On-time delivery is important.
It impacts client satisfaction, the chances of getting more business from a satisfied client, as well as the ability to handle new business.
On-time, in-full (OTIF) delivery is a more aggressive measure of supply chain performance.
OTIF is a combination of standards set for Delivery in Full (DIF) and Delivery on Time (DOT). Sometimes also referred to as delivery in full, on time (DIFOT), OTIF is simply a measure of how well a supply chain delivers what a buyer needs, when they need it, and exactly how they expect it. The order should be fulfilled in time without any losses in transit, else the order is considered late.
While on-time delivery as a KPI can be measured across all shipments/orders, using it as a simple metric won’t provide the level of detail necessary to optimize shipment ETA predictions and spot delays before they arise.
Why Your Delivery Performance KPI Could be Wrong
The purpose of the OTIF delivery KPI is simple — ensure that customers who expect shipment deliveries on time get exactly what they asked for.
On-time delivery doesn’t just improve customer satisfaction, it also improves supply chain efficiency, with fewer resources being wasted on completing unfulfilled orders or the reverse logistics of incorrect shipments.
A good place to start improving on-time delivery is to focus on key performance indicators like shipping time, order accuracy, and delivery time. Most supply chain executives have a fair understanding of their operation, its strengths, its weaknesses, and what needs to improve.
While it’s useful to measure supply chain performance against trends among industry peers or how they vary across geographies, there are caveats to benchmarking your supply chain’s performance against such a diverse data set.
1 — Your Data on Past Delivery Performance and Industry Standards May Be Incomplete
The data that logistics companies collect in order to measure their on-time delivery performance is somewhat inconsistent.
Some merely measure a start and end time, others factor in order fulfillment as a criterion, and a scarce few account for the other variables (like rate of returns or replacement) that indirectly affect order fulfillment, shipment ETAs, and the likelihood of fulfilling a delivery on time.
Accurate information on specifics like transit and detention time, order pick rates, inventory accuracy, as well as one-off disruptions like route deviations, machinery breakdown, etc. can be difficult to come by, especially if there’s no proper information gathering process in place.
Without complete and consistent data on the variables that affect shipment on-time delivery, setting supply chain efficiency benchmarks or on-time delivery KPIs against them amounts to nothing more than an incomplete educated guess.
Sure, it’s a good place to start, but it’s hardly ideal.
2 — Your Industry or Supplier On-time Delivery Performance Standards Can be Inconsistent
Supply chain efficiency and last mile delivery ETAs vary depending on where you operate. Even within the same geo, odds are no two supply chains run in the exact same environment.
There could be subtle differences — the choice of 3PLs, preferred mode or route of transport, perhaps even indirect factors like safety stock, warehouse efficiency or hardware maintenance schedules — all of which can affect you or your supplier’s cumulative time of delivery and order fulfillment.
Setting up on-time delivery logistics KPIs for one network based on another’s performance isn’t always the right approach, you need to account for every route’s unique variables.
You also need to account for the fact that operating environments and business needs can change rapidly. Perhaps volumes have tripled, or you need tighter windows of delivery; either way, the old standards and KPIs no longer apply.
3 — You’re Very Accommodating of Unexpected Delays or Disruptions
Transportation delays, supplier delays, mechanical or hardware faults, errors during inventory pick and pack, these are some of the most common reasons why on-time deliveries falter.
Expecting 100% OTIF order fulfilment is unrealistic, which is why most on-time delivery KPIs include a healthy (perhaps even generous) buffer in their delivery ETA to account for the unknowns that affect supply chain efficiency.
While that makes sense, giving too much leeway to accommodate unexpected delays completely undermines your ultimate goal of improving on-time delivery performance.
4 — You’re Working With a High Inventory Model
Speaking of accommodating unhealthy buffers, safety stock inventory is another factor that undermines efforts to improve supply chain efficiency.
Big lead times, supplier delays, fluctuations in demand and availability, these are just a few of many factors that could affect your ability to deliver on time.
The easiest way to guarantee that you'll hit 100% on-time delivery despite any upstream lag is to hold inventory, and lots of it.
The easy way isn’t an economic one though, because increasing your inventory ends up increasing your inventory holding costs.
How to Improve On-time Delivery Using GPS Tracking and Accurate ETA
In order to set realistic OTIF KPIs, you need to gauge the current performance of a supplier or last mile delivery network before you can set reasonable expectations.
Step 1 to gauging that performance is to gather timely shipment or inventory data in transit, eliminating the black hole between dispatch and delivery.
With better shipment visibility, it becomes easier to predict ETA and spot problems early enough to proactively reduce delays and improve the odds of making an on-time delivery.
Several companies rely on fleet tracking or GPS vehicle tracking to provide shipment visibility in-transit. Coupled with a reliable order tracking system, GPS vehicle tracking can give you a good idea of the location and ETA of inventory.
There are, however, gaps in the visibility that GPS vehicle tracking provides.
For starters, shipments don’t make the whole trip on a single vehicle, or even on a single mode of transport for that matter. GPS vehicle trackers can’t track cargo on multimodal shipments.
Even if the vehicle, train, or cargo ship transporting your goods does have GPS tracking, it’s not easy to access and consolidate tracking data from different sources onto a single dashboard that’s easy to use.
In order to overcome these limitations and plug the gaps in visibility, shipment tracking evolved from vehicle tracking to container tracking, even going so far as GPS package tracking to get a more reliable ETA.
Using Shipment Visibility to Calculate the Right KPIs
Armed with the right data, you won’t have to pull numbers out of thin air (or off the Internet) to calculate your on-time delivery KPIs.
After deploying a suitable shipment tracking tool, here are 5 steps to determine accurate shipping ETAs and setting on-time delivery KPIs that are tailored to your supply chain:
1. Run a 3-Month Trial on Every Route/Lane to Gather Data on Freight Shipping Time & Transit Time
Track shipment transit data by date, location, mode of transport, individual carrier, specific cargo types, and so on. Tracking granular data for each leg of an operation rather using a simple overall average is an essential first step — an average could mask that one carrier or a single warehouse, for example, that’s slowing your operation and skewing your ETA prediction.
2. Segregate Avoidable vs. Unavoidable Delays in Transit
Once you’ve gathered enough data for each of your routes/lanes, dig in to identify where delays occur. Segregate those further into avoidable delays (like unnecessary stops) and unavoidable delays (like toll booths or sorting facilities) so you can determine the scope for shipment transit time optimization.
3. Identify the Choke Points in Your Lanes
Determine where your shipment moves the slowest. It could be anything from a loading/unloading facility that works slower in the afternoon, routes that take longer than others, or even security check posts or screening areas that cargo has to pass through.
4. Identify the Best Route for Each Lane
Determine your best routes based on a combination of avoidable and unavoidable delays that work best for you. Factor in buffer time to account for fluctuations, but keep it minimal. Because you’re setting route optimization benchmarks based on observations specific to that route, you can be confident it won’t exceed much more than what you’ve already accounted for.
5. Set Your On-time Delivery KPI
Determine an ideal transit time and ETA for your best routes based on the data you’ve gathered, use that as a baseline to set on-time or OTIF delivery KPIs.