Order fulfilment cycle time (OFCT)
Strategic perspective
Operational processes and supply chain perspective
Key performance question this indicator helps to answer
How efficient are our processes?
Why is this indicator important?
Order fulfillment cycle time (OFCT) is a continuous measurement defined as the amount of time from customer authorisation of a sales order to customer receipt of the product. This improvement concept applies equally well to manufacturing and service businesses.
OFCT (often known as customer order cycle time) is an important measure because it considers the performance of end-to-end business operations and therefore opens up significant improvement opportunities that are often missed in conventional efficiency programmes. For example, a manufacturing company might focus on reducing ‘machine time’. However, machine time might represent just 5% of total OFCT, so efficiency gains will be minimal.
Driving improvements across the whole OFCT process is a powerful metric, as customers increasingly emphasise flawless delivery (that is, very short cycle times) and responsiveness to their changing needs in addition to price and quality.
Today, the customer largely dictates what products are manufactured and when. The customer says: ‘I’ll let you know what and how many I want, when I’m ready to buy, and then you ship it exactly as I want the product configured, and in a very short lead time’. In fact, in today’s competitive environment flawless delivery and responsiveness can very often be the differentiator in getting new customers and keeping old ones.
As well as improving efficiency, the process re-engineering that is usually required to reduce cycle time can also lead to significant effectiveness improvements as the process becomes more responsive to internal and external customer needs.
How do I measure it?
Data collection method
Data are collected through an analysis of the end-to-end order fulfilment process, paying attention to the time to complete each step of each sub-step within the overall process.
Formula
OFCT is the average actual cycle time consistently achieved to fulfil customer orders. For each individual order, this cycle time starts from order receipt and ends with customer acceptance of the order.
OFCT = Source cycle time + Make cycle time + Delivery cycle time.
Frequency
Data can be collected (or recorded) whenever an order is made, and reporting timescales will depend on the order being tracked.
Source of the data
Data might be collected through electronic devices (such as within manufacturing) or from written records detailing the time the work step is received until the time completed.
Cost/effort in collecting the data
If few records are available then initial set-up of the data collection process might be costly, especially if the process has many sub-steps. Once in place, the cost/effort of maintaining the data collection process is typically relatively small – as it should be fully automated.
Target setting/benchmarks
Targets and benchmarks will depend on the OFCT process being tracked and improved. Also, each sub-process might be separately benchmarked, for instance inventory cycle times. Organisations such as the Supply Chain Council (which benchmark the order fulfilment cycle time) and the Hackett Group (which benchmark the end-to-end order–cash process) are useful sources of relevant benchmarking information (see References).
Example
This example is abridged from a white paper from the management consultancy Satistar (see References).
An examination of an organisation’s OFCT highlighted a major opportunity upstream from the core manufacturing process.
In three weeks, a detailed process design and detailed rollout plan was created, approved and kicked off that slashed cycle time from 18 days to just 4 hours without the addition of any labour or capital equipment. $400,000 in annual overtime costs were eliminated while allowing a one-time increase in working capital of $22 million and an inventory reduction of $11,500,000.
All of the significant cycle time improvements were generated through improving cycle times within the engineering, order entry, planning, scheduling . . . work in process and quality control steps. The results from this particular intervention are typical. The overwhelming contributors to cycle time are usually in the support activities (order entry, scheduling, logistics, engineering, quality control, etc.) that surround the manufacturing process, and this is the area where dramatic improvements are possible.
Tips/warnings
Measuring end-to-end processes comes with significant challenges as it crosses various functions (and therefore power bases). An end-to-end process manager should be appointed (with the authority to order any required improvements) and change management techniques should be deployed.
References
www.rmdonovan.com/cycle_time-reduction/
http://satistar.com/Whitepapers/Cycle%20Time%20Reduction.pdf
www.scelimited.com/orderfulfillmentcycletime.html
The Supply Council: www.thesupply-chain.org