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On Time In Full – The Pulse of your business

October 4, 2010

We recently assisted a privately held European light manufacturer which had suddenly lost its biggest single customer.  Suddenly is a misnomer here – the underlying common story blamed the local sales manager who hid, apparently for over 2 years, the dissatisfaction brewing at a Big Box chain over inconsistent deliveries.  Oddly, the Big Box stores had inflicted a bit of the pain on themselves as their policy was, having received a short shipment, not to show a backorder but to cancel the remaining unfilled order and issue a new PO. Thus, the manufacturer was living in a fool’s paradise where as far as far as they were concerned, order volume from the Big Box was rising and all orders were shipped in full.

A simple report, called On Time In Full, would have highlighted the issue on both a spot and trend basis. OTIF, as it’s abbreviated, shows the percent of the time when an order is shipped, in total compliance to the original PO and as initially promised.  Most ERP systems either have this report, or in the case of Microsoft’s Dynamics AX (a very popular SMB ERP system and the one this manufacturer implemented), the data is in the database for a report to be created utilizing standard report writing tools. OTIF is worth the effort to track since it’s a roll up metric spanning Supply Chain, Inventory controls, Quality and Waste, Logistics and Account Relationship Management.  Production or logistics glitches or communications gaps anywhere in your value chain will be immediately reflected in OTIF.  And by the way, many large customers have an active Vendor Management function which does measure OTIF from their perspective and factors in, heavily, to any vendor rationalization initiative. As a Key Performance Indicator, OTIF must be near 95% to ensure customer satisfaction.

How is OTIF calculated?  First, you have to share a common definition with your customers of what is a perfect delivery of your goods, as well as the acceptable range. Your Account Managers need to review this metric monthly with your customers to ensure both sides have a common perception of performance.   Publishing a definition on your PO is useful in this regard.  The actual calculation is rudimentary to the point of doing it manually if your business is small enough – it’s the Number of Customer Orders Delivered On Time and in Full (per your common definition) / The Total Number of Customer Orders x 100 %.

There’s another metric, also easily calculated, which when combined with OTIF provides a snapshot heartbeat of your business. Days Sales Outstanding  (DSO) is simply how long, on average, customer’s take to pay their bills, the assumption being satisfied customers, having received their goods as promised and in useable quality, will pay their bills while unhappy customers or those receiving broken orders will wait until they’re satisfied.

By utilizing a common definition of OTIF, and monitoring DSO, SMBs can balance customer satisfaction, inventory carrying costs and cash flow on an ongoing basis.

Rich Eichen is the Founder and a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com

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One Comment
  1. Sachin Morjariya permalink

    I need a training material on Supplier OTIF….

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