Supply Chain Management - How Do I Measure On-Time Delivery?
This All-Important Metric Isn't Easy to Pin Down.
On-Time Delivery is something everyone wants, but ask a dozen different supply chain pro’s how to measure it and you’ll get three dozen different answers.
What Is On-Time Delivery?
The first distinction we should get clear is – are we talking about my suppliers’ on-time delivery to me or my on-time delivery to my customers?
It doesn’t matter.
Okay, for the sake of this discussion – it doesn’t matter. In both cases, we’re talking about a supplier and a customer. Whether that’s you and a customer or a supplier and you – well, all of you want what you want when you want it.
So that’s the first measurement: Is the customer getting what it wants when it wants it? If both the supplier and customer say “yes” then, congratulations, you have 100% on-time delivery.
How Do We Agree On Which Metrics To Measure?
That brings us to our second measurement: Agreement. Do both the supplier and the customer agree on how on-time delivery is measured?
And here are some of the variables:
- The number of units on the order.
- Seems like a no-brainer. If I order 100 each, I want 100 each delivered.
- Okay, but what if the supplier delivers 99 and the customer agrees to close the order short? Is that 100% on-time delivery or 99% on-time delivery?
- Or what if the supplier delivers 90 each on-time and the customer agrees to revise the order so that the balance (10 each) can be delivered 30 days later. Did the supplier just get two orders with 100% on-time delivery on each one – or did the supplier just hit 90% on-time delivery?
- The date of delivery.
- This is where it starts to get fuzzier.
- What if the customer expects delivery on February 15, but says it can take delivery 2 days early and 1 day late? As long as you hit that four day window (count them again), are you 100% on-time? Or are you penalized for not hitting the exact delivery date?
- The number of line items on the order.
- If the customer orders 10 different items on the same order, does the supplier have to deliver all 10 on-time to get 100% on-time delivery? The answer to this should normally be yes.
- However, what if the supplier delivers 9 out of 10 on-time. Did the supplier just hit 90% on-time delivery? Or 0%?
There are many different variables at play when dealing with on-time delivery. Because of this, having up-front agreement is the key. If on-time delivery is going to be an important metric between you and your customer(s) – or your supplier(s) and you – then it’s very important to define how to measure it before you both start measuring it.
It's A Date!
Keep in mind such things as Request Date, Original Promise Date, Delivery Date, Dock Date, Ship Date, Revised Promise Date, and Actual Ship Date. All of these terms have a specific meaning – but they’re often used interchangeably. Make sure you, your suppliers and your customers are using the same language.
If you don’t have Supply Agreements, Master Agreements, Terms and Conditions, Quality Agreements or another form of a contract that specifically describes what on-time delivery is and how it is measured – well, you should. If you’re your company’s supply chain pro – take care of this. If you’re not, find your supply chain pro’s desk and stand on it until this is taken care of.
And So What?
Instead of on-time delivery, some folks in supply chain might say (and often do say), “On-time delivery doesn’t matter because my customer accounts for delays and shortages when they order. (Or ‘I account for my supplier’s delays when I order.)” Ouch.
That’s what you call a sub-optimized supply chain. And that costs everyone money. Real money. That means everyone’s padding their purchase orders and production lines and inventory and shipping schedules and on and on.
- Step 1: Define and agree to what on-time delivery is.
- Step 2: Deliver on-time.
- Step 3: You, your supplier and your customers will stop padding those orders.
- Step 4: Buy yourself something nice with the bonus check you’ll get by saving your company all that money.
Remember, in optimized supply chain, you're delivering what your customers want, when they want it - and spending as little money as possible getting that done. Understanding on-time delivery and aligning that understanding with your customers and suppliers is a key first step.