OTIF Standards: Good for Customer, Bad for Brands?
The number one rule for any company is “the customer is always right.” Consumers drive demand which drives production. Today’s customer wants what they want when they want it and don’t particularly care if a snowstorm delayed their order. In order to meet this demand, increasingly more companies, particularly big-box brands, are backing up their demands for suppliers to deliver product on-time in-full (OTIF) with a charge-back fee if they fail to do so. As shipping timelines shorten, suppliers are having to get smarter and more innovative in how they deliver.
While products now must arrive at just the right time, timing isn’t the only measure of competence. These brands are also insisting the product is delivered exactly as ordered – nothing missing or added, nothing damaged. Why? Because every variation, delay or change in delivery creates more work, increases costs, and damages customer satisfaction. For instance, items arriving earlier than expected require storage space and planning. Items arriving late mean empty shelves and frustrated customers who can be all too quick to post negative reviews and/or shift their loyalties to another brand. Damaged products can’t be sold and must be re-ordered.
The OTIF standard puts a lot of pressure on companies up and down the supply chain. SupplyChainDive.com says the most common causes for OTIF misses are “pick-and-pack mistakes, transportation delays and communication issues.” Transportation delays are, perhaps, the most challenging supply chain risks to prevent. There are many variables to account for, such as weather, seasonality, carrier, distance, geography, and the expected number of stops to name just a few. As a result, much of the risk revolves around factors that are often unpredictable and quickly changing.
OTIF Requires Real-Time Visibility
According to Gartner’s “Is There A Business Case for Supply Chain Visibility?”, “Shippers who embrace supply chain visibility solutions can expect up to 10% increase in ‘The Perfect Order’ performance metric,” with the “Perfect Order” being OTIF delivery. But as an example, how can shippers have certainty about an ever-changing risk factor like the weather?
Suppliers, shippers, and LSPs all require real-time visibility into the supply chain to identify potential risks that could impact their ability to deliver the right product at the right time. They must be able to continually monitor the real-time location of each shipment along each leg of the journey to determine if weather may impact its status. The earlier a company can identify a potential risk to OTIF delivery, the sooner they can make alternative plans before supply disruptions occur.
The entire supply chain must be efficient, accurate and running like a well-oiled machine. How can suppliers adhere to such strict OTIF expectations so as not to lose money and customers? How can they possibly predict and mitigate weather risks to their delivery execution? How can they set proper expectations?
Suppliers aren’t the only ones on the hook. Shippers and third-party logistics service providers (LSPs) carry the same burden. It’s their responsibility to get the loaded freight to the destination on time, despite the weather or infrastructure issues. One of the busiest delivery seasons happens to be at the same time as some of the worst winter weather conditions. Suppliers and shippers can’t allow the weather to delay their shipments.
Building Confidence in ETAs
The key to OTIF deliveries is visibility, but the benefit of having such insight is the ability to build confidence in ETAs and avoid making commitments that have a low chance of being met. ETAs should never be a guess or rough estimate. The customer defines “expected” time of arrival as a hard date they can plan on. It’s up to the shipper and carrier to defy weather or other risk factors and deliver as promised.
Riskpulse’s OTIF program is helping suppliers, shippers and logistics companies provide more accurate ETAs using a new API that will produce probability scores for an ETA. Combining accurate, real-time and predicted data across over 60 factors, such as infrastructure outages, natural disasters, social hazards, and equipment type, companies have a more comprehensive view of any threats to their OTIF commitment. Now, not only will users be able to set the ETA at 6:18 P.M., for instance, but they can better understand the probability of that actually happening. Perhaps there is a 40 percent chance the shipment is later than 6:18, a 55 percent chance it is earlier, and a 5 percent chance it is right on time within 10 minutes.
When each ETA is accompanied by an accuracy rating, companies can know which ETA they should bet on and which are less likely to be accurate. Even better, they can have this data before the shipment ever leaves the dock.
When your customers are demanding precision in OTIF deliveries and even mandating up to a 3 percent fee when you fail, you must deliver it. You may have an ETA and you and the carrier promise the product will get there at that time, but how certain are either of you that will actually happen? With the Riskpulse, shippers can get a better read on that uncertainty before, during or after making a commitment. This gives you the ability to change or optimize scheduling, lanes or modes of transportation before a disruption occurs.
As a receiver of goods, how beneficial would it be to know that certain ETA promises have a higher chance of missing their window? Even with the penalties you put into place to motivate suppliers and shipper to adhere to your OTIF standards, you know not every company will be able to make their stated ETAs. Having the Riskpulse ETA API enables receivers to plan on the most probable scenario given all of the risk factors. The likelihood of hitting a particular delivery time and date is no longer based on an “estimate,” but actual data that is much more reliable.
Don’t Ship in The Dark
No matter where your company lies along the supply chain, access to real-time, reliable data is the only way to effectively estimate delivery times and stick to each customer’s OTIF requirements. By viewing ETA probability scores, companies can quickly determine what needs to be done next. Whether it’s making a decision on how to mitigate a weather risk or setting the right expectations with the customer, companies can be more proactive and confident in their actions.
Using solutions like Riskpulse, companies can see where their greatest risks to OTIF deliveries lie, the probability of those happening, and how they might affect ETAs. ETAs are no longer a shot in the dark, but a promise. Customers have confidence in their deliveries and can plan accordingly. While not all risks are avoidable, having the best possible data as early as possible gives companies a little wiggle room. Instead of being reactive, they can be proactive and take action to avoid risk factors disrupting their supply chain altogether. This is a powerful differentiator and competitive advantage as customer demand will likely continue to apply pressure to product-driven companies.