OTIF Supply Chain
What is Supply Chain OTIF?
On-time, in-full (OTIF) is a key supply chain metric. It measures a supplier’s ability to have goods delivered to their distribution centers, often via freight transport, on time and at the full quantities ordered. OTIF shows the supplier’s ability to deliver on its promise and build trust with buyers. In theory, OTIF should ideally align with the objectives of retailers and manufacturers, but in practice, there is no standard definition. This means that different supply chain participants might interpret the metric in different ways, sometimes causing confusion.
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OTIF’s Origin and History
Have you heard about OTIF’s interesting history? The concept was popularized by Walmart in the late ‘10s, according to Supply Chain Dive, and it caused some stress for suppliers:
“OTIF went mainstream as a supply chain metric around August 2017 when Walmart began evaluating suppliers by their score and penalizing those that couldn’t comply with fines.
In January 2018, Walmart raised the bar. At the time, Steve Bratspies, CMO for Walmart, said the new standards were not meant to be ‘unreasonable’ — just to enable better store operations.”
Important Questions to Avoid OTIF Supply Chain Confusion
- Does “on-time” mean on the date requested by the retailer? Or does it refer to the date promised by the manufacturer?
- Does it mean within the specified delivery time allocated to the shipment? Or any time inside an agreed-upon time window?
- Should “in-full” be measured at the level of complete orders, line items, or individual cases?
The different answers to these questions are very important, as effective supply chain collaboration depends on a precise and common understanding of delivery performance expectations.
To better understand this issue, the Trading Partner Alliance (TPA) and McKinsey surveyed 24 major retailers and manufacturers of consumer packaged goods operating in North America. They found that, “92 percent agreed that an industry standard for OTIF would create value. They noted that a standard definition would significantly reduce discrepancies and confusion and promote collaboration among trading partners. Collaboration would help partners resolve supply problems more efficiently and effectively—creating value for all supply-chain participants as well as for consumers.”
The Repercussions of Not Meeting On-Time In-Full (OTIF)
Ocean transportation can be complex, with occurrences such as transhipments and rollovers introducing an element of unpredictability. Port congestion is constantly evolving and also plays a major role. This volatility has consequences.
When goods are delivered late by the supplier, there are major repercussions. Not just the fact that the product won’t be on the shelf, but also that retailers often institute penalties (fines and late fees) if suppliers don’t get their orders to them on time and in full. Brands that often fail to meet OTIF supply chain standards are at risk of damaging their reputation and retail relationships, as retailers won’t use them if they can’t rely on them to be on time and deliver in full. In the long run, this will hurt their chances to grow.
The On-Time In-Full Formula
The on-time, in-full formula is a percentage of all deliveries that are shipped on time and in full.
The formula is:
(Orders delivered on time/Total # of orders shipped) * 100
If a supplier wants to compete with leading companies, they should aim for their OTIF to be at least 95%.
Tips to Improve your OTIF — Supply Chain Performance
- The container voyage is one of the most critical parts of the supply chain. In order to avoid delays, suppliers should ensure they have ocean visibility and vessel tracking that result from a comprehensive Ocean Freight Visibility solution.
- ETA predictions are critical for managing OTIF performance. If suppliers are able to receive real-time updates and track containers, then they’ll be able to intervene if any issues arise.
- The supplier should set clear expectations with the buyer and ensure they are realistic. It’s important the buyer understands what the supplier is offering to avoid miscommunications, confusion, and unrealistic requests.