Why is OTIF (on-time-in-full) important?
On-time in-full (OTIF) is a critical performance metric for Fast-Moving Consumer Goods (FMCG) companies, which is essential to maintain their competitive edge in the market. This measure evaluates the effectiveness of a company’s supply chain management by gauging the timely delivery of products in the requested quantity. The importance of OTIF in an FMCG company cannot be overstated, as it directly impacts customer satisfaction, brand reputation, and overall profitability. In this regard, let’s delve into the key aspects of OTIF and why it holds paramount significance in the FMCG industry.
First and foremost, OTIF ensures customer satisfaction. In the highly competitive world of FMCG, customers have a plethora of choices at their disposal. Consequently, they demand timely delivery of their desired products without any compromise on quality. An FMCG company with a high OTIF score is more likely to meet these expectations, resulting in increased customer satisfaction. Satisfied customers tend to be loyal and are more likely to recommend the brand to others, thereby driving growth and profitability.
In addition, OTIF plays a crucial role in fostering strong retailer relationships. Retailers seek partnerships with FMCG companies that consistently deliver products on time and in the required quantities. In turn, these retailers are more inclined to allocate prime shelf space to products from companies with a proven track record of high OTIF performance. By maintaining a strong OTIF score, FMCG companies can secure prominent placement in retail stores, increasing product visibility and ultimately boosting sales.
Moreover, OTIF serves as an essential tool for managing and optimizing inventory levels. Efficient inventory management is a key factor in the profitability of an FMCG company, as it helps to minimize stockouts and overstock situations. By closely monitoring OTIF performance, companies can quickly identify any inefficiencies in their supply chain and take corrective actions, thereby ensuring the right amount of stock is available at the right time. This translates to reduced inventory carrying costs, improved cash flow, and enhanced profitability.
Furthermore, a high OTIF score can significantly improve an FMCG company’s brand reputation. When consumers repeatedly experience timely deliveries and accurate order fulfillment, they begin to associate the brand with reliability and dependability. This positive perception can lead to increased brand loyalty, higher customer retention rates, and an expanding customer base. Additionally, a strong brand reputation can enable FMCG companies to command higher prices for their products, ultimately driving revenue growth.
Lastly, OTIF can act as a catalyst for continuous improvement within an FMCG company. By consistently measuring and analyzing OTIF performance, companies can identify areas of improvement in their supply chain processes, from sourcing raw materials to delivering finished goods to retailers. This data-driven approach enables companies to pinpoint bottlenecks, streamline their operations, and implement best practices that lead to cost reductions and increased efficiency. Ultimately, this continuous improvement mindset fosters a culture of excellence and innovation, positioning the company for long-term success in the competitive FMCG landscape.
How is a standard OTIF calculated?
A standard OTIF (On-Time In-Full) is calculated by measuring the percentage of orders that are delivered both on-time and in-full, which means the orders are delivered within the agreed-upon timeframe and with the correct quantity of products. To calculate OTIF, you need to consider the total number of orders delivered and the number of orders that meet both the on-time and in-full criteria. Here’s the formula to calculate OTIF:
OTIF (%) = (Number of orders delivered On-Time In-Full / Total number of orders delivered) × 100
For example, let’s say an FMCG company delivered 1,000 orders in a given period. Out of these, 900 orders were delivered on-time and in-full. The OTIF would be calculated as follows:
OTIF (%) = (900 / 1,000) × 100 = 90%
In this example, the OTIF score is 90%, which means 90% of the orders were delivered both on-time and in-full. A high OTIF score indicates that a company is effectively managing its supply chain, resulting in satisfied customers, strong retailer relationships, and overall better business performance.
What is an international standard for an acceptable OTIF
There isn’t a universal international standard for an acceptable OTIF (On-Time In-Full) score, as the ideal OTIF benchmark varies across industries and individual companies. However, it’s generally accepted that a higher OTIF score signifies better supply chain performance and customer satisfaction.
In practice, many businesses aim for an OTIF score of 95% or higher, which is often considered a good benchmark. This means that 95% of orders are delivered on-time and in-full. Nevertheless, the target may differ depending on the specific industry, market dynamics, and supply chain complexities involved.
It’s essential for companies to continuously evaluate their supply chain performance and set their OTIF targets accordingly. By doing so, they can identify areas of improvement, streamline operations, and enhance overall customer satisfaction. Keep in mind that a high OTIF score alone may not guarantee success; it’s crucial to consider other factors such as cost, quality, and sustainability in the overall performance evaluation.
How does a low OTIF impact the revenue of a company?
A low OTIF (On-Time In-Full) score can have several negative consequences on a company’s revenue. The inability to deliver orders on-time and in-full can lead to customer dissatisfaction, strained relationships with retailers, inefficient inventory management, and a weakened brand reputation. All of these factors can adversely impact the company’s revenue in different ways:
Customer dissatisfaction due to low OTIF
When customers experience delays in receiving their orders or do not receive the complete order, they are more likely to become dissatisfied. This can result in lost sales, as customers may switch to competitors that offer better service and timely deliveries.
Retailer relationships: Retailers prefer to work with suppliers that consistently deliver products on-time and in-full. A low OTIF score can harm a company’s relationship with its retailers, potentially leading to fewer orders, reduced shelf space, and even the discontinuation of products. This directly affects the company’s sales and revenue.
Inventory management impacts OTIF
Poor OTIF performance may indicate inefficiencies in a company’s supply chain and inventory management. This can lead to stockouts or overstock situations, which disrupt sales and increase inventory holding costs. Inefficient inventory management also ties up working capital that could otherwise be utilized to grow the business.
Brand reputation is affected by OTIF
A company with a low OTIF score may develop a negative reputation for unreliability and poor service. This perception can lead to a decrease in customer loyalty and make it harder for the company to attract new customers. Additionally, a weakened brand reputation may limit the company’s ability to command premium pricing for its products, further reducing revenue.
Opportunity cost lost due to OTIF
A low OTIF score may necessitate additional resources, such as expedited shipping or increased inventory levels, to compensate for supply chain inefficiencies. These added costs represent an opportunity cost, as the company could have used these resources for other revenue-generating activities.
10 Key steps to reach a world-class OTIF?
Achieving a world-class OTIF (On-Time In-Full) performance requires a comprehensive approach that focuses on optimizing various aspects of the supply chain. Here are some key steps to reach a world-class OTIF:
Set clear goals and expectations: Establish a target OTIF score that reflects your company’s commitment to delivering excellent service. Communicate these goals to all stakeholders, including suppliers, employees, and logistics partners.
Measure and monitor performance: Regularly track and analyze your OTIF performance to identify areas of improvement. Use key performance indicators (KPIs) to assess the efficiency of your supply chain processes and the performance of individual suppliers and partners.
Collaborate with suppliers and partners: Develop strong relationships with your suppliers and logistics partners to ensure they understand your OTIF expectations. Collaborate with them to address any issues and work together to optimize performance.
Implement demand forecasting and inventory management: Accurate demand forecasting is crucial for effective inventory management and on-time deliveries. Use historical data, market trends, and advanced analytics tools to forecast demand and optimize inventory levels.
Adopt advanced technologies: Leverage technologies such as warehouse management systems (WMS), transportation management systems (TMS), and data analytics tools to streamline supply chain processes, reduce lead times, and improve visibility.
Enhance communication and coordination: Ensure clear communication and coordination among all supply chain stakeholders, including sales, operations, and logistics teams. This will help in better alignment of processes, quick identification of issues, and effective resolution.
Optimize transportation and logistics: Assess and optimize your transportation and logistics processes to minimize delays and reduce costs. Consider consolidating shipments, using multimodal transportation, and partnering with reliable carriers.
Continuously improve processes: Adopt a continuous improvement mindset and regularly review your supply chain processes. Identify bottlenecks, inefficiencies, and areas for improvement, and implement corrective actions.
Invest in employee training and development: Train your employees to understand the importance of OTIF performance and equip them with the necessary skills to contribute to its improvement. Encourage a culture of accountability and ownership.
Benchmark against industry standards: Regularly benchmark your OTIF performance against industry standards and best practices to stay competitive and identify areas where further enhancements can be made.
How does OTIF relate to the value chain?
OTIF (On-Time In-Full) is closely related to the value chain, as it serves as a key performance metric for the effectiveness and efficiency of various activities within the chain. The value chain concept, developed by Michael Porter, refers to a series of activities that businesses undergo to create and deliver value to their customers. These activities can be broadly categorized into primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (infrastructure, human resource management, technology development, and procurement).
OTIF is particularly relevant to the primary activities of the value chain, specifically inbound logistics, operations, and outbound logistics. Here’s how OTIF relates to these activities:
Inbound logistics: This involves the procurement of raw materials, components, or finished goods from suppliers and their transportation to the production facility or warehouse. Effective supplier management, accurate demand forecasting, and efficient transportation can contribute to higher OTIF performance by ensuring that inputs are available on time and in the required quantities.
Operations: This encompasses the transformation of inputs into finished products through manufacturing or other processes. Efficient production scheduling, quality control, and process optimization can help improve OTIF by ensuring that products are manufactured in the right quantities and with minimal defects or delays.
Outbound logistics: This involves the storage, transportation, and delivery of finished goods to customers or retailers. Efficient warehouse management, optimized transportation routes, and effective coordination with logistics partners can enhance OTIF performance by reducing delivery times and ensuring that products reach their intended destinations on time and in the correct quantities.
By focusing on these primary value chain activities, companies can improve their OTIF performance, which in turn can have a positive impact on other areas of the value chain, such as marketing and sales, and service. A high OTIF score indicates that the company is successfully managing its value chain, delivering products on-time and in-full to customers, and ultimately creating value for all stakeholders.
What are the challenges for calculating OTIF properly?
Calculating OTIF properly can be challenging due to several factors that may affect the accuracy and consistency of the measurement. Some of the key challenges include:
Accurate data on delivery times, quantities, and order details is essential for calculating OTIF correctly. Incomplete or incorrect data can lead to misleading results.
Different companies and industries may have varying definitions of “on-time” and “in-full” based on their specific contexts. This can make it difficult to standardize OTIF calculation and compare performance across companies or industries.
Complex supply chains
Global supply chains can be intricate, involving multiple parties such as suppliers, manufacturers, carriers, and retailers. Coordinating and tracking deliveries across this complex network can be challenging, making it difficult to accurately assess OTIF performance.
Unforeseen external factors, such as natural disasters, geopolitical events, or transportation disruptions, can impact the delivery of orders and modify OTIF performance. These factors may be difficult to account for and can complicate the calculation process.
Subjectivity in measuring time
There may be inconsistencies in how the agreed-upon delivery time is defined and measured. For instance, differences in time zones, business hours, or lead times can create discrepancies in the calculation of on-time deliveries.
Partial deliveries impact OTIF
In cases where an order is partially delivered, it can be challenging to determine whether the delivery should be considered “in-full” for OTIF calculation purposes. Different organizations may handle partial deliveries differently, leading to inconsistencies in OTIF measurements. However, there is a consensus that an order delivered incomplete or with substitute products, cannot be considered In-Full delivery.
To overcome these challenges, companies must establish clear definitions and standards for calculating OTIF, invest in accurate data collection and management systems, and maintain strong communication and collaboration with supply chain partners. By addressing these challenges, companies can better assess their OTIF performance and identify areas for improvement.
Final thoughts on OTIF at FMCG cmpanies
Fast-moving consumer goods companies are stressed a lot by OTIF. Especially when the products sold have a short shelf life.
In companies like Bimbo and Cocca-Cola and so many others we have worked with, OTIF is one of the most important key indicators because it directly affects sales not fulfilled. In fact, FMCG companies there is a golden rule that is impacted directly by a low OTIF: a sale not made or not delivered is a lost sale. And in this business, a lost sale is one you never get back.
Until next time.