Chapter 18

Delivery in full, on time (DIFOT) rate

• Why: To better understand your supply performance
• What: To measure how well you fulfil orders and meet customer expectations
• When: When order fulfilment matters
• The question this indicator helps you to answer: to what extent are our customers getting what they want at the time they want it?

Why does this KPI matter?

Delivery reliability is an important performance criterion that matters to customers and businesses alike. As consumers we all live ever-busier lives and expect to receive our orders in full at the time we specify. Not doing so can seriously impact customer satisfaction. However, delivering on time can be even more critical when supplying businesses that run just-in-time supply chains to minimise inventory levels or when we deliver to supermarkets that need to ensure their aisles are stocked.

On-time delivery metrics therefore provide an insight into the ability of a business to fulfil orders and meet customer expect-ations. More importantly, on-time delivery performance gives you an insight into the effectiveness and efficiency of your internal processes and your supply chain. If delivery reliability is too low, it can signal problems along the supply chain, such as bottlenecks, inefficiencies in the production process or glitches in the performance of delivery partners.

Measuring whether the delivery has arrived at the customer on time and in full ensures that the entire supply chain is measured – not just part of it (e.g. measuring whether products have shipped in time). Products might leave your business promptly but get held up further down the supply chain. However, the customer will judge your performance not on whether you have shipped the product on time, but on whether the product reached them on time and in full.

How do I measure it?

DIFOT is simply calculated as the number of units or shipments delivered in full and on time versus total orders shipped.

How do I collect the data?

The easiest way to collect data for DIFOT is when you already have an order tracking system that allows you to track the order from order placement through to delivery to your customer. The difficulty might be the ability to track delivery right through to your customers (e.g. if you rely on third parties for parts of your supply chain). In this case you have two options: the easier is to rely on delivery information from your supply partner (most shipping companies allow you to track deliveries), or, if no system is in place to track delivery, you can measure the delivery to the point the shipment leaves your business and then use a survey tool to assess delivery to end users.

What formula do I use?

How often do I measure it?

The best way is to measure DIFOT continuously for every delivery you make. If data collection is automated, this is no problem.

Where do I find the data?

The data can come from the order tracking system or in some cases can be supplemented with customer surveys.

How difficult or costly is it to measure?

The cost and effort involved in measuring DIFOT depend on whether an order tracking system is already in place. Most companies will have the ability to track order fulfilment as part of their accounting or quality monitoring systems. In this case, costs for extracting the data are minimal. However, should this not be the case and systems have to be put in place especially, then the initial set-up costs can be high. Also, having to conduct a survey will add significant costs to your data collection.

How do I set targets for this KPI?

A rough target or benchmark is that no company should let its DIFOT rate slip below 95%. However, this benchmark can easily go much higher (to 98% or 99%) in specific industries where delivery reliability is critical.

Practical example

Let’s look at an online grocery business as an example. Here customers place orders for their weekly groceries and select a time window for the home delivery of their groceries. In this sector it is very important not to let people wait for their shopping and to ensure that everything customers have ordered is delivered. When the originally ordered product is not available, it has to be replaced with a similar suitable product that the customer will be happy with. If not, the customer can reject the replacement and the order will be deemed incomplete.

The data are collected from the company ERP (enterprise resource planning) system, which tracks orders coming in. Every delivery van also has a mobile device that tracks deliveries and on which customers sign when they receive their order. The device is also used to mark rejected items, which are then refunded to the customer.

Here is how they measure it:

Say 1,000 orders were placed in a given week, 980 orders were delivered on time (within the customer-specified time window), 20 were outside this window and arrived late, 550 orders were delivered with replacements and 50 of these were rejected. Three of those that were rejected were also late arrivals.

The company therefore identifies the orders that were late and those that were not complete, adds them up and takes away any double counts. Then it divides this by the total number of orders to identify the percentage of orders delivered in full and on time.

Some tips and traps to consider

DIFOT measurement can be difficult if there is no internal or automated delivery tracking system in place that ensures easy and accurate data collection. In that case companies have to rely on their customers to provide the data, which can sometimes be difficult.

Further reading and references

www.leanmanufacture.net/kpi/ontimedelivery.aspx

Patrik Ertler, Supply Performance Measurement in der Praxis, VDM Verlag Dr Müller, 2010