Logistics is a critical function for CPG suppliers selling into big-box retail locations. Delivering on-time and in-full is essential to success and a metric used by retailers when evaluating partnerships with vendors of all sizes.
Despite its importance, many brands, irrespective of sophistication, have encountered issues with consistently meeting these benchmarks.
If you have wondered how to improve OTIF and overall supply chain performance, you are not alone.
We have a few tips on how to make logistics improvements to increase OTIF performance. But first, let’s look at the background of OTIF metrics and why they came to be.
OTIF Meaning and Background
OTIF means on-time and in-full. It is a standard by which retailers’ grade a supplier’s ability to have product delivered to their distribution centers within prescribed delivery windows and at full quantities ordered.
Most retailers share monthly or quarterly OTIF scores. These performance programs have been instituted to encourage and ensure suppliers are hitting requested delivery dates.
The compliance standards are necessary as retailers work to compete with ecommerce. If unable to find a product in store, consumers are quick to turn their attention online and purchase goods there.
According to a report from McKinsey & Co, “The US food retail industry loses an estimated $15–20 billion in sales every year because items are out of stock or otherwise unsaleable.”
That is a lot of lost revenue, much of which can be attributed to poor logistics performance.
It follows that retailers have incentivized timely delivery from their suppliers to eliminate these inefficiencies.
Not Meeting OTIF Standards
Delivering late or short has repercussions that reverberate beyond not having product on the shelf. Retailers often institute fines and late fees to suppliers that don’t deliver product on-time and in-full. This helps to further incentivize proper delivery.
For an example, we can look to Walmart’s penalty structure for non-compliant deliveries. The big box store institutes a three percent fine of the cost of goods sold for all orders that arrive outside the confines of their OTIF program. Depending on order size, this can be hundreds to thousands of dollars.
In addition to fines, brands that continually fail to meet OTIF standards are at risk of damaging their retail relationships, hurting their chances to grow.
Suppliers with complete visibility into their operations and those that have optimized their transportation, are able to avoid these repercussions.
Moreover, they can wield their logistics function as differentiator between themselves and their competition.
Brands focused on delivering in full on a retailer’s requested delivery date will eliminate excess costs, improve customer satisfaction, and can uncover new growth opportunities.
How to Improve OTIF Score
Improving on-time and in-full performance unfortunately can’t be done overnight. It requires a deliberate strategy designed to diagnose issues and the ability to be nimble with enacting changes.
Here are some things to consider when trying to improve OTIF performance:
Get Familiar with Retail Requirements
OTIF metrics are not universal. In fact, OTIF itself refers specifically to Walmart’s compliance program, but many other big-box stores have adopted it, or a mirrored version.
What constitutes as on-time and in-full can vary by retailer. Some require delivery on the set delivery date, others allow one to two days early or late. It is essential that you first learn the ins-and-outs of your customers’ requirements to know how to best set up your organization for OTIF success.
Understand Appointment Scheduling
This is a critical component of retail delivery. Your buyer will set a definitive due date that your product must arrive by at their distribution center; often called a Must Arrive by Date (MABD). Unfortunately, those setting due dates are not directly affiliated with receiving locations. You must set up an appointment time with the receiver independently.
Some receiving locations have open scheduling while others have strict appointment hours with little to no flexibility. Understand which you are dealing with when working with a retailer so that your delivery isn’t at risk of being rejected for not arriving when it needs to.
Also, if you reschedule a delivery, be sure to ask or check if that new date/time falls outside of your MABD. Just because an appointment is approved, that does not mean it is compliant. And if your order quantity changes, don’t forget to contact and update your buyer to ensure correct due dates and quantities are reflected in retailers’ systems. Otherwise, you are at risk for inaccurate scoring.
Align Production and Transportation Schedules
Organizations that struggle with on-time delivery often do so because of misalignment between production and transportation. Set and manage expectations with your production team to ensure they are aware of critical timelines like ready-by dates and delivery dates. Make sure they understand the consequences of not hitting these standards and that absolute ship dates cannot be altered.
Communicate Clearly with Warehouses
In addition to, confirming production schedules are aligned, it is important to communicate expectations to your warehouse partners. Doing so will give you the best chance at ensuring product is picked and packed by the date it is scheduled to be shipped by the carrier.
If an order is not ready, and on the dock, a domino effect of delays can jeopardize timely delivery. Worse, for customer pick up (CPU) arrangements, the carrier may not wait and a new appointment will need to be set.
Rethink Network Configuration
Depending on how your warehouse and production facility network is set up, it may be beneficial to reconfigure your logistics processes around key customers. When launching a new retailer relationship, some suppliers choose to switch to new warehouse providers or locations that are closer to critical receiving locations to cut down on transportation time.
Request Due Dates that Fit Your Production Schedules
Retail buyers are often flexible with delivery appointments. Their end goal is to keep product on the shelf, so if you are unable to deliver in the requested window, they are typically willing to work with suppliers to adjust due dates.
But you’ll need to provide data-supported reasoning behind the request. To approve a date change, retail buyers must see data that illustrates why a change would beneficial to OTIF performance. If you have a due date that doesn’t fit your production or transportation schedule, compile supporting information, and reach out to your buyer to request a new timeline on all future orders.
Renegotiate Minimum Order Quantities and Cadence
Just like requesting new due dates, retail buyers will often work with their suppliers to adjust order quantities that allow for a profitable relationship. Buyers still want to see how a change would help your brand stay in compliance. It is important to find the data that best shows why adjusting a minimum order quantity would benefit your OTIF performance.
If you are unable to consistently fulfill the “in-full” portion of OTIF, adjusting minimum orders or order cadence can help your organization build inventory to better manage requirements.
Build-In Lead Time
It can be difficult to add sufficient lead time to shipments, and rush orders aren’t always avoidable. However, doing so can help you significantly when it comes to hitting retail delivery requirements.
When you give your logistics partner advanced notice, they can secure the most reliable carriers, cut costs, and ship orders with necessary buffer time. The unexpected happens in transportation. Shipping with an extra day or two of padding can be the difference between a successful and late delivery.
Providing lead time is especially crucial in the winter or when inclement weather is looming. Having a few extra days for transit will give your order needed flexibility in case of delay or if something else goes wrong in-transit.
Work with Preferred Carriers
Not all carriers are created equal. Some have more experience with and are better suited for retail deliveries. Ensure that your organization works with a preferred carrier for all retail deliveries.
Booking a shipment with a preferred carrier with retail experience will give your organization the best chance of hitting OTIF requirements. These carriers understand the nuances of retail shipping and more easily hit deadlines.
Also, having set ship dates and less variance with preferred carriers can help you meet OTIF standards. Work to schedule contracted carriers and set transit days/times so that there is as little flux as possible.
Ensure Your Order Fits in a Carrier’s Network
In addition to vetting a carrier’s capability for retail delivery, you should determine whether a specific order will fit into their network, especially when delivering to a new receiving location. Evaluate whether a carrier has a presence in that area. They may not have receiving terminals nearby, or they may not service the retail location frequently enough to make your due date.
Unfortunately, most who encounter this issue do so after a service failure. Carriers will not inform you before booking a shipment that they will have difficulty delivering to a certain location. They will often just agree to move the load and fail to have it delivered on-time. Be sure to examine a carrier’s network before deciding on who to book a shipment with to see if they are the right fit.
Look for and Evaluate Consolidation Opportunities
You can often cut costs and improve on-time performance to certain receiving locations with consolidation or pool distribution By enacting these strategies, tracking shipments becomes easier and service levels increase – both ideal for ensuring on-time delivery.
However, not all retailers are a good fit for this shipping strategy. If consolidation is hindering on-time performance, you may need to change up your programs or routing and communicate clearer expectations to drivers and warehouses to meet stricter due dates. For example, if your Walmart orders are currently being routed with other freight and not hitting performance benchmarks, you may need to isolate those shipments to ensure more successful delivery.
Get Real-Time Visibility
Order tracking is critical for managing OTIF performance. Work with a logistics provider whose tech offerings allow for real-time updates. When kept abreast of events during shipment, you can intervene if any issues arise and actively prevent against late delivery. Without, you are at a disadvantage.
Leverage Logistics Data
Properly tracking and evaluating transportation analytics is a critical component of managing your supply chain performance. By isolating key metrics, you can diagnose how to improve OTIF performance and where your logistics operation needs tweaked. Look not just at your final OTIF score, but whether your pickup and drop offs are on-time. If pickups are consistently late, you can pinpoint which facilities are causing issues and address them appropriately. Without data, these solutions could remain illusive.
Weigh the Benefit of Sending Short vs. Delaying
If on-time and in-full percentages are calculated independently by your retail customer, you have options and more control over your freight. You can make judgment calls on how to send orders.
Let’s say your last few orders have been on-time but short. That means your on-time score is likely high. If your production team is behind, you can choose to hold on to a shipment until all product is ready and deliver a day or two late, rather than further damaging you in-full metric.
Know what your customers’ thresholds are, as well as your current performance for those metrics, so you can properly evaluate when to best send an order. Managing your scores in this way can help prevent against hefty fines.
Work with Retail Logistics Experts
Just like carriers, not all logistics providers are created equal. Some 3PLs don’t have the expertise necessary for excelling in the nuanced world of retail delivery.
Ensure that you are working with a logistics solutions provider that understands complex delivery issues, has a reliable carrier network, and is equipped with technologically driven solutions that help you excel at retail logistics. Look for a logistics partner who has a strong track record for on-time delivery to big-box retailers.
Ensuring Our Customers Know How to Improve OTIF
At Zipline Logistics, we place enormous value in our customers’ on-time and in-full delivery performance. We are well-versed in every domestic retailer’s compliance program and work with customers to ensure they exceed delivery expectations.
Our retail logistics experts assist our customers in hitting deadlines, thinking critically about their freight, and identifying opportunities for increased supply chain efficiencies.
Want to learn more about the ways Zipline can help you improve OTIF performance? Reach out today.
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