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Do you know whether you are keeping your OTIF customer promise?

By Kevin Wilson May 23, 2016 by Kelly Kuhlman

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)

Order to Cash (OTC) Flow Diagram

Order to Cash (OTC) Flow Diagram

  1. At the time of placing the order, the customer should receive an acknowledgement back from the sales representative, informing them of the expected delivery date.If the customer is EDI-enabled with the manufacturer or distributor, then they would send in an EDI X12 850 message or EDIFACT ORDERS message to reflect their Purchase Order (PO) detail. This PO would generate a Sales Order in the manufacturer’s or distributor’s ERP system. Once the Sales Order is confirmed, an EDI X12 855 or EDIFACT ORDRSP message is sent back to the customer, informing them of the acceptance of their Purchase Order and making known any adjustments they have made — e.g., change of price, quantity, promise date or product. If the customer accepts the terms of the order, the process begins and the promise is made. In the example above, the customer was promised delivery for ALL of their goods by 6th March.
  2. The order can then be fulfilled in one of two ways. If the distributor does not have the item in stock, then they would cut their own PO to their supplier (drop-ship order), asking them to ship the required product directly to the customer. The second scenario takes place if you do have enough stock on hand (warehouse order) to fulfill the order. In both instances, when the time comes to ship the product, the ERP system needs to know about it so that we can inform the customer.In the drop-ship scenario, we would expected an Advanced Ship Notice (ASN) or EDI X12 856 (EDIFACT DESADV) to be sent to us, stating the carrier that was used to ship the product, the applicable carrier tracking numbers and the expected delivery date. In the warehouse scenario, we would choose the shipping mode and method, capture the tracking numbers and send the product on its way.In the example above, the customer is still on track for receiving ALL of their goods by 6th March.
  3. Now that the carrier has the goods, we typically enter the “black hole” of where the goods are and when they will be arriving at the customer. That is, outside of our “sphere of influence,” we have no idea as to whether the product will arrive on time. Does this sound familiar? You are not alone in this area, but I will revisit this topic shortly. In the example above, the customer is on track for receiving their goods by 8th March (2 days later than promised).
  4. The carrier ultimately delivers the product to the customer on the 7th March, or one day later than the customer promise.

Now comes the question of measuring our performance of this order.

How did we do? Did we meet our customer’s promise?

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!

What to do?

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).

 

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