When it comes to getting product to your customers there are two very important factors – Quality and On Time Delivery (OTD). Your customers want to know that they are getting the product as promised and in the time frame that they need it.
On Time Delivery seems simple, but it can actually be a little bit of a moving target. If your product is made to order you most likely have a standard lead time. However, your customer could be in a “line down situation” meaning if they don’t get more product ASAP their production line will go down. To you, shipping within your lead time means you met the On Time Delivery date, but your customer, who wants it expedited and shipped in 1, may mark you as late. Here in lies the problem with tracking On Time Delivery.
While the above situation may not seem like a big deal, when it comes to Vendor Management and Vendor Scoring you could be receiving poor marks from your customers even though you are meeting your internal On Time Delivery schedule.
The whole purpose of your supply chain is to get the products your customers need, when they need them, in the quantity they ordered. Your customers will be measuring the performance of their suppliers. They will need to understand what suppliers are always on time, late, delivering poor quality goods, etc.
Here are some variables they will be considering:
- The number of units ordered. How many units are ordered and how many are received?
- Date of delivery. What date did they receive units on, was the order shipped complete?
- The number of line items on the order. Were all the products shipped together or separate and what date were they received on?
It’s important to understand your customer’s requirements and establish some guidelines with REAL expectations. Whether they have been a customer for 20 years or 20 minutes, understanding what’s important to them and how they will be scoring their vendors is an important step in establishing a lasting and profitable relationship. Here are some items that should be discussed:
- Your standard product lead times
- Any expedite fees
- Shipping location and estimated transit time
- Preferred ship method
- How do they track On Time Delivery – is there a window you need to meet, how early can you ship the product
- Are partial shipments acceptable and how does that affect OTD
While it’s important to have your own processes and procedures to understand how your team is performing, it’s also important to understand your customer’s expectations. Your staff may excel at meeting your internal OTD schedule, but if your customers are consistently dinging you for being late because you didn’t meet their requirements, then this becomes a much larger issue and can start affecting your vendor score with clients – and ultimately your sales.
If you have customers who consistently fail to plan for your product lead time, there are some solutions that you can discuss:
- Suggest placing a series of scheduled orders or a blanket order. They can schedule shipments out in advance so that you can consistently produce and ship product to them every so many days, weeks, or months to meet their needs. OR they can place and order for X amount of product that is produced in advance and call in release dates as they need it.
- If the customer doesn’t want to place a blanket or scheduled order, you could try to determine your production needs based on their past order history. If the item they buy is a popular product that you know you will sell, you may be able to produce it ahead of time and keep some on the shelves.
- When a customer places a last minute order, determine what their minimum quantity is to keep their production line running. If they order 100 units, they most likely won’t use them all in a day or two, but they may need 20 to keep them going until you can produce the rest of the material. Consider keeping 20 on hand in the future based on the other option above.
On Time Delivery is a fantastic tracking measure to determine how efficient and well run your business is – but it only works if your customers abide by your lead times and track their OTD in accordance.
OTD for shipments within a production supply chain is a difficult metric to track, but improvement in this area has obvious value. The arrival of materials needed for production are important because OTD is integral to the efficiency of the production line. It’s this point in the manufacturing process where the importance of good logistics and good inventory management practices intersect.
Margret K. Warner
Vice President, Commercial Lender
Director of Business Services