On Time-In Full Violations (OTIF)
July 28, 2017
On Time-In Full (OTIF) is a metric for supply chain delivery performance that measures what percentage of the time a supplier delivers orders that meet the customers’ requirements for fill rate and specified delivery windows.
For all suppliers but especially for food and consumer packaged goods companies, the importance of Walmart’s On Time-In Full policy is rising to the top of the problem pile, and will be the forerunner of broader retail industry fulfillment guidelines.
With a “no excuses” policy, if you do not deliver within a specified delivery window (not late, and not early either), and with the required minimum fill rate, you will be hit with a penalty of 3% of the goods that were not delivered according to the policy. The objective for Walmart is to always be in stock, but with minimum investment in inventory on the shelves.
While the stated objective is to improve supply chain performance, let’s also recognize that with almost $500 Billion of revenues, and $375 Billion of purchases, the resulting penalty deductions will add billions of dollars to Walmart’s P&L.
With Walmart, enforcement of this initiative starts earnestly on August 1, 2017. Suppliers will be held accountable and measured by their total OTIF Scores, and further be held accountable for improving the scores, so you need an Action Plan. Believe it that when you meet with Walmart buyers, your OTIF Scores and presentation of your Action Plan will be at or near the top of their list, so you will have to be prepared.
This applies to both TL and LTL suppliers. For example, by 2018, Walmart expects TL deliveries to be at 95% OTIF. LTL suppliers will be expected to double their fairly dismal OTIF performance to 36%, while continue improving performance continuously. Walmart is providing improved software tools on Retail Link to help suppliers with better visibility and control over this process, as they found the old Supply Chain Reliability scorecard results were not always reliable.
Smart suppliers are bringing their inter-disciplinary teams together to determine and solve root causes of problems to eliminate snafus, and better guarantee complete and on time delivery. This will require cooperation between Finance, Sales, Product planning, Marketing, Logistics, etc. – a true inter-disciplinary approach, with executive leadership. This is long overdue in many cases, but will benefit suppliers immensely across all their business lines.
This may also require a change in management structure, with one person in charge of replenishment for key accounts, as doing this right requires constant vigilance and the ability to drive improvement across all departments to achieve the desired OTIF outcomes.
You also need to take seriously the audit of all penalty deductions, as in a significant percentage of cases (we all make mistakes), the customer will be wrong and you will need to prove, get reimbursed for any erroneous deductions.
Big suppliers can and will be able address OTIF as a strategic opportunity to improve their own operations while complying with the retailer’s needs. Small suppliers, on the other hand, often do not have the professional resources in-house, and may end up in a worse competitive and financial position unless they take the challenge seriously. If you are a supplier, your profits are at stake. If the operations improvement initiative has not already commenced, Monday is not too early.