The effort required to align on an OTIF definition and correct performance measurement distracts the transacting parties from understanding and addressing the root causes of performance issues. Carriers are often caught in the middle, as both retailers and manufacturers push them for improved performance based on inconsistent data and requirements. Retailers and manufacturers end up devoting significant time to explaining and reconciling differences in reported data. That gap means that when supply-chain participants sit down to discuss supply-chain performance, the same performance yields different results. Many retailers and manufacturers currently calculate OTIF in different ways. Why a standard OTIF definition mattersĪ standard definition of OTIF will help stakeholders address the industry’s supply delivery issues by providing benefits in two areas: Creating a common view This paper also shows how the OTIF metric can improve an individual company’s supply chain performance and, through increased collaboration, generate significant value across industry participants. Collaboration would help partners resolve supply problems more efficiently and effectively-creating value for all supply-chain participants as well as for consumers.ĭrawing upon the survey data and McKinsey’s expertise in this field, this paper looks at the basic requirements and nuances of a standard definition of OTIF and proposes a standard for consideration by industry participants. They noted that a standard definition would significantly reduce discrepancies and confusion and promote collaboration among trading partners. Of those companies, 92 percent agreed that an industry standard for OTIF would create value. To better understand industry perspectives on OTIF, the Trading Partner Alliance (TPA) and McKinsey surveyed 24 major retailers and manufacturers of consumer packaged goods operating in North America. By contrast, only 4 percent of shipments to retailers arrive more than 12 hours late, a delay that would be likely to hit on-shelf availability. Unloading those deliveries early can disrupt distribution-center operations, while holding trucks until their scheduled slot leaves assets standing idle, consuming industry capacity while incurring demurrage costs. For example, about 25 percent of deliveries arrive more than two hours before their scheduled delivery appointment. There’s already some evidence that attempts to avoid late-delivery penalties may be driving inefficiencies in manufacturer and retailer supply-chain operations. Today’s diversity of approaches means partners waste time arguing over the figures, rather than addressing the root causes of delivery issues. Effective supply-chain collaboration depends upon a precise, common understanding of delivery-performance expectations. Does “on-time” mean on the date requested by the retailer, or the date promised by the manufacturer? Does it mean within the specific delivery slot allocated to the shipment, or any time inside a broader, agreed-upon time window? Should “in-full” be measured at the level of complete orders, line-items or individual cases? In practice, however, there is no standard definition for OTIF, so different supply-chain participants may interpret the metric in significantly different ways. In theory, OTIF should be the ideal mechanism to align the objectives of retailers and manufacturers. OTIF measures the extent to which shipments are delivered to their destination according to both the quantity and schedule specified on the order. In its effort to optimize its supply chains, the consumer industry has evolved in the way it measures delivery performance, moving away from the traditional “case-fill rate” and adopting the more rigorous “on-time in-full” (OTIF) delivery metric. With expectations of higher on-shelf availability and lower inventory costs, the pressure on delivery performance has intensified-as has the need for manufacturers, retailers, and carriers to work together to create efficient, reliable, and responsive supply chains. Supply-chain complexity is rising as customers demand a wider selection of products, a broader choice of channels, and more promotional offers. Those objectives are getting harder to achieve.
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