On Time and In Time (OTIF)- The best way for cost reduction

 Hi everyone. I’m Arun R from Amrita School of Business and this is my 6^th blog on Supply Chain Management. In this blog I’m going talk about the OTIF(On Time and In Full), an important measure of logistics efficiency. They act as an ideal mechanism for alignment of the objective of both retailers and manufacturers.

OTIF consists of on time and in full. It is defined as a key performance indicator which measures the efficiency and accuracy of measuring the delivery in a supply chain. On time here means the time at which they should reach. The criteria is that delivery should not be late and at the same time the delivery should not be early too. In full means the customer gets exactly what they ordered

Consumer expects products to be in shelf all time. They do not want to see empty shelf, which makes them unhappy and scary. This is bad for both customers as well as the owners. Billions of sales are lost due to the items are out of stock. The main operational challenge is that there should be a balance between the keeping the supply chain cost low and also at the same time availability of products to the customers. Because of this the pressure on the delivery performance have increased and the time has come for both the manufacturers and retailers to get a cost efficient, and reliable supply chain mechanism.

In order to optimize this OTIF is adopted as they help to align the objectives of both retailers and manufacturers. Since there is no single way of calculating OTIF, the retailers and manufacturers and this causes a gap between them. This means that they have different delivery standards and cases chaos. To eliminate this a standard OTIF definition is to be used which will helps the retailers and manufacturers to use a common metric to solve their problems and also understand the other groups problem.

OTIF can be calculated as the number of order lines that were delivered on time in full. By implementing OTIF, a number of tangible as well as intangible savings of cost can be achieved.

Tangible cost fluctuates with the volume of shipping. One of the important tangible cost reduction are, reduction in transport cost. Transport and logistics cost are a huge amount for a company’s cost. Thus, reducing this will be a highly advantageous for the company. This also benefits the customers and affects the price of goods and service. Also, there will be reduction in detention cost and demurrage cost. Demurrage and detention cost are due to the poor supply chain visibility like when there is no communication when to pick up or deliver the products etc. With the use of OTIF, the visibility will increase and there will be a clear idea on when to do things. Reduction in inventory cost is another very important advantage. Inventory cost can be reduced by the level of supply chain visibility and predictability. Effective management of this will reduce the cost of inventory.

Coming to the intangible cost, which are difficult to calculate but still they exist. Customer retention cost is a big example of this. With the shelves full and availability of product is also high it is easy o retain customers. Another cost is the speed to market and lost opportunity cost, and with the effective use of OTIF, this cost is also reduced.

OTIF helps the retailers and manufacturers about the possible disruptions and also helps them to identify possible areas where they can reduce the cost. Implementation of OTIF gives a big advantage for both the retailers and manufacturers.