How To Stay Ahead of On-Time In-Full (OTIF) Fines

Few topics carry more weight in logistics management than successful deliveries, but what makes a successful delivery? In short, it’s the confluence of events that promotes a happy customer experience, and in this case, the customer can apply to any receiver and channel, such as e-Commerce or Buy Online, Pickup In-Store (BOPIS). But in business-to-business transactions, the term On-Time, In-Full (OTIF) is most commonly used. Still, what does it really mean, and how can it lower your transportation costs? The answer lies in understanding the OTIF meaning and how this particular KPI can give rise to costly OTIF fines. 

Why Is the On-Time, In-Full (OTIF) Meaning Important?

Part of fully understanding this supply chain delivery performance metric — and ultimately avoiding unnecessary fines — is first understanding the “whys” behind it.

For example, if product is shipped too early, retailers often become concerned about extra touches that may lead to damage. It also means store associates must spend more time managing inventory rather than assisting customers. It’s even quite possible that the product will be lost in the shuffle due to the constant influx of other shipments.

Early arrivals, while great for some end-users, actually lead to higher inventory carrying costs. On the other hand, if the product is shipped too late, it won’t make it to the shelves in time. And when product is out of stock, it’s easier for a retailer’s customers to simply shop from Amazon rather than taking the time to make a trip to a brick-and-mortar store.

All the while Distribution Center (DC) staff are struggling hard, incentivizing dropping trailers and disincentivizing live unloading, which results in trucks getting delayed. This makes it more challenging to hit other appointments on time. But if the name of the game is end-to-end supply chain optimization, isn’t finishing early better? The answer is no.

Earlier isn’t better in B2B circles unless the receiver is ready and able to handle the early delivery. That’s why OTIF is so important. Worse still, deviation from a receiver-defined KPI will open the door to additional penalties, fees, and fines. In some cases, it may result in a lost trucking contract or a chargeback against the carrier.

By fully understanding OTIF guidelines, shippers can avoid fines and maximize efficiency in getting trucks back on the road, ensuring they meet all appointment times across the board.

The State of OTIF Fines

Maintaining compliance with delivery schedules and the use of OTIF fines are definitely not new. But in an era where everyone wants more, thanks to the pandemic, there’s a notable shift occurring. Retailers aren’t just only holding carriers' feet to the fire with compliance, but their regulations are growing more strict.

As capacity continues to tighten with ongoing labor shortages, retailers are creating stringent OTIF guidelines. We highlighted the challenges of shipping into Big-Box retailers in our previous blog, which includes many of the OTIF requirements for each. Supply Chain Brain noted in late 2022, “U.S. retailers are now coming back with tougher standards and tightening expectations on how goods are received.” Meanwhile, these costs are more than just a few hundred dollars.

The fines are typically a percentage of the product or billed cost. One vendor identified by Supply Chain Brain lost $200,000 in revenue due to a single mishap that delayed transportation. In another case, “fines and fees can cost sellers as much as 12% of the amount billed to the receiver.” There's no room for error, and as fears rise over the future of 2023 and beyond, both from a domestic and international standpoint, the need to eliminate all OTIF fines is crucial.

However, knowing what the challenges are and staying ahead of them are two separate things. It’s important to be vigilant about what Big-Box retailers publish concerning their constantly updated OTIF requirements. You must also ensure that your assumptions about the OTIF meaning reflect its true meaning. In other words, you need to arrive on time, not late and not early, but how is that possible? Sometimes you just have to know where to look to find these changes.

How To Stay Ahead of OTIF Fines

There's no hard and fast rule for staying ahead of OTIF fines. Depending on the number of companies you work with and your typical fulfillment schedules, there could be dozens, hundreds, or thousands of different OTIF compliance schedules. Fortunately, you can simplify the process and stay ahead of OTIF fines by following these core steps:

1. Keep current on Big-Box retailer communications. 
   We’ve learned all too well that they’re constantly updating. Key communications to look for are publications and updates to requirements. Above all else, know that neglect of those public updates will not excuse you from the chargebacks.
2. Review the "routing guide" for each retailer.
   Each retailer has a routing guide that is continuously updated and holds the keys for maintaining a perfect shipment. When working with a retailer, you should be equipped with a portal log-in to the supplier network. The portals allow you to go into the system and find information, such as on-time rate, fill rate, what POs (purchase orders), and other factors on which they’ll be fined, FAQs, and routing guides. 
   When entering an agreement with a retailer that has fining and deductions, it's beneficial to discover where you can access this information and find the complete details. If you don't know, ask before it's too late. You can also request a walkthrough of where to find such things to ensure you know where to grab them or ensure employees know where to find them.

3. Check your OTIF scorecard monthly.
   This performance report is released two weeks after the month ends. The two-week period allows the data to catch up and accurately depict the month. Checking too early might cause confusion since the data still needs to be inputted entirely, as freight is still being received. However, retailers like Target will fine by the week rather than by the month.
   Understanding the differences in each retailer's OTIF fine schedule is crucial for mitigating fines. Check in with the retailer often to ensure your scorecard is updated, and reach out after one week if it's still not. If there's a mistake, sometimes the retailer will correct it, but not always. Review the fine schedule weekly — and most importantly, share it with your transportation provider so they can provide insight. These steps are an excellent way to get in front of fine or deduction expectations.

 The above graphic, taken directly from the Walmart 2020 Supplier Academy guide, shows the essential steps for maintaining a good scorecard.

How a 3PL Can Help Lower OTIF Fine

Knowing the ins and outs of these routing guides takes time and experience. It's beneficial to partner with transportation experts who have honed their craft in this area rather than tackling it alone. In most cases, a 3PL will provide a compliance manager primarily focused on anything compliance-related. Their work includes OTIF metrics, labeling, and systematic updates such as ASN (Actual Shipping Notification) to ensure everything is compliant. 

A compliance manager is a game changer to anyone new to the industry or who needs help calculating their OTIF rates. 

For reference, the calculation is as follows:

[(Total number of deliveries made on time and in full) / (total number of deliveries made)] * 100%

Additionally, you should be tracking these statistics internally too. If you’re not, chances are good that you’ll be ill-equipped to recognize an error from a receiver’s report when it occurs. Meanwhile, even if you follow every letter of the law, every individual facility and location can have a unique routing guide that’s potentially different from all others within a company. 

In other words, every load becomes a new opportunity for another change to the OTIF requirement and expectations. That’s why working with a company that can do everything in its power to track this data on a location-based level of detail is key to reducing your costs.

The GEODIS team is constantly looking for changes and skimming portals to find any new documentation. Once we locate the most updated version, we save, store, share internally, and then share with clients. Spending time proactively searching for these changes is vital to staying current. With some retailers, it’s harder to know when a change is coming, whereas others will make the information very public.

A world-class 3PL will utilize technologies that make the process both error- and human-proof. GEODIS operates G-Audit to ensure an efficient paper trail for making any disputes and analyzing performance. It's also essential to keep your technology up to date as the market constantly changes.

It’s key to have an OTIF checklist and action plan and trust in the expertise and reputation of your 3PL partners. 

Choose GEODIS to Lower OTIF Fines and Boost Compliance

The requirements for OTIF are going to keep changing, and even the most robust companies will likely spend more maintaining OTIF compliance in-house than they might be outsourcing. That's where GEODIS can make a meaningful difference in your transportation spend. From warehousing to transportation, GEODIS fully understands every step in getting your product to a retailer's shelves. We work with many clients shipping with various methods, giving us expertise with the ins and outs of the operations. In addition, GEODIS can help you better plan every route, leveraging optimization opportunities along the way. This allows you to do more with less and deliver OTIF every time.

GEODIS provides experience and support when reviewing OTIF. Utilizing our Tier 1 technology and expertise, we tell you what you’re being fined for, provide ways to correct it, or provide a full paper trail to dispute it if it’s a mistake. Learn more about our RCS program here and how it can eliminate your stress of staying on top of OTIF compliance. And if you’re ready to implement a decisive partnership with a 3PL, connect with a sales team member here.