Promises are nice, reliability is better. High delivery reliability is crucial for the success and reputation of a company, but what exactly is referred to as delivery reliability and how can it be measured?
What is delivery reliability?
Delivery reliability is defined by the punctual delivery of goods or services from a company. Essential for this is both delivery on a scheduled date (On-time delivery) as well as the delivery in the correct scope (Set loyalty) to the consignee of the goods.
The optimal delivery reliability is related to the delivery date. Often there are specific deadlines by which the delivery should reach the customer. Otherwise, there are delivery periods in which deliveries are to be made, which provide a little more leeway in achieving optimum delivery reliability. If delivery dates or periods are adhered to, suppliers receive a good rating in terms of delivery reliability.
Why is high delivery reliability important?
To produce goods, most companies make use of input materials from other companies, which they process further in their own manufacturing process. In order to do this as efficiently as possible and to avoid production stoppages in their own factories, companies generally build up so-called safety stocks of input materials. This ensures that production can continue for a certain time despite supply bottlenecks at a supplier.
The advantage is that a supplier's problems do not directly affect the company's production and ultimately its ability to deliver.
The disadvantage is that holding safety stock of a material requires storage space, creates expenses for warehouse management (storage and retrieval of the material) and ties up company capital.
Therefore, most companies try to keep safety stocks as low as possible or avoid them completely.
If, in addition, the input materials are not mass-produced goods, but rather preconfigured products with many variants, as is often the case in the automotive industry, the problem is exacerbated, which is why many automotive manufacturers require their suppliers to deliver products in the exact sequence (Just in Sequence) of the preliminary products are required. The build-up of a safety stock is almost impossible in this case.
High supplier delivery reliability ultimately reduces the risk of a production stoppage at the recipient of the input materials and makes it possible to reduce safety stocks. In order to objectively determine the delivery reliability of a company, the key figure OTIF can be determined.
What does the key figure OTIF mean?
The Key figure OTIF is one of the relevant key figures for measuring efficiency in logistics and provides a measure of a supplier's respective delivery reliability. Behind the abbreviation are the words "On Time In Full", which designate the delivery and performance.
OTIF is measured as a percentage. The calculation consists of the OT value (On Time) and the IF value (In Full), which means "in time" and "complete" means.
How is the delivery reliability calculated?
The formula to be used is:
OTIF = number of deliveries delivered on time and in full / total number of deliveries.
The long-term goal is to achieve an OTIF of 100%, as this will ensure optimal product availability.
OTIF can be calculated and evaluated at different levels. For example, OTIF can be determined globally at supplier or customer level, at the level of an individual purchasing or sales organization, or at the level of an individual material, thus enabling various analyses, conclusions, and countermeasures to be taken in the event of poor delivery reliability.
Advantages of high delivery reliability
Delivery reliability is a decisive quality feature and a factor that should not be neglected. The advantages differ depending on whether you look at them from the customer's or buyer's point of view or from the supplier's point of view.
From the supplier's point of view, high delivery reliability enables better Negotiating power in pricing.
From the customer's or buyer's point of view, reliable delivery by the supplier means that inventories can be kept low, thus reducing the amount of capital tied up. In addition, less storage space is required, as a lower safety stock of materials has to be kept, which is usually needed to prevent production downtimes due to a lack of input materials. Last but not least, high supplier reliability increases planning reliability at the customer, which in turn has a positive effect on delivery reliability to the end customer. Companies with high delivery reliability can therefore cite this as a reason for an increased price.
A high level of delivery reliability ultimately leads to a strong customer loyalty and mutual trust, resulting in better relationships and increased customer satisfaction. Consistently high delivery reliability enables long-term cooperation and promotes reliable sales and orders in the future. Efforts to increase delivery reliability are therefore sustainable investments in the future of a company.
Optimize delivery reliability
Delivery delays cause unreliability in the planning process and therefore have a negative impact on a company's finances and reputation. In order to avoid delivery delays and improve delivery reliability, special preparatory work can be done on various points.
First of all, it is important to visualize the current situation of delivery reliability in order to identify optimization potential.
For this purpose a continuous monitoring be built up.
Once potential for improvement has been identified, the appropriate measures must be taken and their effectiveness verified by means of comprehensive monitoring.
One measure could be to plan delivery dates with more lead time in order to take into account possible sources of delay or error and to include the time required for this. The more realistic the planning, the better delays and thus a deterioration in delivery reliability can be prevented. All this requires is to start processing a production order earlier or, alternatively, to resolve sources of error and delays.
The use of specific software solutions is suitable for monitoring and controlling the development of delivery reliability. These provide a better overview by means of visualizations, enable continuous and automatic monitoring of the delivery reliability and show optimization potentials.
We explain the most important terms in the context of delivery reliability here:
Delivery reliability is defined by the punctual and complete delivery of goods to the right place. Delivery reliability can be recorded numerically by the OTIF measurement value and can thus be measured objectively.
OTIF is a measurement value used to determine delivery reliability. It is calculated from values of the OT (On Time) and IF (In Full) and should optimally be 100%.