The primary measure of efficiency in supply chain processes within your company is OTD (on-time delivery system). It’s a measure of your ability to encounter customer demands in the matter of the delivery date requested (RDD). Failure to fulfill your customers’ needs can have negative consequences.
Every company must commit itself and deliver on time to fulfill client requirements.
The 2020 MHI Annual Industry Report reveals that 4 of the 6 top challenges facing companies relate to customer expectations for faster delivery. These include customer demands for lower prices (51%), increased customer service expectations (47%), and increasing customer demand for customization (41%). These expectations are often quite simple. Orders should be sent accurately and delivered on time.
Companies that have difficulty meeting key deadlines in the supply chain or during manufacturing will find it challenging. Poor delivery on time (OTD) results from more than consumers. It is often a sign of poor production efficiency or materials handling.
Problems with an on-time delivery system can harm other aspects of a company’s supply chain. Examples include material shortages, unavoidable expedited shipping costs, or customer complaints that cause production delays.
The bigger problem that is often overlooked may be that delivering on time becomes a hard habit to break. Accepting that late delivery is acceptable can have a devastating effect on every aspect of the business and irreparable damage to customer relationships.
Why is OTD a necessity?
It doesn’t matter how well made the product is if it doesn’t arrive on time. An OTD is an important indicator that is often overlooked, but that is well worth noting. Every injection molding supplier must prioritize meeting OEM delivery requirements. Due to late delivery, companies may suffer from several adverse outcomes, such as a delayed time to market, customer complaints, a damaged reputation, and strained supplier-OEM relationships, and worst of all, the loss of customers.
As a result, OEMs seek plastic injection molding partners with a consistent and excellent OTD record. Providing OEMs with a reliable supply chain is one of the benefits of suitable OTD suppliers. In addition, these suppliers are trusted partners who work to develop solutions together with OEMs. OEMs can charge a supplier with a good OTD record.
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What is the On-Time Delivery System(OTD), Rate?
Limited delivery is an essential indicator of performance (KPI) used by eCommerce and other providers to assess their client order capability on the stated delivery date. Divide the total number ordered by the delivery times and the OTD rate.
Usually, OTD with a date range is measured. It usually includes five days before the date of delivery. Should an item be due on October 1, your firm might consider delivery on time if it comes between September 27th to October 1st. It’s considered late if it arrives after October 1st.
What are the advantages of having metrics for on-time delivery?
Measures of supply chain efficiency are based on on-time delivery(OTD). A requested delivery date (RDD) measures your organization’s ability to meet customer demands. It can have all kinds of negative consequences if you fail to satisfy your customers. What is the worst-case scenario? Competitors gain customers from you.
OTD metrics are crucial to customer retention; you must have on-time delivery metrics. Your customers will be happy if you deliver on time. They’ll return to purchase more from you. They won’t buy from you if they don’t.
These key metrics are important because they can reveal inefficiencies and bottlenecks in your fulfillment and delivery processes. You should address other issues in your business if you notice your delivery time starting to fall.
Poor on-time delivery is caused by the following
- Inventory management problems: Customers may place orders for products that they don’t stock if you don’t have visibility into your inventory. It implies you’ll need to buy more items from your supplier before your consumer receives them. Orders are more likely to be canceled by customers.
- Fulfillment issues: After a customer place an order, fulfillment begins. It involves picking up the items, packing them, and labeling them for delivery. Poor product organization, inadequate packaging, and labeling methods can cause an order not to get to its destination on time.
- Delivery problems: If your packages arrive on time and are delivered by the ship date, but you still miss the due dates, you may have delivery problems. It could be that your drivers aren’t balanced correctly in their workloads, so some are receiving too many deliveries, and others are getting less; transit times are longer than expected, or routes are not well planned.
Measurement of On-Time Delivery (OTD)
Different organizations use different methods to measure the on-time delivery system. Hence OTD, in its simplest form, is the ratio of total orders shipped to shipments to shipments. It calculates the delivery time of shipments to customers. If it is lower than the standard, it may suggest underlying issues that must address. Poor OTD is most likely a symptom and not the root cause. As with most things, defining your benchmark OTD will be the first step to improving it.
Improved On-Time Delivery
OTD for shipments in a production supply chain can be difficult to track. However, improvements in this area are apparent. OTD is critical to the efficiency and availability of production materials. It is where good logistics and inventory management skills intersect.
Lean manufacturing and leveling production are two methods to increase product availability and reduce delivery times. Both techniques ensure that every stage of the manufacturing supply chain can be traced, which aids in meeting production schedules and keeping lines running.
A centralized system can track parts and inventory by the user, task, and location. It allows for better inventory visibility. Automated material handling systems can be upgraded using technologies like robotics, sorters, and conveyors. Mechanical materials handling can improve OTD by increasing efficiency in supply chains. It also allows companies to respond to rising customer demand for custom products. It also enhances safety and security.
Every organization is accustomed to a wide range of interpretations and computations about on-time delivery metrics. It illustrates that not all organizations are outside customers (TM).
These are some of the observations we’ve made regarding OTD throughout the years.
- OTD can be described as the ratio of the total units shipped per month to the number of units currently on the market.
- It is unclear how the time unit count is calculated.
- OTD calculation references points are dark; e.g., They are not based on RDD, first confirmed date (CDD), or last CDD.
- The actual delivery date (ADD) is utilized instead of the day on the customer’s premises.
- Early delivery does not require client consent. OTD is computed at the order level rather than the order line level.
- It is unclear what delivery windows include.
These are all signs that you have a distorted view of the on-time delivery system, which is a crucial metric in your supply chain performance. We often get surprised when we show actual OTD Outside (TM) results that aren’t near the 90% expected by management. Your Span should be measured.
From both a diagnostic and execution standpoint, it is more effective to measure Span. GE devised this measure. A customer’s voice serves as the point of departure for Outside-In Spanning. Rather than measuring process performance at the order level, we measure process performance against the requested date (RDD). To this, each order line analyzes the delivery performance based on variance. Outside-In management eliminates the distortion of performance data to management metrics.
Five-thirds of all orders did not receive their delivery on time, as shown in the example above. Five percent of all orders were shipped too soon (before 35 days), and forty percent were sent too late (after 48 days).
Find and eliminate the root cause
The goal is to reduce the Span to 30 days and bring as many order lines to the centerline. To do this, one must address the following concerns:
- Why does this firm allow order lines to be sent up to 35 days before the deadline?
- Why is this firm sending products up to 48 days late?
The underlying reasons for the problems above are frequent planning and operational challenges. To decrease Span, address these problems. Detailed process analysis is necessary to discover the primary causes of late and early delivery. The root causes must be found and eradicated. It usually demands a shift in supply chain and operational strategy.
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It’s critical to have a thorough grasp of what customers expect from on-time delivery. The Outside-In (TM) Span metric will help you manage and enhance the performance of your supply chain on a transactional scale. Customers will benefit because they will get what they need when they need it. It’s always on time. When the products are always on time, it will help your customers build trust in you and help your business/company thrive in the future. Now that you know how to create a balance of OTD of the delivery system, you can become the master of it do take the challenge to do it for the better good. It will help you in all possible purposes.
This article is written by Prashant Pujara. Prashant is the CEO and co-founder of MultiQoS, a web & mobile app development company that provides UI/UX design services from startup to enterprise-level companies. Follow him: LinkedIn | Facebook | Instagram | Twitter.