Home / Indirect Spend / Scoring Supplier On-Time Delivery Best Practice

Scoring Supplier On-Time Delivery Best Practice

Scoring Supplier On-Time Delivery Best Practice

Calculating On-Time Delivery

Monitoring On-Time Delivery (OTD) supplier performance is crucial for all enterprises with a significant GNFR (goods not for resale) spend. Enterprises who actively manage supplier On-Time Delivery percentage protect their capital, revenue and profits.

The Importance of Achieving Near Perfect Supplier On-Time Delivery Percentage Scores

Ensuring suppliers are delivering On-Time is absolutely essential for GNFR risk mitigation. Each enterprise should set their On-Time Delivery percentage goals based upon their corporate objectives. Although higher On-Time Delivery percentage goals are typically costlier to attain, the rewards gained in time and cost savings can be worth the extra effort.

It is best to perform a cost benefit analysis to determine the appropriate On-Time Delivery percentage goal for each purchase category. Typically, projects are a prime indirect spend category where achieving near-perfect On-Time Delivery yields significant ROI and can significantly protect revenue and profit loses.

  • Project Timelines– When GNFR orders are received On-Time, contractors and internal teams have the items they need to finish a project by the deadline. This prevents team members from spending unnecessary time searching for misplaced GNFR or wasting money reordering GNFR thought to be lost. With assurances of a high On-Time Delivery percentage, contractors and internal team associates can be scheduled to be onsite as the orders arrive for a Just-in-time installation.
  • Project Budgets– Receiving GNFR orders On-Time is a leading factor in controlling project budgets. When GNFR orders are received On-Time, it greatly minimizes add-on order costs, extra shipping costs, excess inventory disposition costs, and other consequential expenses.

Consider an order that fails to deliver on time. For example, the installation team is onsite and ready to start the project, but the inventory hasn’t arrived yet. Work is delayed and the project completion date is in jeopardy of being missed. Labor expense and expedited orders costs increase as each day passes. If a contractor is used, they may need to be rescheduled to install after goods have been received at the site. If there are serious delays in delivery, both revenue and profits are lost.

The Factors Involved in On-Time Delivery

Ultimately, receiving GNFR orders On-Time is a multi-step process that requires everyone in the supply chain to do their part.

On the sourcing side, the procurement team (and others involved in a project) must accurately forecast demand to determine what goods and other GNFR are needed for each project. When that information is obtained, procurement is able to create the Perfect Order, whereby the right goods are ordered at the right time so they’re delivered to the right location when needed.

The supplier should also be forecasting to make sure they’re able to fulfill the buyer’s order. By forecasting and collaborating with the buyer, suppliers are able produce the correct inventory for when the orders are needed to ensure high fill rates.

How to Calculate On-Time Delivery Percentage Scores

Calculating On-Time Delivery percentage scores should be implemented as a step-by-step process as follows:

  1. Determine how “On-Time” should be measured.
    • For example, is an order considered ‘On-Time’ if it arrives within 1 day or 5 days prior to the required delivery date?
      • Additionally, companies can set an additional metric “in full” as the exact number of GNFR items requested by procurement and delivered by the supplier. This will produce the OTIF (on-time-in-full) metric.
  2. Divide the number of cases that meet the “On-Time” criteria by the total number of cases.
    • Each company needs to determine how cases are defined. It can be defined by the PO, PO line, article, etc., as long as it’s consistent across the company.

Note: These calculations need to have the ability to roll up company wide as well as show granular results per individual/supplier/department/etc.

Conclusion

All GNFR indirect spend categories require On-Time Delivery monitoring to manage the risks to the business.  Since multiple indirect spend categories exist, it is best to start with GNFR spend for projects to incur immediate savings and reductions in lost sales and profits. After solving projects profitability leaks, prioritize the remaining spend categories then implement On-Time Delivery monitoring to all the remaining categories.

Enterprises with a significant GNFR spend face mounting business risk when suppliers do not deliver on time and in full. Typically, Indirect Procurement has solid control of sourcing and payment processing, but don’t have the same level of control over supplier On-Time Delivery performance.  Implementing and actively monitoring near-perfect On-Time Delivery percentage supplier performance has a large ROI indirect procurement should certainly consider adding.


About Lumatrak

Lumatrak provides a full range of real-time On-Time Delivery visibility tools to help better manage supplier and delivery performance from order to the final mile of your indirect goods. Provided in the cloud through its Software-as-a-Service (SaaS) offering and already connected to vast numbers of manufacturers and contractors, Lumatrak’s solution can be quickly implemented to complement and enhance any ERP, Strategic Sourcing and Procure-to-Pay systems.

To learn more about how a better GNFR-delivery management solution could save your company both time and money, contact the team at Lumatrak today.

Top