What is on-time delivery (OTD)?

What is on-time delivery (OTD)?

On-Time Delivery (OTD) is a supply chain metric that measures a company's ability to deliver products or services within the time frame promised to the customer. This key performance indicator (KPI) helps supply chain companies maintain a competitive edge through reliability, operational efficiency, and customer satisfaction. In this blog post, we will explore the importance of OTD, how to measure it, the key factors affecting it, and its best practices for supply chain operations.

The importance of on-time delivery in supply chain management

On-time delivery impacts every facet of supply chain management, from customer satisfaction to operational costs. Key reasons why OTD is crucial include:

• Customer satisfaction: Meeting delivery commitments builds trust and loyalty among your customer base. In contrast, delayed deliveries can harm relationships and damage your company’s reputation.
• Operational efficiency: Reliable delivery performance makes it easier to plan work schedules and optimize fuel costs while reducing the need for additional resources to resolve delays.
• Competitive advantage: Logistics companies that consistently deliver on time stand out in the market, using their high OTD rate to attract and retain more customers.

How to measure on-time delivery

Measuring OTD requires tracking and analyzing delivery performance through specific KPIs, including absolute OTD and relative OTD.

Key Performance Indicators (KPIs)

1. Absolute OTD: This metric measures the number of deliveries that meet the exact promised delivery date and time.
2. Relative OTD: This KPI considers a range of acceptable delivery times (such as a one-day buffer) to account for minor delays that do not significantly impact the customer.

Calculation method for OTD

To calculate your on-time delivery rate, you need to know the total number of deliveries and the number of successful, on-time deliveries. Next, you divide the number of successful deliveries by total deliveries, then multiply the result by 100 to get the OTD rate.

For example, if a company delivers 950 out of 1,000 orders on time, its OTD rate would be calculated as follows:

950 ➗1,000 = 0.95 ✖️100 = 95 OTD rate.

Factors affecting on-time delivery

Achieving high OTD rates requires supply chain managers to consider several factors that can help or hinder performance, including:

1. Inventory management

Maintaining optimal inventory levels helps orders be delivered without delay. If your organization has a shortage of key items and fails to inform the sales team, they may sell more than you can fulfill, disrupting delivery schedules. 

2. Order fulfillment processes

Errors in picking, packing, and shipping can cause companies to miss deadlines, delaying delivery. Streamlined workflows and technology integration can help you build an efficient order fulfillment process and minimize the risk of mistakes.

3. Production delays

For you to reliably deliver products, those products need to be reliably manufactured and assembled. Any production delays from inefficient manufacturing processes or malfunctioning machinery can easily impact downstream processes, including on-time delivery.

4. Transportation conditions

Transporting products to their destination depends on the working conditions of drivers, vehicles, and infrastructure. Challenges such as traffic congestion, adverse weather, and vehicle breakdowns can derail delivery timelines. This makes it vital that supply chain managers have a telematics solution that provides end-to-end visibility across their fleet, such as Geotab’s routing and dispatching solution.

Strategies for improving on-time delivery

By implementing the right technology and management strategies, supply chain managers can improve on-time delivery rates and better meet customer expectations. These OTD best practices include:

1. Improve visibility in the supply chain

The more you can visualize each link in your supply chain, the more efficiently you can remove bottlenecks and act on opportunities. The right telematics solution can provide end-to-end visibility in supply chains, helping managers track shipments in real time, anticipate delays and proactively resolve issues.

2. Automate order fulfillment

Automation reduces human errors and speeds up the order fulfillment process. Common automation technologies include warehouse robotics and automated picking systems, which can improve order accuracy and process efficiency.

3. Integrate systems for better coordination

Unified logistics platforms enable seamless communication and data sharing across all stakeholders, which is critical for transporting products efficiently. , Geotab offers telematics and fleet management tools that improve route planning, monitor vehicle health, and enhance delivery accuracy through real-time visibility. This equips supply chain managers with efficient, customer-focused scheduling for better OTD rates.