Cost Consequences of NOT Delivering On Time and In Full

In meeting the timely demands of all our customers, supply chain efficiency is more critical than ever. As part of our pledge to keep customer satisfaction high, we pay extremely close attention to one key performance metric: On Time and In Full (OTIF) delivery. 

In this post-pandemic economy, this critical indicator measures a supplier’s ability to meet promised delivery dates while ensuring that the order arrives in the right quantity. Priority Plastics understands how any failure to achieve high OTIF rates can have far-reaching cost consequences. Poor OTIF can impact everything from inventory costs to customer loyalty.

What are all the financial repercussions of late or incomplete shipments? Are there broader implications for supply chain efficiency? Priority Plastics continually reviews internal and external process improvements as well as additional strategies to implement focused on maintaining and enhancing OTIF performance.

Negative Impacts of Poor OTIF Performance

Late or incomplete deliveries can have significant cost implications. When a supplier fails to meet OTIF standards, businesses often incur hidden and direct expenses that affect their bottom line. Below are some of the key financial consequences:

1. Increased Inventory Holding Costs

Timely deliveries allow businesses to operate with lean inventory models, reducing warehousing expenses. However, when shipments are late or incomplete, companies often need to stock excess inventory as a buffer against uncertainty. This leads to:

• Higher storage costs
• Increased insurance premiums
• Additional labor expenses for managing excess stock

2. Expedited Shipping Fees

Supply chain inefficiencies force companies to resort to costly expedited shipping methods to meet customer demand. Express freight costs can be two to five times higher than standard transportation fees, significantly impacting profit margins. These costs accumulate quickly, especially for businesses dealing with high-volume shipments or low-margin transactions..

3. Lost Sales and Customer Attrition

Delayed shipments disrupt the availability of products on shelves, leading to lost sales opportunities. Customers who experience repeated stock outs or shipment delays often turn to competitors, leading to long-term revenue loss and diminished brand loyalty.

4. Operational Disruptions and Inefficiencies

Poor OTIF performance creates inefficiencies throughout the supply chain, causing:

• Increased labor costs for handling unexpected delays
• Production line stoppages due to unavailable materials
• Higher administrative costs for order tracking and dispute resolution

The cumulative effect of these inefficiencies can increase overall supply chain costs by 10% to 25%, depending on industry dynamics and the severity of the delays.

Strategies to Improve OTIF Performance

At Priority Plastics, we calibrate our OTIF on a daily basis and examine all contributing factors on a granular level. We always give our best efforts in honoring customer request dates. 

Further, our scheduling teams have a detailed understating of the efficiencies of each of our manufacturing platforms. These factors help us provide the most accurate promise dates in calculating when customer orders will finish and ship. Arguably, this is the very first step in maintaining strong OTIF performance: making promises we are able to keep! 

As a partner to our customers, there are ways we can set the stage to improve and maintain high OTIF scores and share data points for improvement.  

Strengthening Supplier Collaboration

Open communication and collaborative planning with customers help us anticipate and mitigate delays. Strategies include:

• Implementing joint forecasting and demand planning sessions
• Conducting regular calibration calls to gauge demand and potential shortfalls
• Implement supplier performance reviews
• Establishing contingency plans for supply chain disruptions – including safety stock arrangements and alternate SKUs

Leveraging Predictive Analytics

Data-driven decision-making enhances supply chain efficiency by predicting demand fluctuations and optimizing inventory allocation. We should periodically review and discuss:

• Using historical sales data to identify demand patterns
• Understanding seasonal demand patterns as they apply to your industry and your end-use customers
• Being flexible in adjusting order fulfillment strategies based on real-time insights

Additionally, we have encouraged many of our customers to place orders on at least a quarterly basis and schedule their product runs at least 13-26 weeks in advance.  Not only does this help Priority Plastics tremendously in machine capacity planning – this also provides ample guidance for expanding our human resources needs in each of our plants.

OTIF in Review

Coming to terms with the on-going importance of OTIF translates into truly focusing on what our customer really want – and, WHEN they want it. Unquestionably, maintaining a strong OTIF helps boost customer satisfaction, cuts costs and helps us build stronger bonds with our customers. 

• Our Grinnell, Iowa facility sets the pace for our company in terms of OTIF and overall customer satisfaction scores. Our Denver, Colorado and Portland, Indiana plants are not far behind these performance achievements. They stay closely attuned to the “Best Practices” that define Grinnell’s success
  
• Companywide, we recently posted an internal OTIF score of 95 % on a recent 30 day rolling average. ( 94.85% OTIF, 3 plant average, Jan 6, 2025- Feb 7, 2025) 

At Priority Plastics, maintaining a strong OTIF is essential for reducing supply chain costs, improving efficiency, maintaining strong customer relationships and achieving customer satisfaction and loyalty. 

We stay focused on looking for ways to improve and to better serve our customers by making our role in the supply chain fast, dependable and secure.