A customer, placing an order for a product to a manufacturer or distributor, expects a certain service level for that order. In short, the customer typically expects the order to be fulfilled with the correct product, to the correct location, on the promised date and for the correct quantity. These four attributes of an order serve as a basic baseline for the measurement of a “Perfect Order” to that customer.
In this article, we’ll focus on the last two attributes of the customer promise: “On Time” and “In Full.” These two attributes of an order are often measured as a key performance indicator (KPI), called OTIF (On Time In Full) or DIFOT (Delivery In Full On Time).
In referring to the diagram below, we’ll run through the process at a high level to see how it works or should work. We’ll also just cover a much simplified process in order to illustrate the point to be made.
(Click the diagram to see a larger version)
Now comes the question of measuring our performance of this order.
Do we have all the data needed to make the decision as to whether this order met the customer promise or not? In our system, we have all the needed data up to the point of the warehouse’s shipping the product or our supplier’s shipping the product, and in our records, we show that the order was to be delivered on time. In addition, our system can show whether the shipped quantity matched the order quantity.
Unfortunately, the expected delivery date is only estimated up to the point of shipping the product; it does not take in to account changes to the delivery date during transportation or when the product was actually delivered. The customer does not typically tell you that they received the product.
With this in mind, there is no way we could ever accurately say that we met OTIF for any customer order!
In order to correctly assess whether or not the order met the full customer promise, we need to know when it arrived at the customer. The only way to effectively know is to receive an electronic parcel status notification message from the carrier (typically an EDI X12 240 / 214 message) and have it relate back to the delivery (warehouse order) or ASN (drop-ship order). Now, with this information in our ERP system, we can accurately measure the OTIF performance for this order. In our example, we missed the promise because the product was delivered a day late.
If your organization does not receive these carrier status notifications electronically, or does but does not correlate them back to the business process (delivery / ASN), then you experience the “black hole.” That is, you are blind to the whole transportation and delivery phase to your customer. This is a critical phase of the process and most certainly plays a significant role in meeting your OTIF customer promise goals.
Moving your organization toward closing the “black hole” should be a relatively easy task, especially if you are using SAP as your ERP solution.
EDI + SAP Event Management = Customer Promise of OTIF
Contact us if you wish to see a live demo of this SAP-enabled solution (using standard functionality).
Tags: ASN, Carrier Status, Customer Promise, OTIF, supply chain management