order routing) receives and decomposes the order, down to an individual piece within an order line within an order. To meet OTIF expectations, the OMS determines the best source of inventory (such as distribution centers/warehouses etc.) based on a complex set of business rules, sourcing and allocation logic to meet individual customer expectations. It reorchestrates the order and executes / passes it through to the fulfillment stage. This automates and removes most manual steps and improves commitments exponentially over basic integrations and linear order routing.
- Fulfillment: The flexibility of being able to buy, fulfill, and edit / return / intervene from anywhere facilitates reaching OTIF goals. Integrating OMS logistics and warehouse systems should include the process of picking, packing, printing carrier-compliant documentation and labels and shipping orders into the OTIF calculations. This can be particularly valuable when orders require lead times and raw materials or finished goods for the purposes of kitting, manufacturing, or build-to-order processes. This can reduce lead times and improve the speed of product delivery.
- Care: An OMS provides end-to-end visibility of the entire order process from capture to close. This gives power to those who impact OTIF when disruption happens - in real time. Care is not limited to a central customer service portal for all order, transaction and purchase history data. It also ensures customer-centric strategies result in positive experiences and increased brand loyalty. This single portal capability for customer service agents aggregates orders across all channels and order processes. It creates the ability for care agents to communicate and collaborate with all participants in the supply chain ecosystem, allowing for better planning and execution of orders - but above all, real-time intervention!
Each pillar in the OTIF project plays a critical role in driving success and addressing risks within them presents opportunities for improvement. Metrics driving OTIF can be impacted across all pillars. For instance, late deliveries may not always be the warehouse's fault but could be a result of overcommitment during order placement.
Implementing an effective OMS with proper sourcing and allocation algorithms can eliminate such errors. An OMS streamlines order fulfillment, enhances supplier collaboration, and provides real-time inventory visibility, leading to improved OTIF rates. By tackling root causes and implementing strategies, companies can rapidly improve their OTIF performance, benefiting customer satisfaction, cost reduction, and overall efficiency.
