OTIF! Whom For?


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Organizations have measurement system, but often do not know why they have the metrics. And more often, they do not know what it takes to improve the levels of metrics. This trivializes importance of measurement system. Here is one such case.

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OTIF! Whom For?

  1. 1. 1Copyrights 2013 © Shridhar Lolla. All Rights Reserved.OTIF! For Whom?It is an organizational metric.Draft (to be edited)To be completed…sorry for typos and grammatical errors.Last Monday when I visited Michael, he said, "We have a big problem... We fared awfullybad in the customer satisfaction survey conducted by a third party. This is despite our OTIFbeing at 97%."And then he said, "Unfortunately, an investigation revealed that the OTIF calculated by ourcustomers was between 30 to 44%."I remembered that whenever I asked about the reliability of Infraproducts supply, I wasalways given high 90s. I always had doubt because those numbers were achieved by veryfew highly disciplined organizations.And whenever I asked for improving reliability of supply, often I would be fed with urgentinitiatives on cost reduction, quality improvement, process stability, process development,continuous improvements etc. I knew that all these are important, but in a fiercelycompetitive environment, I felt that reliability of supply is becoming the key metriccustomers have started measuring organizations on.A further investigation into the process of deriving OTIF revealed a mega difference in whatInfraproducts and what the customers meant by OTIF.Michaels team calculated OTIF based on the last mutually agreed delivery dates, while thecustomers had a detailed procedure for calculating the OTIF. Customers calculated OTIFbased on the first agreed due date, because it was on those promised dates, the orderswere given to Michaels team. Further, the definition of Full in OTIF meant not onlydelivery of all quantities, but also right items as per invoice including spare parts,documentation and without any change in purchase order terms. No doubt, in reality, theOTIF of Michaels organization was less than half that estimated by its customers. So, muchto the perception and reality of how an organization measures its key performance index.Most organizations know that their OTIF performance is important. But seldomorganizations know why OTIF is needed and least about how its high levels can be obtained.They often land up into manipulating the calculations leading to optimistically high OTIFnumbers and such high numbers often dilute the rigorous review mechanism required toimprove the process underpinning a good OTIF. Such practices, only make OTIF worse withtime in reality. Also, very few organizations indeed try to place their OTIF numbers vis a visexpectations of their customers. In most of the cases, they would conduct an elaborateblind and so called random survey, to derive an entirely unrelated customer satisfactionindex.Often it is also found that organizations assign responsibility of achieving target OTIF toproduction or delivery teams.
  2. 2. 2Copyrights 2013 © Shridhar Lolla. All Rights Reserved.OTIF is not a stylish or a good to have performance parameter, to satisfy investors, media,or auditors. OTIF is a key measurement about the reliability of delivery of an organization.Often used in multiproduct or multi lot orders. It stands for On Time In Full. Your clientswould normally place an enquiry for supply of a set of products or a set of lots to besupplied by a definite date, which is not for any wrong reason. And, the suppliers would beasked to deliver the products and every other accessories and attributes in time. Knowingthe growing competitive importance of OTIF, progressive organizations extend its definitionDIFOTAI (Delivered-In-Full-On-Time-Accurately-Invoiced)OTIF is a key performance metric at organizational level. Production, delivery, sales, qualityetc all are responsible for ensuring that the right promise is made to the customer anddeliveries are made as per the promise. And this promise on delivery is measured by OTIF.OTIF is becoming one of the key preferred index in overall customer satisfaction index.Indeed, as competition becomes fierce and cost and quality become only qualifyingattributes, reliability of delivery will be the winning attribute for doing business today aswell as in future.It then becomes imperative for organizations to dramatically improve OTIF, which is notjust the right calculation but also a deliberate process to achieve high OTIF as organizationalmetric.Under such situation, OTIF is defined as a competitive edge and a progressive organizationcomes out with processes and procedures to improve reliability of its supplies. In a growingand complex supply chain this is not easy. It leads to restructuring of its activities,reengineering of the process of order handling, aligning different functions and building theculture that is geared to achieve high OTIF. Having an OTIF as a decisive competitive edgemeans that an organization develops the capability to improve OTIF to a level thatdifferentiates it dramatically in the market place. And not just its products but its high OTIFbecomes a strong value proposition to its customers.When OTIF becomes a strong value proposition of an organization, sales teams assure thatthey do not over promise and take orders that would jeopardize their promise to deliverhigh OTIF. They ensure that the offers made to customers do not leave any gap betweenthe expectation of customers and capability of the organizations. They ensure that there isclear communication and agreement with delivery teams. In turn the delivery ream workson the key drivers of bad inventory like non standard orders, special orders, over producedorders, stock outs etc. and optimize inventory to improve flow across the supply chain. Inturn, the delivery teams ensure that they have a priority system that allows all the plannedorders within a sales order finish in Full by the due date. And then, the manufacturingensures that it schedules work orders as per the priority given by the delivery teams. Andsince with time, the expectations from customers grow, the manufacturing need toimprove its ability to deliver more in less time. It continuously need to improve itsoperations; the cycle time and the lead time.It is often tempting to have one single OTIF parameter for an organization or a BU.However, tolerance time of customers often necessitates products to be classified indifferent ways. In case of Made to Stock products the delivery is made from stock and an
  3. 3. 3Copyrights 2013 © Shridhar Lolla. All Rights Reserved.organization needs to ensure that enough stock is always available to fulfill orders in a timethat is close to transportation time. But all this must be done without too much stock outsand over stocks. In Made to Order products, the customer tolerance time and lead time isoften longer. The biggest problem an organization faces is when it has mixed classificationof products and when they pass through common flow lines. Confusion often galore interms of prioritizing work orders and organization needs to come out with a disciplinedpriority system so that fire fighting and chaos is avoided and high OTIF is achieved. In fact, itis more difficult than said. It requires real behavior change in the organization to fulfill itspromise to customers by improving OTIF to high 90s.____________________________________For knowing how organizations are achieving high availability and reliability of theirproducts and in turn, how they are improving business performance on an ongoing basis,read the game changing books on operational excellence by the Author, Shridhar LollaThe Path - Leveraging Operations in a Complex and Chaotic WorldCo-created by 188 practitioners in an innovative wayBuilding Manufacturing CompetitivenessConnects management methodology to industrys growth agenda