How good are you? Is that good enough? Financial numbers have been all over the board recently; many are deep red or barely black. One sure way to improve the bottom line is to improve process execution. This is what I call "getting the right stuff to the right place at the right time, in the right location on the jobsite, in the right condition with the right invoice–all day, every day."
Getting it right the first time drives down costs and improves customer satisfaction. A great way to help your organization improve on execution is by measuring OTIF: your on-time and in-full delivery performance.
I like OTIF because it measures the whole company and the performance at each step. This isn't simply an operations report card; OTIF is a roll-up measure. To perform well on OTIF, everything that goes into it has to be correct. The takeoff and order entries have to be correct; purchasing has to maintain appropriate inventory levels; material has to be handled correctly, pulled correctly, staged and loaded correctly. OTIF is a companywide report card.
It's also a proxy for customer satisfaction. Industry research conducted by ProSales documents that the majority of all items that comprise "service" for builders and remodelers comes down to "getting what they want, when they need it." If you measure nothing else in your business besides sales and margins, measure OTIF.
The greatest value in measuring OTIF is that it allows you to see at a glance how the company is doing. Drilling down into why OTIF is moving up or down displays problems in the company.
When Koopman Lumber executives in Whitinsville, Mass., started measuring OTIF, they quickly saw a problem in their communication loop with purchasing. Buyers weren't immediately told of low inventory levels, which meant yard staff sometimes were substituting product or picking up material from one of their other locations to fill an order. So the Koopman team created an instant feedback loop. All operations personnel are responsible for communicating low inventory levels. The execs added a form on Koopman's Intranet where low inventory levels are entered and immediately e-mailed to purchasing. The result: fewer out-of-stocks and intercompany transfers.
Often, when I ask if a company measures OTIF, the answer is no. Why not? The popular answer is, "We're really good at that, so we don't need to measure it." Next, I ask, "How would you say your company is performing on OTIF?" I almost always hear, "95%–or better."
I don't doubt that these dealers believe that's their performance level, but my research shows they're overly optimistic. In some cases it's a matter of understanding exactly what OTIF should measure.
The on-time part of OTIF is best defined as the commitment your organization has made to the customer. Whether it was to deliver "first out," "before noon," or simply "on Tuesday," whatever commitment your company has made should be the measurement. If you delivered it by your promised time or day, you're on-time.
In-full is just as stark a metric. It's not a hardware supplier's fill rate, where delivery of 90% of the order equals a fill rate of 90%. Your builder doesn't rate your in-full performance at 90% if he only receives 90% of the framing lumber he ordered. If the delivery is missing material–for whatever reason–it can't be counted as arriving in-full. Period.
If there's a backorder or a substitution (e.g., 12s for 10s), the order is not in-full. If you've pulled material from another location, the order is not in-full. If you've picked up material from another supplier and delivered the order, it's not in-full, even though the customer may not know or notice.
We use this yardstick because we're measuring how well your whole company performs. While substituting 12s for 10s may not seem that big an issue, it is. It highlights a weakness (and increased cost) in your purchasing/inventory management systems. It may be that an unusually large order was placed and typical inventory levels were insufficient. If so, sales didn't communicate well enough with purchasing. Or, like Koopman Lumber (and many others), it may simply have been that the communication system wasn't immediate enough. Something about the process isn't working well enough to ensure that your company gets it right the first time.
If you're not measuring OTIF now, it's an easy bet that your organizational performance isn't as good as you might think. The only dealers I've seen operating in the 90s are measuring and managing their systems to drive an OTIF level that high. I used to see OTIF levels in the 30s and 40s when companies would begin to measure their performance. Today, some see measures in the 50% to 60% levels when they begin. The "improvement" is largely because of softer sales demand and excess delivery fleet capacity, making it easier to deliver on- time. Many dealers also have been heavy on the inventory side, making it easier to deliver in-full.
Executives at Wheeler's in Rome, Ga., had been working on their delivery systems before they began measuring OTIF. They fully expected to see a performance level in the 90s. Initially, the level was 70%.
Replacing your assumptions with fact is invaluable. Working with hard data and not gut feeling helped Wheeler's improve performance significantly and in short order. Within six months it had moved OTIF levels into the 90s. Incremental gains of more than 90% are hard to achieve. Today Wheeler's turns in steady OTIF results in the low to mid 90s.
Measuring performance is a tremendous catalyst. Jackson Lumber & Millwork in Lawrence, Mass., also has made the transition to measuring OTIF performance. As Joe Torrisi, vice president of manufacturing operations at Jackson Lumber & Millwork, is fond of saying, the numbers don't lie. All of my clients that measure OTIF would agree that having the data is key to achieving necessary organizational and process changes.
What changes? Permanent performance improvements require you to strengthen your underlying systems. That means finding and implementing permanent fixes–not stop-gap firefighting. For example, substituting one product for another is a short-term solution; you'll find the situation repeated over and over again. You'll also jeopardize customer service over and over. You'll also incur the additional costs over and over. It's in the best interest of all to take a hard look at what was insufficient in the system that caused the failure. Then make the process or system changes to secure a permanent fix.
Remember that on-time and in-full have to be measured together. You can be on-time 100% if you don't care about backorders. Likewise, you can be in-full all the time if you're not worried about being on-time.
Companies that measure and manage OTIF are unanimous in the value of doing so. That value includes reduced time lost to mistakes or time spent trying to locate materials, elimination of missing directions for drivers, increased accuracy, and so much more. Improving your OTIF performance boosts your bottom line by lowering your operating expenses and increasing your revenue generating "time." After all, if you're improving your ability to get it right the first time, you've reduced expenses incurred from getting it right the second time (i.e., making another delivery for a backordered item). You've also increased revenue-generating time since you're not fixing a mistake.
Your gains from measuring OTIF will come from better inventory management, improvements in the sales process or quoting process, greater accuracy in manufacturing or loading, and more. OTIF shines a bright light so that your gains will come from exactly where you need them most.
So ... how good are you?
Ruth Kellick-Grubbs is president of Kellick & Associates, an LBM industry consulting and advisory firm. She works with LBM companies nationwide to improve performance and profitability. For more information on measuring OTIF, contact Ruth at firstname.lastname@example.org.