When it comes to developing and manufacturing products, it is just as important to deliver them on time, as it is to ensure quality. Rarely are our customers patient enough to wait or even worse forget when they expect a product at a certain time and then do not get it. This is why, ensuring on time delivery has become a vital part of the project management process.
To help you succeed, we have gathered all the basics as well as some examples of ensuring delivery times with ease.
- On time delivery measures delivery performance and supply chain efficiency.
- On time delivery should not be the only metric you follow. Additional metrics like lead time can prove very useful insights for your process.
- Not tracking on time delivery rate often enough may result in a false understanding of the current status.
- Even 1 late delivery can have a domino effect on your process.
What is on time delivery (OTD)?
On time delivery is a metric that measures delivery performance and supply chain efficiency.
In short, this metric is used to understand if the company is meeting the promised delivery times as well as how likely they are to meet them in the future. Usually, it is measured by the on time delivery rate which is supposed to be as close to 100% as possible. By measuring this metric, companies are able to evaluate their processes related to the production and delivery of the product, as well as possibly increase customer satisfaction and trust.
The most common challenges for meeting OTD:
- Sales picking up at an exponential rate does not allow for the supply chain to adjust and keep to the promised deadlines.
- Issues in the supply chain can mean there is a lack of materials and the product manufacturing is delayed.
- Poor inventory management leads to misconceptions about how much product can the team actually sell at any given point.
- Issues in the delivery chain are the most common ones to challenge OTD resulting in multiple, missed, and lost deliveries.
- Production delays can be caused by malfunctioning machinery, poorly structured processes, and other internal issues.
- Overpromise from the sales team in order to close the sale causes more pressure on the supply chain.
- Lack of visibility on the progress until the product is shipped. Not allowing the team to monitor the order from initial request to delivery and to identify where it may be delayed.
Why is on-time delivery important?
While we have covered a few points of why tracking OTD is important, let’s look over the key reasons behind the reasoning. If you are still unsure if this is something to be done, they might sway your decision.
Improves customer trust, collaboration, and loyalty. By delivering your products on time, you are also communicating to your customers that the company can be trusted to deliver on its promises. This feeds into long-term relationships, recommendations, and loyalty to the company.
Customer satisfaction increases as the promised delivery dates are met. This one is kind of a given, but nonetheless very important. If you are promising a certain delivery date and do not meet it, your customers will be unhappy, they may even turn to look for another supplier. At the same time, having a provider that meets the expectations every time, is almost expected in this day and age.
With late deliveries, the team has to do more support and put more effort into retaining business. When deliveries are late, this also causes more work in other areas of your business. The support team will have to work overtime to ensure the customer complaints are handled and deliveries rescheduled.
Even one failed delivery, can have a domino effect, causing other deliveries to be late as well. If your order pipeline is full, missing a delivery on one order can cause a domino effect for the other deliveries as well, as it will have to be rescheduled and completed at a different time anyway.
On-time delivery metrics
In its essence, on time delivery is a single metric that describes the efficiency of your team. However, when trying to understand the process a bit better, you should consider additional metrics that help you get more insight. Some examples of those are Time to production, Time to shipment, Time to delivery, etc. These metrics dissect the larger process from order to delivery and let you gain better understanding of which part of the process may be lacking and lagging.
If you are familiar with Kanban, this concept may seem familiar to separating lead and cycle time. When the team measures two different numbers – how long it took to complete a task since it was first created and how long it took to complete it once the actual work began. In such cases, the teams are essentially measuring the average completion time and getting a better understanding of the possible wait times for new items. In the case of helping OTD, this separation may also prove to be useful. At the same time, you will most likely want to measure the averages for each stage of the process – order, design, manufacturing, and shipping.
Common OTD metrics
Additionally, here are some other on time delivery metrics commonly followed by teams:
- On-time delivery (OTD) or Delivery on time (DOT) – measures how many of the orders were delivered on time.
- Delivery in full (DIF) – measures how many of the deliveries included all of the right ordered products.
- Delivery in full on time (DIFOT) – refers to deliveries that were made on time and included all of the ordered products in the right quantities.
- Inventory turns (days) – refers to the rate of how quickly the inventory is sold, replaced, or used.
On time delivery calculation
To calculate on time delivery rate, you will need 2 metrics – the total number of deliveries and the number of successful deliveries. Then the formula goes as follows:
Successful deliveries/Total deliveries * 100 = OTD rate
On time delivery rate calculation example:
For example, if you have made 1500 deliveries in total, and 75 of those deliveries failed, this means you have made 1425 successful deliveries. To calculate the OTD rate, you will have to divide 1425/1500=0,95 and then multiply this number by 100, 0,95*100=95. This means your OTD rate is 95%.
You may want to consider calculating the OTD rate on a weekly or monthly basis, to track the changes and identify issues in the process.
What counts as a successful delivery?
Another aspect of this calculation you may want to think about is how you determine that a delivery was made on time. There are 2 schools of thought here:
- The customer is promised a certain delivery date for their order. If they get the delivery before or on this date, it is considered OTD.
- The customer is promised a certain delivery date for their order and it is known that it takes 3 days on average for the shipment to arrive. This means, that as long as the order is shipped 3 days before it has to reach the customer, it is considered OTD.
Let’s look at why this differentiation may be important. In the first case, while you still may be able to do express shipping to make sure the order reaches your customer on time, you are spending additional resources to meet the goal and ignoring possible issues in your process.
On the other hand, if you focus on the day of shipping the product, you will have to ensure everything prior to that goes according to plan. And will spot if any issues occur in the manufacturing process much sooner. To understand why this rate is low, you will need to break down the metric into smaller increments that analyze your process. Some examples of this could be:
- Time from request to shipment
- Time to manufacture
- Time to record the order
If you are familiar with Kanban, a similar division of metrics is captured as lead and cycle times. And help determine not only how long overall it took to complete your request, but also what was the time required for specific stages of the process. To better understand and visualize the whole process, such teams use Kanban boards that allow them to separate each process step and monitor the progress of each order.
How to ensure on time delivery
So now that we have covered what OTD is and why it is important, let’s look at ways to ensure your rate is as close to 100% as possible. Here are some of the most common tips shared by industry professionals.
- Track and analyze late delivery reasons. You cannot improve the delivery rate without understanding why it was late and analyzing the reasons behind it. This will give you something to start working from and point you in the right direction for problem-solving.
- Prioritise problem-solving to eliminate the issues. Once you know what the issues are, make sure they are assessed and ideally dealt with. It may seem like something small but do not underestimate the power that you may have from solving even the tiniest problem in your process.
- Keep monitoring results to identify any other issues. As I mentioned above, measuring on time delivery rate just once is really rarely very useful. Depending on your process, define the frequency of this measurement and track the changes. It will give you an indication if something goes wrong and will give you nicer results when the process starts improving.
- Make your process visual – everything from the initial request to delivery should be visualized and tracked. Visualizing the whole process allows you to analyze it and see where it may be fixed in the future. For this, consider using task boards that visualize each of the process steps as a separate status. Here are some Kanban board examples of how this may be set up.
- Optimize where possible – introduce systems to automate the process and calculate optimal ways to manufacture and deliver products. Use the same task boards to identify which of the process steps are taking the mots of your time and then consider how can you optimize them. Automation, outsourcing, and simply more focus on how things are organized can greatly help.
- Measure estimated vs. tracked time. Get a sense if your estimated delivery speed matches what the team can actually accomplish by tracking and comparing the time that was needed to fulfill each order.
- Connect your systems. Think about all the systems you use – order management, task management, transportation management, logistics management, customer experience interface, and anything else should be connected to each other. Even better, depending on your process, you may be able to use a single system for multiple of these needs.
A solution like Teamhood can help you track orders, their production, and shipment statuses all in one system. You can also connect it to other solutions through various integrations. This gives you the option to minimize the tooling being used and gather data in a single solution. Here are a few examples of how to utilize Teamhood:
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2014 - 2020 Marketing manager for Eylean.