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Higher OTIFs are here to stay. Are you ready?

It has been exactly 1 year since leading retailers made big bang changes to their OTIF targets and this may be a good time to revisit, assess, understand and analyse how those efforts have paid off. 

To give in more context and perspective to this, let us take a step back and understand what this is all about and why. More importantly, why now. 

With over a decade after the e-commerce boom, the entire ecosystem is facing the after tremors and entropy are at an all-time high. With blurring lines between online and offline retail, roof-hitting customer expectations, the impact of new technology like drones, AI etc., the wave of AR-VR experiences that surface every now and then, the only thing that is right now consistent and stable is instability. Nothing works in a simple cause and effect model and even the biggest geniuses can’t place their bets on a single strategy that will help retailers win against all odds. I can’t quite decide if this is exciting or morose. However, this is the age of the customer and if there’s one thing that hasn’t changed, it is the pivot which is the customer. From king to God to an unnamed elevated status which is still sinking in their minds, the be-all-end-all metric in the entire game that differentiates winners from losers is customer happiness score. Smart retailers have understood this thoroughly and the one thing they cannot afford to compromise on is customer happiness. 

OTIF

How is this connected to OTIF? 

Well! The connection is pretty simple ONLY if you look at it. 

With full-fledged online retailers setting new benchmarks on multiple fronts such as delivery experience, customer experience, inventory management, fulfilment practices, cost & logistics management, dealing with 3PL partners, offline retailers, irrespective of whether they are leaders or trailblazers or just in the game have woken up to it. Yet, they’re still playing, a catch-up game. 

Amazon-standard customer experience has been simply impossible to reach. This has led to these retailers establish newer ways of running and managing operations. The one sin that retailers cannot afford today is non-availability at the time when customers demand something. For that to happen, retailers need to have best-in-class inventory management which is tightly knit with an optimized supply chain. Some key performance indices for an optimized supply chain go beyond traditional metrics such as: 

  1. Logistics costs as a percentage of sales
  2. Inventory turns
  3. Total inventory days
  4. Source-to-deliver cycle time (the time from sourcing raw materials to delivery of finished goods)
  5. DIFOT - Delivered in full on-time

However, a year ago, as one of the strategies in this direction, higher OTIFs were made the norm. This led to a cascade of changes in the entire ecosystem, especially on the supplier side. Has it really helped retailers? If so, how? 

In the US alone, 3 major retailers set penalties for early and late deliveries. Interestingly, in the corresponding period, digital sales grew as well and this was more than the intended outcome of the move. The intention of the move was to make sure that the shelves were stocked adequately to not cause customer disappointment. However, it did lead to not only meeting the intended outcome but also reflected positively in the sales numbers. 

While this is something retailers rejoice as the outcome is favourable to their business interests, the suppliers’ side of the story is a bit different. Suppliers consist of organizations of different structures, types and maturity levels to handle these sudden changes. Their engagement levels with their 3PL partners are different too and this higher OTIF requirement has affected them the most. Several organizations have taken a reactive approach to these changes and that has cost them dearly. 

The net-net of the analysis is that, since retailers are seeing a direct outcome in terms of sales by having higher OTIFs, it is here to stay. 

In order to achieve higher OTIFs, organizations need to have the necessary bells and whistles in place which means it calls for investment in tools that can drive higher OTIF compliance. In several organizations, the penalties for non-compliance of OTIFs has put the jobs of several logistics and fulfilment staff on the chopping block.

Here are some steps suppliers can take to improve OTIF compliance:

1. Real-time intelligence

In a complex ecosystem of suppliers and 3PLs, it is possible to identify when a lapse is about to happen and an SLA is going to be missed. With timely intelligence, a quick plan B can be figured out so that, the lapse does not take place. In either case, it is going to cost the company dearly because missing OTIF will lead to fines and meeting the OTIFs in short-term with a stop-gap arrangement will escalate operational costs. However, it is better to bear the short-term operational costs in the case because it won’t be surprising to see retailers choosing their suppliers based on OTIF compliance. Intelligence also helps in ensuring that such a situation doesn’t occur yet again in the future and is good for the long-term.

2. Data-driven allocation

3PL partners play a major role in this scenario and the worst part is, although suppliers have to bear the penalties due to non-compliance, the root cause is not quite in their control. The only bit where they can control something is the choice of 3PL partner. Manual allocation based on intuition or gut feeling is absolutely counterproductive and detrimental to helping them achieve the OTIF levels that are getting set as benchmarks. What suppliers need is data-driven insights that help them pick 3 PL partner.

3. Visibility

Visibility black box - the most common challenge that affects all stakeholders and pulls down the overall productivity, in addition to OTIF non-compliance. With a plethora of Fulfillment software tools available to get role-based, contextual visibility to all stakeholders, there is something significant for everybody. If it is the C-suite, they look for high-level strategic visibility through well-defined business-centric KPIs that will drive long-term decisions. At an operational level, there are ground level and field level metrics that provide real-time visibility.

4. Automation

Manual processes are not just time consuming but also error-prone. There is no way one can get any sort of digital trail or metrics that help in analysis, improvement etc. In fulfilment that is digitally driven, the impact of automation can be humongous. It can not just help attain OTIF compliance and adhere to SLAs but also help identify trends that can make them future-ready. Embrace the power of automation and improve your speed, accuracy, and predictability of achieving required OTIF compliance.

5. Predictive intelligence

Solving the problem at hand is one thing. But, leaders always stay ahead and foresee a change before it strikes. The new OTIF targets have not affected suppliers that have been proactive enough to foresee this and implement insights from the market proactively into their process. Tools such as FarEye Fulfillment equip companies with proactive, actionable steps through machine-learning based insights and predictive intelligence. This has had a significant impact on OTIF compliance (Hilti increased its OTIF deliveries by 6%).

The bottom line:

Higher OTIF is the order of today and the future. This trend will continue to put pressure on suppliers to align themselves in terms of their operations and processes to avoid penalties and retailers to boost sales. Fulfilment software from FarEye has helped dozens of enterprises with this goal and to see in full measure what all you can achieve with FarEye, sign up for a demo.

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