How Your ERP Will Help You Achieve On-Time, In Full Requirements
February 06, 2019
One billion dollars.
That’s how much Walmart expects penalties from new, stricter On-Time, In-Full (OTIF) requirements to add to its bottom line. It’s just one indication of how costly and inefficient supply chain can be for everyone.
OTIF policies aim to streamline supply chain performance so retailers can compete with e-commerce vendors. Under these new standards, suppliers who do business with Walmart must consistently meet an 85% performance threshold for on-time, in-full shipments or they face steep penalties. Suppliers who fail to meet these new requirements will be cut loose if they can’t successfully execute a plan to show improvement.
It’s not just Walmart. Other larger retailers are increasing performance standards as well. Target has recently eliminated grace periods for late shipments, increased fines on those shipments to five percent, and announced an escalation of fines to as high as $10,000 for shipments with inaccurate information.
All of this adds up to enormous added pressure on suppliers who need to hit varying performance standards by retailers or pay a hefty price.
What is OTIF?
OTIF or On-Time, In Full, is a metric used by retailers to evaluate the performance of their suppliers by measuring the accuracy and timeliness of their shipments. The OTIF rate calculates the overall percent of shipments a supplier delivers that are on time and complete. This key performance indicator is a quick and easy way for retailers to understand the ongoing performance of each supplier at a glance.
OTIF seems intuitive, but it’s a much more rigorous standard than the three or four-day grace periods many retailers previously offered. Orders arriving early or with improper documentation or packaging are just as troublesome as late orders, as a retailer may not have planned for their arrival. When deliveries meet OTIF, a retailer’s supply chain performs as it should by managing a seamless flow of products from the warehouse dock to the store shelf.
Supplier performance is a massive issue for Walmart, where even top suppliers consistently average 10% OTIF. The shift to meeting OTIF standards is a big adjustment and requires a change in mindset and perhaps a change of tools to meet performance expectations.
How to Calculate OTIF
In today’s economy, traditional retailers must have the right products on their shelves at the right time. If supply cannot meet demand, consumers can merely shift their shopping behaviors online and get it within days, if not a few hours. Tightening OTIF standards are an essential way for retailers to cater to consumers that prefer to pick up and hold a product in their hands before they make a purchase. This, however, requires product to be in stock and on shelves.
The OTIF calculation is a simple ratio of the number of cases that were received exactly as requested to the number of cases ordered. Of course, there are many ways a supplier can miss this, including:
- Deliveries that are early or late
- Partial deliveries
- Cases that aren’t properly filled
Full-truckload suppliers are fined 3% of the value of non-compliant goods while less-than-truckload suppliers face fines of 3% of the monthly cost of goods sold of non-compliant cases. Those who don’t hit the standards (85% for FTL, 50% for LTL) are required to create an action plan documenting the steps they will take to reach compliance. If those plans fail, suppliers can risk expulsion.
Meeting the OTIF Standard
Getting to an 85% OTIF rate can be daunting, especially when you consider all the things that can go wrong, from severe weather to picking errors. To achieve this, suppliers must maintain one source of truth with real-time data and find a better way to anticipate future complications.
Getting down to that lean, frictionless operation requires systems that allow you to better plan and forecast for the future. You can’t have too much inventory sitting around taking up space in a warehouse, but you also can’t risk a shortfall. Coordinating orders with 90-day lead times can seem complicated, but when you improve your ability to analyze and forecast the needs of retailers and consumers, you can better plan months ahead so those orders arrive in that just-in-time sweet spot.
The first half of OTIF is all about streamlined, efficient data flow across your organization. Electronic Data Interchange, or EDI, is vital here. Information – in this case, orders from the retailer – needs to flow seamlessly through each step of the process. Your ERP is more effective with integrated EDI, rather than a third-party bolt-on, so there’s no data lag time and orders can stream directly from the retailer to your system without having to be manually entered.
An integrated warehouse management system helps here, too. Each step of the process can occur within your consumer goods ERP, from receiving orders to identifying the products in your warehouse to contacting the trucking company, scheduling the delivery with Walmart, and picking and packing.
When this all comes together in one enterprise system - ERP with integrated EDI, WMS and Demand Planning – you get real-time data that helps you get orders in and out the door quicker.
Meeting the second aspect of OTIF requires that every shipment must match the exact quantity ordered. Doing so requires the foresight of an ERP system built to manage the process of importing products with very long lead times. A robust demand planning module allows you to make decisions with data from sources including point-of-sale records, retailer forecasts, historical trends, seasonality, and more to give you a peek into the future.
You can’t meet the “In Full” requirement of OTIF if you don’t have inventory, and being able to plan ahead with sophisticated forecasting is a necessary element of meeting that requirement. If Walmart is going to need a set amount of your product in a couple of months, you need to know to be ordering that now, and a demand-planning tool that incorporates those lead times can help make sure you’re ready when an order comes in.
“The key to keeping your OTIF score high other than the obvious ‘shipping complete’ is to perform lead time audits continually,” said Glen Levitan, CFO at Over and Back, Inc. “Tracking how long freight takes to arrive at a Distribution Center versus your current lead time setting can make all the difference.”
This kind of system can adjust on the fly, taking into account when there are stronger numbers at POS and alerting you to order more so you can stay ahead of rising demand.
Putting it all together
Combining the power of a proper demand forecasting module with integrated EDI and warehouse management empowers suppliers to reach that balance of just-in-time fulfillment. You can meet the strictest of OTIF standards with the proper industry-focused ERP that lets you make real-time decisions with visibility into every step of the process.
Leveraging these tools not only gives you a competitive advantage and strengthens the relationship with your partners but makes the whole supply chain better. When products flow smoothly from producers to distributors to retailers, everyone wins by achieving maximum profits at minimal costs.