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.
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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. Retailers created these performance programs to encourage on-time delivery and ensure that suppliers are hitting requested delivery dates.
The compliance standards are necessary as retailers work to compete with e-commerce. 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, and much of it can be tied 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 get orders to them on-time and in-full, which helps to incentivize proper delivery further.
For example, we can look at 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 operational visibility and those that have optimized their transportation can 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 Increase OTIF and Improve On-Time Delivery
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 part of 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 so that your delivery is not at risk of being rejected.
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 in retailers’ systems. Otherwise, you are at risk for inaccurate scoring.
Align Production and Transportation Schedules
Organizations that struggle with on-time delivery do so often 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.
Clearly Communicate with Warehouses
In addition to confirming aligned production schedules, it is important to communicate expectations to your warehouse partners. Doing so will give you the best chance at ensuring the product is picked and packed by the date it is 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 you will need to set a new appointment time.
Rethink Network Configuration
It may be beneficial to reconfigure your logistics processes around critical customers, depending on your warehouse and production facility network. 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 products 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 an alternative would be 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 essential 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 manage requirements better.
Build-In Lead Time
It can be challenging 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 meet 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 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 specific 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 specific receiving locations with consolidation or pool distribution. By enacting these strategies, tracking shipments becomes more manageable, 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 more precise 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
Accurately 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 elusive.
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 adequately evaluate when to 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.
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