What Shippers Need to Know About the Relationship Between OTIF and Fill Rates

Logistics and supply chain professionals use many measures to earmark success. But as more and more consumers look towards same-day deliveries and the focus on instant and quick fulfillment grows, logistics professionals are increasingly measuring customer satisfaction as a metric of success. The same-day delivery market is expected to grow from $7.88 Billion in 2023 to $19.63 Bn in 2028 at a CAGR (compound annual growth rate) of 19.7%. Therefore, understanding the main key performance indicators (KPIs) to measure customer satisfaction: on-time-in-full delivery (OTIF) rates, and fill rates can help logistics folks and supply chain stakeholders gauge their delivery performance and customer satisfaction.

This article explores the concepts of OTIF and fill rates to look at the symbiotic relationship between the two metrics. It explains the significance of these metrics and offers strategies to optimize OTIF and fill rates. As a shipper looking to improve customer satisfaction, optimize supply chain and logistics efficiency, and improve inventory management, this article will give you some impactful pointers — along with helping you choose the right 3PL partner like Continental Logistics for all your logistics needs.

Decoding OTIF and Fill Rates

According to Gartner, OTIF can be defined as “on-time in full (OTIF) is a supply chain metric that is calculated by multiplying fill rate by on time. When perfect fill rate and perfect on time are used at the order level, this perfect OTIF meets the perfect order definition.”

As this definition highlights, fill rates are part of the perfect OTIF calculation. So, what are fill rates all about?

• Fill rates are your barometer for supply chain and logistics efficiency. A fill rate is an order fulfillment metric defined as the percentage of customer orders you can meet immediately with available stock.
• A high fill rate signifies that you are ready to fulfill orders, and can result in no backorders, lost sales, or stockouts.
• This way, it can directly impact customer satisfaction. On the flip side, a high fill rate may also indicate excess inventory, potentially signaling increased storage and transportation costs.

So how do fill rates differ OTIF?

• While you need fill rates to calculate the OTIF (on-time in full) rate, you also need a punctuality metric to determine whether your deliveries have arrived at the destination on time and in the expected condition.
• Developed by Walmart to measure supply chain and logistics success in 2017, OTIF considers the delivery timeframe as agreed upon before supply, along with the order fill rate, to gauge customer satisfaction.
• Many retailers and distributors have strict rules on OTIF that suppliers need to follow to keep the partnership going smoothly and avoid losing money.  

OTIF and fill rates are both important to calculate supply chain efficiency and logistics success. These metrics are interconnected and both contribute to customer satisfaction. However, high fill rates do not automatically guarantee high OTIF rates if deliveries are delayed. In the same vein, OTIF targets may prove futile if stockouts hinder order fulfillment and lower fill rates. So while the 2 metrics are intertwined, shippers need to maintain a balance in inventory management, logistics, and consumer expectations to achieve high efficiency.

Analyzing The Impact of OTIF and Fill Rate Performance

Achieving excellence in both OTIF and fill rates demands shippers play a delicate balancing act. The inherent relationship between OTIF and fill rates extends beyond operational efficiency. Working on improving one metric while ignoring the other can also harm customer satisfaction and retention. Shippers may face several challenges when playing out this balancing act between OTIF and fill rates:

• While a relentless pursuit of on-time deliveries may lead to increased fill rates, it could inadvertently result in overstocking. This can drive up carrying costs and potentially erode profitability.  
• Conversely, prioritizing fill rates at the expense of OTIF performance risks jeopardizing customer satisfaction and brand loyalty, as delayed or incomplete deliveries can undermine trust and tarnish reputations.

OTIF and fill rate performance are also directly linked to 2 major aspects of the supply chain:

• Inventory management: Optimized inventory management is also an important aspect influencing OTIF and fill rates. Leveraging advanced demand forecasting techniques, shippers can anticipate demand fluctuations and predict how much inventory will be needed through different seasons or periods. This helps shippers avoid overstocking, ensuring optimum fill rates and OTIF performance. Collaborative partnerships with suppliers and just-in-time inventory management practices can further fine-tune inventory management, leading to better OTIF outcomes.
• Customer satisfaction and retention: Consistently meeting delivery expectations fosters trust and loyalty, encouraging repeat business and reducing churn rates. Conversely, instances of late or incomplete deliveries can lead to dissatisfaction, prompting customers to seek alternative suppliers who offer more reliable service. This makes OTIF an important metric to ensure repeat customers who are satisfied with your services.

Leveraging agile inventory management, prioritizing customer satisfaction, and collaborative partnerships, shippers can gain an upper hand when it comes to OTIF and fill rates. But there are also new technologies that can help shippers optimize OTIF and fill rate performance more strategically.

Strategies To Enhance OTIF and Fill Rates Simultaneously

Having high fill rates and touching OTIF performance benchmarks can directly translate to credibility and consistency for a business. For shippers looking to attract retailers and business partners, these metrics become crucial as they showcase the ability to deliver products on time, in full, and consistently. There are several impactful strategies for supply chain managers and logistics professionals to optimize OTIF and fill rate performance:

1. Deploying Advanced Forecasting Techniques

Predictive analytics and demand forecasting play a crucial role in matching demand and supply. These systems have a direct impact on inventory levels and fill rates. Supply chain visibility systems, for instance, can help managers plan proactively thanks to historical and real-time data on seasonal trends, demand fluctuations, consumer behavior patterns, and more.    

Johnson & Johnson, for example, needed to satisfy customer demand quickly and deliver a best-in-class customer experience without exceeding its inventory targets, to thrive in extremely competitive new markets. The brand decided to improve demand planning accuracy to achieve these goals using exception-based forecasting methods, crunching larger amounts of data, to get the required results. Similarly, shippers can leverage advanced demand forecasting to improve OTIF performance and fill rates.    

2. Streamline Logistics Operations

Shippers need to ensure their logistics operations are top-notch to ensure on-time delivery. Streamlining the various aspects of logistics can directly result in improved delivery times and OTIF performance rates.

Whether it’s route planning, warehousing, load consolidation, or choosing the right transportation modes to reduce transit times, leveraging a TMS (transportation management system) can be your go-to solution to optimize logistics superfast. Thanks to real-time shipment tracking and monitoring, TMS systems can also allow you to mitigate the impact of disruptions.

3. Adopt Collaborative Supply Chain Partnerships

Late or incomplete deliveries not only impact customer satisfaction, they also contribute to reduced revenues and fines. Being aware of what is causing low OTIF performance or fill rates can help shippers work towards improving their processes to be on time. One element of this cycle consists of fostering healthy relationships with partners, carriers, suppliers, and other stakeholders, so that are always kept in the loop when things don’t work out. Collaborative partnerships that include sharing data, keeping open lines of communication, and aligning objectives, help shippers stay connected with partners at all times.

These practices can help expedite order fulfillment, improve customer retention, and ensure customer satisfaction. Collaborative partnerships are essential to improving OTIF performance and fill rates in an increasingly interconnected world.

Navigating the Nexus of OTIF and Fill Rates With A Trusted Partner

OTIF and fill rates stand are important to supply chain excellence, influencing customer satisfaction and operational efficiency. Collaborating with an experienced 3PL partner like Continental Logistics can empower shippers to improve OTIF performance and fill rates more impactfully. Contact Continental Logistics today to know more and elevate your supply chain performance.

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