Meeting the New On-Time, In-Full Standard
July 08, 2020
Just over a year ago, we wrote a blog post about how Walmart’s stricter on-time, in-full (OTIF) requirements were going to affect importers and distributors dramatically. Shortly after that, we wrote a whitepaper on OTIF best practices: how to overcome challenges and requirements, how to track the accuracy of shipments, and how to meet the new OTIF regulations. We also have datasheets, case studies and more whitepapers that reference OTIF standards, improvements and changes. Why do we have so much content on OTIF? The answer’s simple, really:
OTIF is top of mind for us because we know it’s top of mind for you.
In this blog post, we’re going to talk about what exactly OTIF means, why it’s worth thinking about, and how implementing smart OTIF practices in your warehouse supports efficiently and, ultimately, will strengthen your bottom line.
We’ve answered five questions to help better you understand OTIF.
What is OTIF?
OTIF is a metric used by retailers to measure whether, as the name suggests, orders are on-time and in-full. 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.
It seems intuitive and appears to be relatively simple: send accurate and timely orders. But because the regulations are so detailed and the margin for error so minimal, suppliers who fail to meet the requirements will be heavily fined and run the risk of losing that vendor relationship.
Walmart, for example, narrowed its OTIF margin relatively recently and severely impacted suppliers’ businesses. Under the new standards, suppliers who do business with Walmart must consistently meet an 87% performance threshold for on-time, in-full shipments. If a supplier misses the delivery window or forgot part of the shipment, they’ll be penalized.
And it’s not just Walmart. Other retailers recognize that if they want to compete in the industry — particularly with ecommerce vendors — they need to increase their performance standards, too. Target eliminated grace periods for late shipments, increased fines on those shipments to five percent and announced an escalation of penalties to as high as $10,000 for deliveries with inaccurate information.
Why have retailers narrowed their OTIF margins?
In today’s economy, traditional brick-and-mortar retailers must have the right products on their shelves at the right time. This is particularly true during the coronavirus pandemic. If supply cannot meet demand, consumers can merely shift their shopping behaviors online and get it within days, if not a few hours.
It’s a huge deal for consumers to go into stores themselves. A recent study from Adobe said that compared to its prediction for the same period, an additional $52 billion has been spent online. Fewer people are leaving their homes to go to stores, so when consumers do leave home, retailers must have the products they’re looking for. Tightening OTIF standards are a way for retailers to cater to consumers that prefer to pick up a product in-store. OTIF policies aim to streamline supply chain performances so retailers can compete with ecommerce vendors. Consumer goods businesses must meet their OTIF requirements because when they do, everyone wins: the consumer goods business, the vendor and the customer.
How do you calculate OTIF?
It’s a simple ratio of the number of cases that were received exactly as requested to the number of cases ordered. There are a handful of ways a supplier can lower their OTIF score, including deliveries that are early or late, partial deliveries and cases that aren’t correctly filled.
Walmart’s regulations include full-truckload suppliers being fined 3% of the value of non-compliant goods, and 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 (87% 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.
How do I improve my OTIF rate?
Getting to an 87% OTIF rate can be daunting, especially when you consider all the things that can go wrong. Suppliers must maintain one source of truth with real-time data and find a better way to anticipate future complications to achieve this.
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 or longer lead times can seem complicated. Still, when you improve your ability to analyze and forecast the needs of retailers and consumers, you can better plan, so those orders arrive in that just-in-time sweet spot.
This all sounds great, but what practical actions do I take now?
The on-time part of OTIF is all about streamlined, efficient data flow across your organization. Electronic data interchange, or EDI, is essential in this instance. Information needs to flow seamlessly through each part of the supply chain to ensure that you’re able to fulfill orders from the retailer.
An integrated warehouse management system (WMS) helps here, too. Each step of the fulfillment process can occur within your consumer goods ERP: from receiving an order to identifying products in your warehouse to contacting the trucking company to scheduling the delivery with the retailer to picking, packing, and shipping. All of those processes are managed in one place.
When all of this comes together in one enterprise system – an ERP with integrated EDI, WMS, and demand planning– you get real-time data that helps you get orders in and out the door in a more time-effective manner.
Meeting the in-full part of OTIF requires that every shipment must match the exact quantity ordered. This 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 (POS) records, retailer forecasts, historical trends, and seasonality so you can better understand and prepare for the future.
If a retailer is going to need a set amount of your product in a couple of months, then you need to place an order soon to prepare. A demand planning tool that incorporates those lead times can help make sure you’re ready when an order comes in.
You have so much to worry about in your warehouse, don’t add OTIF to the list. Or if it’s already there, let’s find a way to cross it off, and make meeting those OTIF requirements easier.
Combining a proper demand forecasting model with integrated EDI and warehouse management can enable you to reach that balance required in just-in-time fulfillment. A consumer goods ERP allows for real-time decisions and visibility into every step of the shipping process to help you meet even the strictest OTIF standards.
Leveraging these tools not only gives users a competitive advantage, but it strengthens the relationship with their partners. And, the best part of all: it makes the whole supply chain better. When products flow smoothly from producers to distributors to retailers, everybody wins. It’s maximum profits at minimal costs.