Key Indicators: Monitoring and Assessing Service to Customer

Companies use a variety of methods and metrics to track and assess the level of service to their customers. Two of the most widely used, and most informative metrics are Fill Rate and On Time In Full (OTIF). Using these two metrics, a company can identify trends in the reliability and responsiveness of their supply chain, conduct root cause analysis to determine drivers of service performance, and implement action plans to improve service performance to their customers.

What is Fill Rate?

Fill Rate is a measure, usually expressed as a percentage, of a vendor’s ability to satisfy customer demand. In other words, Fill Rate measures our ability to fulfil demand through inventory or by the current production schedule in time to satisfy customer requested delivery dates and quantities. Fill Rate may also be referred to as Service Level or Level of Service. In a make-to-stock environment, Fill Rate may be calculated as a percentage of orders picked complete from stock upon receipt of the customer order, the percentage of line items picked complete, or the percentage of total dollar demand picked complete. Fill Rate tells us how reliable and responsive our supply chain is at fulfilling customer demand. While Fill Rate is a backward-looking metric, on-going monitoring identifies trends that may be predictive of future risks and opportunities both for the commercial and operational sides of a business.

How is Fill Rate Calculated?

Fill rate may be calculated using either units or revenue.

The calculation for Unit Fill Rate

Example:

The calculation for Revenue Fill Rate

Example:

What is On Time In Full (OTIF)?

In an effort to optimize the supply chain and provide better service to customers, many companies are moving away from the traditional Fill Rate and adopting the more rigorous On Time In Full (OTIF) service level metric. OTIF measures the extent to which shipments are delivered to their destination according to both the quantity and the schedule specified on the order. In other words, OTIF tells us how good we are at fulfilling a customer’s required quantities within the customer’s requested schedule.

When using OTIF as a metric, it is important to clearly define both what constitutes “on time” and how “in full” is measured. For example, does “on time” mean delivery by the date requested by the customer on the original order, the date promised by the manufacturer, a specific delivery appointment, or something else? Is “in full” measured at the level of the complete order, at line item, or at cases? There is currently no industry standard definition for OTIF, so it is imperative that the definition used by a company is a) clearly documented and well understood internally, and b) aligned with external customer expectations (especially if OTIF is being used as a metric in collaborative planning).

Example of a Strong Definition of OTIF: [1]

Case quantity1 that is delivered2 to the destination by the requested delivery date3, calculated as a percentage of the ordered quantity.

• 1 Case quantity is defined as disregarding any overdelivered quantity or inaccurate product.
• 2 Delivery is defined as arrival at the destination facility (rather than when checked in or unloaded, which may be subject to delays outside the manufacturer’s control).
• 3 Requested delivery date is defined as the delivery date requested at the time of order placement, adjusted for any retailer-caused appointment delay, measured to the end of the working day and with a one-day early allowance.

Like Fill Rate, OTIF is a backward-looking metric. On-going monitoring of OTIF helps us identify trends on which we can conduct root cause analysis and implement action plans to improve service to our customer.

How is On Time In Full Calculated?

The calculation for On Time In Full (OTIF) is dependent on how a company chooses to measure “on time” and the level in which “in full” is measured. Let’s take a look at how OTIF is calculated using the example definition of OTIF.

*Customer unable to provide delivery window on Customer Requested Delivery Date.

In this example, we have:
• SKU A – delivered in full (100% fill rate) and on time
• SKU B – delivered in full (100% fill rate) and 1 day early
Since the Requested Delivery Date definition includes a 1-day early allowance, SKU B is considered to be delivered on time.
• SKU C – not delivered in full (91% fill rate) but delivered on time
• SKU D – delivered in full (100% fill rate) but delivered late
• SKU E – delivered in full (100% fill rate) and on time
Since the Requested Delivery Date definition allows for adjustments due to retailer-caused delays, SKU E is considered to be delivered on time.

In this example, we are measuring “in full” at case level (as per the definition). However, “in full” can also be measured at line level and order level.

The OTIF calculation at line level for this example is:

The OTIF at order level would be 0% as we did not deliver the entire order on time nor in full.

By creating a Service Level Dashboard, an organization can monitor and assess Fill Rate and OTIF to identify trends in the reliability and responsiveness of their supply chain, conduct root cause analysis to determine drivers of service performance, and implement action plans to improve service performance to their customers.

References
[1] Davies, A., Lal, S., Perez, F., & Potdar, S. (2019). Defining “on-time, in-full” in the consumer sector. McKinsey & Company. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Defining%20ontime%20infull%20in%20the%20consumer%20sector/Defining-on-time-in-full-in-the-consumer-sector.pdf