Is Your Company’s On-Time Delivery Metric LYING to You?

Tuesday, March 7, 2017 8:00:00 AM

By Mark Tomalonis
Principal, WarehouseTWO, LLC

(This article pertains to unscheduled, “spot buys” only, not to orders with a scheduled release date out beyond normal product availability, nor to sales through on-site consigned inventory.)

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 this 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, only way to determine when your customer wants product is to ask him/her, “when would you like this item?”  Whatever date the customer responds with, 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.

In a future article, I will introduce another “execution” metric that is as valid as, and is less susceptible to masking reality or manipulation than, “on-time delivery”.

In the meantime, 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 who 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.


About WarehouseTWO
WarehouseTWO, LLC is an independent “inventory-sharing” service created exclusively for durable goods manufacturers and their authorized distributors, and for any group of durable goods “peer” wholesaler-distributors, such as members of a buying/marketing group or cooperative.  To learn how inventory-sharing with WarehouseTWO can help your business, visit the WarehouseTWO website, or email info@warehousetwo.com.