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Poor delivery reliability?

You can expect these consequences

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Delivery reliability is one of the key performance indicators for trading and manufacturing companies: Only if you supply your customers on time and in the right quantity will they be satisfied. What happens if you fail to do this? And how can you avoid the consequences? We explain this in this article.

Table of contents

1. What is delivery reliability and how is it measured?

Delivery reliability is a key figure that expresses whether goods are delivered in the right quantity (quantity reliability) and at the right time (delivery reliability). Some companies only measure one of these variables or have a separate key figure for quantity and delivery reliability and then calculate them together.

Delivery reliability is often also referred to as OTIF, a combination of the English terms "on time" and "in full". There are various ways of calculating this. The classic formula for OTIF is the number of deliveries with the correct quantity divided by the deliveries at the correct time. The result is a percentage. 

Other calculations only consider delivery reliability to be fulfilled or not fulfilled in two dimensions. In this case, even a single deviation in the quantity or the deadline is an unfulfilled delivery reliability.

2. The most important consequences of poor delivery reliability

1. Customer Satisfaction

The most direct effects of poor delivery reliability - which then have further consequences - can be seen with your customers. If deadlines or delivery quantities are not met, your customers will lose confidence in your reliability. This loss of trust is difficult to reverse. In many cases, a single incorrect delivery is enough to put a lasting strain on the customer relationship.

This has three direct consequences: Customers may migrate to your competition. Unless your goods have an absolutely unique selling point that makes you unique on the market, there will always be other companies that can replace you. If this happens more frequently, you will not only lose individual orders or customers but also risk losing the market, followed by drastic economic consequences.

In order to prevent this, you have to accept another consequence, namely increased expenditure that you have to invest in measures to retain and win back customers. On the one hand, your colleagues in sales will have to invest significantly more time in building relationships with the customer. In addition, you may have to compensate for the customer's losses resulting from your incorrect delivery with credit notes, goodwill gestures, or bonus payments.

The third consequence, which is directly related to dissatisfied customers, is a change in pricing strategy: in order to retain customers, you may have to adjust your prices. Or the dissatisfied customers may use the poor delivery reliability as an argument to deliberately lower your prices. The cost-benefit ratio of your goods is then no longer balanced. 

2. Loss of Sales

There are numerous financial and economic consequences that poor delivery reliability can have for your company. We will try to break them down into different topics here. On the surface, the loss of sales due to lost customers and orders has an impact on the future of your company: planned or desired investments have to be canceled or postponed, and the growth of your company stagnates or even declines.

In the short term, a lack of reserves can also lead to liquidity bottlenecks - with all the direct consequences for your company and your employees: invoices or salaries cannot be paid, and you may have outstanding loans that you cannot meet. In this case, the economic consequences for your company are catastrophic.

3. Increased Costs/Expenses

In addition to the loss of sales, supply bottlenecks also result in higher costs. First of all, costs increase when trying to prevent delivery bottlenecks. If you want to ensure that a particularly critical delivery arrives after all, you have to commission special freight or transportation - costs that are not usually budgeted for. 

If you want to prevent supply bottlenecks in the long term, you may need to increase your stocks. This ties up capital in your warehouse. In addition to additional storage space, you will also need additional employees to keep your logistics processes running smoothly. Manufacturing companies may even need to increase their production capacity in order to achieve higher stock levels.

Overall, such changes disrupt the smooth running of your processes. Your planning has to be adjusted, any change to familiar and well-established workflows can lead to disruptions and you have to deploy more resources.

4. Employee Satisfaction

In addition to all the economic consequences, you should not forget your employees: They also feel the effects of poor delivery reliability. If things are not going well in your company, all employees will feel it too. Changes to familiar processes are usually not welcome, and bottlenecks also have consequences for internal key performance indicators, which then deteriorate. Key performance indicators that evaluate an entire department are taken very seriously by employees and failure to achieve them, especially if it happens repeatedly, has a demotivating effect.

Your employees will also react badly if achieving a target has personal consequences for them: if bonus payments or awards are directly linked to performance and key figures, dissatisfaction is inevitable. This is particularly true if the influence of the individual employee is minimal. Resignations and high staff turnover are the result, directly followed by increased recruiting costs and capacity bottlenecks in all affected departments.

What are the consequences of poor delivery reliability?

The key figure delivery reliability is central to the company's success. If delivery reliability is too poor, you can expect drastic consequences. These affect far more than just the satisfaction of your customers. You can find out about the other consequences if you repeatedly deliver the wrong quantity at the wrong time in our clear table.

Cover page to the overview table: What are the consequences of poor delivery reliability?

3. How can you prevent these consequences? This is how you can improve your delivery reliability!

The consequences of poor delivery reliability are so drastic that the most helpful antidote is prevention: it is best for companies not to react when delivery reliability deteriorates, but to prevent it from happening in the first place. Two measures are particularly important here:

  • Transparency about your delivery reliability
    It is not actually as easy to determine delivery reliability as we have described above: In principle, of course, it is true that delivery reliability is made up of just two factors, namely how punctual and how true to quantity your deliveries are. But what exactly does that mean? Is a delivery late if it arrives a day late or a week late? What about early deliveries? Is it more important for your customers to receive a delivery in full or on time?

    Knowing exactly what your customers expect is essential. You should also take into account special cases such as complete or no measurement, as well as certain definitions such as the VDA recommendation from the automotive industry. And then, of course, there is the question of whether you can or have all the data available to calculate a meaningful key figure. 

    The first priority is therefore a transparent and reliable measurement of the actual key figure. After all, you can only implement countermeasures once you know that there are problems. 

  • Transparency about the causes
    The second essential step is to research the causes of poor delivery reliability. In addition to problems along the entire supply chain, these can also include faulty planning, disrupted processes, a lack of automation or insufficient knowledge of the processes or process steps. 

    So to identify the real problems, you need to know exactly what is going on. Even though most companies already use digital processes to some extent, there is still a lot of catching up to do. Even widely used IT solutions, such as those from SAP, often do not offer enough transparency. Especially if you work with special processes or individual adaptations, you probably lack transparency in some areas. 

    As the problems can be so individual, there is no one-size-fits-all guide. Digitization and automation should definitely be your goal if delivery reliability is a problem for you. For an accurate assessment, it can also be helpful to seek advice from an external service provider, as they can offer an unbiased view. 

Order management: Are you getting the most out of your SAP system?

Anyone who deals with scheduling agreements knows that SAP solutions offer too little support and transparency for order management processes. Most companies do not even use all of the available functions. This white paper examines the possibilities offered by SAP systems, how they can be better utilized and how you can use them to avoid delivery bottlenecks.

Cover page for the whitepaper: Order management: Get the most out of your SAP system?, shown on a tablet.
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