Is your company's on-time delivery metric lying to you?
by Mark Tomalonis
For a wholesaler-distributor struggling to grow in an increasingly competitive landscape, execution can be more important than product or price. Execution includes after-sale support, training, communication, and fulfilling an order on time.
To those of you who measure on-time delivery as one of your company’s key execution metrics, I have a question: how is due date determined, and by whom? Depending on your answer to this question, your company’s on-time delivery metric may be LYING to you.
Measuring on-time delivery should be straightforward and simple: compare the product’s actual ship date (or delivery date or pick-up date) to a due date. Ship date is easy to capture: typically, it is the date that the order (or line item) is invoiced, perhaps adding a day or two for transit time, the time it takes the product to go from your warehouse to your customer's location*. (You invoice on the day that you transfer custody to a third-party freight carrier or deliver to a customer site, yes?)
But what about due date? Consider these two definitions for this value:
Requested/Required Date: when the customer wants the product in his/her hands, regardless of whether or not this date is reasonably achievable
Committed/Promised Date: when you can ship (or deliver) the product with extreme (absolute?) probability, regardless of whether or not this date meets the customer’s expectations or needs
Which of these two metrics is more valid?
It is 2017. By now, Amazon.com has skewed nearly all customers’ expectations. (Your customers’ staffs are made up of consumers.) Thus, your customers think that everything should be available when they want it. They do not care what you can commit to, or what factory lead times are. Committed/Promised Date, a date that you pick and can change, means nothing anymore. Thus, the only valid due date is Requested/Required Date. That is, the only worthy on-time delivery metric is one that measures whether or not you can provide product when your customer wants it.
Of course, the only way to determine when your customer wants product is to ask him/her, “when would you like this item?” Whatever date the customer gives you, without any negotiation/haggling by you, should be your due date for unscheduled spot buy orders. If you are determining due date by any other method, such as a Committed/Promised Date that you chose, your company’s on-time delivery metric is not a truthful method of measuring your service to your customers. In other words, it is LYING to you.
Advantages of using a customer-provided Requested/Required Date as the due date in your company’s on-time delivery metric:
- It is the more customer-centric goal, exposing your execution performance much more critically and realistically.
- It avoids in-house debate (usually between sales and operations) as to what the delivery goal should be.
- It changes your staff’s activities from winning against a dubious metric (to earn an incentive) to shipping as soon as possible (to improve customer satisfaction).
Disadvantages of using Committed/Promised Date as the due date in your company’s on-time delivery metric:
- You, not your customer, chose the goal. That is not very customer-centric.
- It masks poor inventory management and poor factory delivery performance.
- It is susceptible to manipulation, particularly by those who might be paid an incentive tied to an on-time delivery metric. (Stop paying people based on this metric.)
Measuring your company’s on-time delivery against a customer-defined due date is harsh. When you first switch to this method, your early results will be sobering. But it will be eye-opening too, and it will give insight as to where you can improve your overall execution performance.
The easiest way to improve your company’s on-time delivery metric, relative to a customer-defined Requested/Required Date is to leverage the inventories owned by other distributors that sell the same products that your company sells. Access to the inventory in a manufacturer's distributor network results in better product availability, improving your ability to ship to meet your customers’ expectations. This is what formalized inventory sharing is all about. Click here to learn more.
* For the sake of this article, I have downplayed the affect of transit time. But transit time matters. Keep in mind that customers do not care when you shipped the product. They just care when they received the product. You should compensate for this disconnect in your on-time delivery metrics, such as by adding a day or two (or more?) to your invoice date to determine a delivered date.
About the Author
After a successful career in sales and operations management in the wholesale-distribution industry, Mark Tomalonis is now principal of WarehouseTWO, LLC. He amuses himself by writing articles, such as this one, to help wholesaler-distributors execute their operations better. Mark’s articles and tips are published in WarehouseTWO’s monthly e-newsletters. Click here to subscribe.
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