Businesses often aim to improve their on-time delivery (OTD) percentage to enhance customer satisfaction and loyalty, optimize last-mile delivery, and improve overall supply chain efficiency. Companies usually strive to identify and mitigate any barriers to achieving high on-time delivery rates to maintain a competitive edge and meet customer expectations consistently.
To improve OTD and identify and remove any bottlenecks or obstacles that may be impacting it, businesses need to understand how to track on-time delivery as a KPI.
In this article:
- What is On-Time Delivery?
- How to Calculate On-Time Delivery
- How to Track On-Time Delivery as a KPI
- Frequently Asked Questions
What is On-Time Delivery?
On-time delivery (OTD) is a key performance indicator (KPI) that measures the effectiveness and efficiency of a supply chain in delivering products or services to customers within the promised delivery times. It is a critical metric used by businesses, particularly e-commerce businesses and delivery service providers, to evaluate their ability to meet customer expectations and maintain customer satisfaction.
Various factors can influence OTD, such as supplier reliability, production efficiency, logistics management, and demand forecasting accuracy. Businesses that track OTD as a KPI can more readily identify the factors that are impacting delivery times and take corrective action to improve delivery performance.
How to Calculate On-Time Delivery
Here’s how on-time delivery as a metric is typically calculated:
On-Time Delivery (OTD) = (Number of orders delivered on time/Total number of orders shipped) × 100
In the formula above:
- The number of orders delivered on time is the count of orders delivered to the customers by the promised delivery date.
- The total number of orders shipped includes all the orders that have been shipped, irrespective of whether they have been delivered on time.
The resulting OTD metric is expressed as a percentage, with a higher percentage indicating better performance and higher customer satisfaction.
How to Track On-Time Delivery as a KPI
The best way to track on-time delivery as a KPI is through a systematic approach that includes accurate data collection, regular monitoring, and reporting. Let’s look at the key steps in tracking OTD as a KPI.
- Define ‘on-time’: First, clearly define what constitutes “on-time.” Is it when an order arrives on the promised date, before the end of the promised day, or within a certain time frame on the promised date?
- Collect reliable data: Ensure you have reliable systems in place to capture relevant data. This could be an ERP (enterprise resource planning) system, a dedicated logistics tool, or even manual tracking in smaller operations. Record the date and time when each order was promised to the customer, the actual shipment date and time, and the actual delivery date and time.
- Calculate OTD regularly: Calculate your OTD percentage using the above-mentioned formula: On-Time Delivery (OTD) = (Number of orders delivered on time/Total number of orders shipped) × 100. Calculate OTD regularly—daily, weekly, monthly, or any other interval depending on the business need.
- Monitor trends: Continuously monitor the OTD KPI to identify patterns or trends. Are there specific times of the month or year when OTD is particularly high or low?
- Conduct segment analysis: Break down the OTD metric by different segments to pinpoint problem areas. For example, segments can be grouped by product type or category, shipping method (overnight, 2-day shipping, standard, etc.), geographical region or distribution center, or by specific carriers or third-party logistics providers.
- Visualize data: Develop a dashboard or reporting mechanism to visualize the OTD metric. This can help stakeholders quickly understand performance and identify areas of concern.
- Conduct root cause analysis: For orders that are not delivered on time, it’s essential to determine the reason. For instance, common reasons for late deliveries include supplier delays, production issues, logistics problems, or miscommunication.
- Implement continuous improvement: Use insights from tracking OTD and other KPIs to implement corrective actions and continuous improvement processes. Continuous improvement could include improving supplier relationships or changing suppliers, streamlining production processes, optimizing inventory management, or enhancing logistics and distribution strategies.
Tracking OTD as a KPI is a valuable process for e-commerce retailers and delivery services providers, but it’s not the only KPI to focus on. Implementing a robust solution like the Wise Systems delivery automation platform provides a suite of tools for every stage.
Performance Manager from Wise Systems, for example, provides data-driven insights into key performance indicators like delivery time window adherence, driver performance, and fuel usage, while Route Planner from Wise Systems streamlines the route optimization process to help you improve on your most crucial KPIs like on-time delivery. Request a demo today to discover how Wise Systems can help you overcome your last-mile delivery challenges and improve KPIs.
Frequently Asked Questions
What is the KPI for timely delivery?
The key performance indicator (KPI) for timely delivery is on-time delivery (OTD). OTD measures the percentage of products or services delivered to customers on or before the promised delivery date. It is a critical metric in assessing a company’s effectiveness and efficiency in meeting customer expectations and delivery commitments.
How do I track delivery performance?
Tracking delivery performance involves monitoring and evaluating the various stages of the order fulfillment process. It typically includes capturing data on the promised delivery dates, actual shipment dates, and actual delivery dates.
These data points are analyzed to calculate performance metrics like on-time delivery (OTD), helping in identifying trends, areas for improvement, and overall delivery reliability.
How do you ensure on-time delivery?
Ensuring on-time delivery involves various strategies, such as:
- Planning and forecasting: Effectively planning and forecasting demand to align production and inventory levels.
- Supplier management: Building strong relationships with suppliers to ensure timely and consistent receipt of necessary materials or products.
- Optimized inventory: Maintaining optimal inventory levels to meet customer demand without overstocking.
- Effective communication: Keeping open and accurate communication lines with customers, suppliers, and logistics partners.
- Logistics and distribution: Collaborating with reliable logistics and distribution partners and continuously evaluating and optimizing routes and delivery methods.
It’s particularly important to optimize last-mile delivery, as it’s the most time-consuming and expensive leg of the logistics and delivery process. Sophisticated dispatch and routing solutions like the Wise Systems delivery automation platform enable businesses to plan optimized routes, boost efficiency, and improve on-time delivery and other metrics.
What determines delivery time?
Delivery time is determined by various factors, including:
- Customer location: The customer’s proximity to the distribution center or warehouse.
- Availability of products: Whether products are readily available in inventory.
- Order processing time: The efficiency of the order processing system.
- Shipping method: The shipping method chosen, such as overnight, express, standard, etc.
- Customization: Whether the order requires customization or special handling, which might add to the processing time.
- External factors: Weather conditions, traffic, and other unpredictable factors that might impact delivery times.