On time delivery, or OTD, is one of those metrics that electronics manufacturers must frequently measure. Despite the importance of OTD measurements, many manufacturers can still have trouble figuring it out. Often, the OTD metric isn’t as understood as it should be. Here is a look at the definition of OTD and how to properly measure it.
What Is On Time Delivery?
OTD is a key performance indicator (KPI) that measures order fulfillment. OTD represents part of the overall supply chain management discipline encompassing delivery reliability and delivery performance. Often, the formulas that govern OTD are built into your ERP software.
The OTD measurement indicates a period or window in which delivery can occur. For example, if a client expects their batch of multilayer PCBs in their hands by August 21, your OTD would consist of a time frame you define that starts at an earlier date and ends on August 21.
The Importance of OTD
As a KPI, OTD is also a way to monitor, tweak, and analyze performance. You should know how effectively and efficiently your fulfillment process works. For example, you can start to answer questions like:
- Are you consistently delivering goods within your specified OTD window?
- Are there times when you can’t meet the client’s delivery expectations?
- Are there common contributing factors when deliveries don’t meet client expectations?
Your OTD numbers will allow you to set benchmarks and find ways to finetune and adjust processes. You can make your fulfillment process leaner while knowing immediately if a client’s wish date is a reasonable one. The metric can also help find bottlenecks in your process and unnecessary slowdowns caused by inefficiencies.
How to Create On Time Delivery Measurements
OTD can work in several ways. At the most basic level, you can calculate OTD as the number of units you deliver on time, divided by the total number of units you shipped:
- OTD = (On time units)/ (Total units)
This is a basic look at OTD. To make better, serviceable measurements, you should understand a few more of the factors that make up on time delivery.
OTD Window Influences
Since OTD represents a time frame, rather than a single day, there are specific influences that can help dictate how that time frame should look. An arbitrary window of time isn’t a good idea, and likely to lead to issues.
Generally, you will want to start by looking at your production requirements and cash flow. If you have an expensive order with a low count, a tight time frame will usually work best. For example, prototyping can fit this category.
A bulk order for a relatively inexpensive product can have a larger time frame. A large order of small, single layer PCBs for a toy may fit this category. You know you can produce these quickly and cheaply, so you can utilize a much larger OTD window.
OTD Window Prioritizations
Since you will have different OTD measurements for different types of orders, you will need to prioritize. Many materials management systems exist to help with prioritizing OTD windows. One of the more common classification systems you can utilize includes the ABC inventory classification system.
ABC inventory classification involves giving your components a cost-based rating. Whichever components cost the most will take up the top spot and first letter of the alphabet. Orders that utilize your A-class components will have the tightest window. Each letter down will have a slightly larger window size.
When using ABC classification, make sure the OTD dates adhere to your lead times and software. For example, your ERP may set the schedule to meet the needs of clients who require a day-of-need delivery. This priority may exist despite your ABC classification and cause a conflict. Make sure your ERP doesn’t clash with your OTD criteria.
Some software isn’t flexible or robust enough to include too many different prioritizations. You might have to add custom parameters to ensure your ERP can work with the ODT priorities.
OTD Measurement Factors
To take the most advantage of what OTD offers, you need to define the measurement criteria. These criteria will differ based on your operations and needs. For example, some measurement consideration to consider include:
- Defining the number of work days
- Defining if shipped means sent or received
- Defining if a line item or full purchase order represents the product to monitor
You can likely think of quite a few more measurement factors. Err on the side of best practices and keep things consistent. Also, make sure your ERP or other systems all agree on the measurement factors you define.
Get Started With On Time Delivery
As with all KPI and metrics, OTD isn’t a one and done thing. You need to keep an eye out for trends, changes, and other ways to utilize and refine your OTD measurements. If you’re not sure how to get started with OTD, begin by partnering with a service that understands material management and supply chain management principles.