How Retail/CPG Can Improve On-Time, In-Full (OTIF) Deliveries
Have you ever placed an ecommerce order and your package arrived late? Or maybe you received your package on time, but some items were missing. I’ve had a couple of these unsatisfactory ecommerce experiences recently. I ordered new Keen hiking shoes that I planned to use on a weekend getaway. Although the shoes were supposed to arrive the day before my trip, they arrived after I left. Needless to say, I wasn’t happy and I returned the shoes.
I also placed an online order for a Keurig coffee machine and a box of K-Cup pods. I received the coffee machine on time, but the pods were missing. Again, I wasn’t happy because I couldn’t try my new coffee machine. I canceled the K-Cup order and got them at Costco instead.
In both of these situations, the retailer lost all or part of the sale. Imagine if similar lost-sale scenarios happened to a retailer over and over again. Lost sales at scale can be a huge drag on the bottom line for any retailer, and repeated lost sales can spell disaster. These situations I described are referred to as not-on-time, but-in-full and on-time, not-in-full. Of course, the optimal situation is on-time, in-full or OTIF.
I first heard of OTIF several years ago when I worked at Coca-Cola and the new metric was deployed across its supply chain. Our operations team had to measure whether our retailer customers received their orders on time and if the orders were in-full. I wanted to see this metric in action, so I went on several route rides in different markets. In New York City, we delivered products to chains, corner grocery stores, and specialty retail outlets. On several occasions, we delivered the beverage products on time, but the orders were missing a few items. This created a huge hassle for the retailer because missing items weren’t automatically backordered by the Coca-Cola bottler. The retailer had to remember to order the item again.
OTIF is now a common metric across consumer-packaged goods (CPG) manufacturers. At a tactical level for retailers, it combines two measurements into a single overall metric:
- On-Time (OT) tracks the actual delivery date/time vs. the expected or committed delivery time. The retailer measures the actual delivery date/time upon check-in.
- In-Full (IF) refers to the quantity of the delivered product. It can be exact, more, or less than ordered.
Major retailers like Walmart require CPGs to comply with OTIF deliveries. In fact, if a CPG misses the delivery date or doesn’t deliver an accurate quantity of product, Walmart assesses penalty fees as a percentage of the value of each early, late, or incomplete delivery. To enforce OTIF compliance, last year Walmart changed its compliance rules from 70% to 98% with a 3% cost-of-goods penalty for noncompliance. It doesn’t take too many missed OTIF deliveries to Walmart and similar retailers to rack up millions in penalty fees, expedited freight charges to fill incomplete orders, and higher inventory carrying costs to meet OTIF requirements. With Walmart, CPGs have to pay upfront costs for missing delivery windows. They might also lose space on store shelves. For just about every CPG, Walmart is their largest customer, so OTIF penalties or the loss of precious shelf space hurts their bottom line.
Why OTIF Matters to Consumers
On average, retailers track 81 compliance metrics with their CPGs. These metrics capture instances where a manufacturer does not comply with a retailer’s delivery and product requirements, creating extra work for the retailer to process the merchandise. Although I’m talking specifically about OTIF in this blog post, other metrics include things like missing or inaccurate advanced ship notifications (ASNs), missing product labels, and incorrect packaging.
The extra work at the retail location to resolve delivery and other product issues means the retailer has to pay its employees to resolve the issues. Those additional labor costs might be passed on to consumers in the form of higher product prices. In addition, as more and more shoppers come to expect the products they want, when they want them, if you, as the retailer, are not able to meet the consumer demand—for size, color, quantity, and so on—you might lose the sale and the customer.
Retailers and CPGs Can Collaborate to Achieve OTIF Deliveries
By working together, retailers and CPGs can analyze, understand, and act on OTIF compliance data to help each other meet consumer needs to maximize sales. This data can help identify reasons for retailer sales leakage and other operational issues. Retailers can also use the data as a guide for buying CPG products to align with consumer demand. Delivery compliance data can be an analytical asset that helps retailers and CPG manufacturers make better decisions and prevent lost sales.
AWS and Noodle.ai Forecasting Solution Helps CPGs Improve OTIF
Noodle.ai is a valued AWS partner whose goal is to create a world without waste. Together, Noodle.ai and AWS have created a predictive forecasting solution to help CPGs address OTIF challenges. Planning errors in the order-management process shorten lead times which, in turn, lead to expedited freight costs and lower OTIF deliveries. The forecasting solution uses AI to predict retail customer orders, supplies, inventory, and fill rates in weekly buckets for a typical execution horizon of 13 weeks. The sophisticated solution computes the probabilistic value at risk (VAR) to prioritize actions and develops AI recommendations for planner actions, like expedite replenishment and pull-in production order, so supply chain planners can quickly identify and resolve high-impact issues before they become costly errors. Recently, the AWS-Noodle.ai solution helped a $13 billion CPG manufacturer improve OTIF by 3%, which reduced expedite costs by 40%. That’s more than $20 million in annual savings.
For more information about Noodle.ai, see this recent conversation with founder and CEO, Steve Pratt.
If you’d like to learn more about how AWS can help your organization, contact your account team today to get started.
Be on the lookout for my next blog post about supply chain control towers and how real-time status and location of supply chain assets can improve OTIF deliveries.