How Kraft Heinz found the upside of

OTIF
The much-maligned metric has led to more agile operations — mainly because it demands
a data-driven approach to performance.

Author: By Emma Cosgrove @emmacos

Published

June 18, 2019

Every weekday at 8:30 a.m., a group of Kraft Heinz officers gathers in a corner office
affectionately deemed "the war room" at the company’s Chicago headquarters. They don’t
discuss how they might dominate the competition. They discuss the real war — the war
within every supply chain.

No matter how stiff the competition in any category of manufacturing, delivering what you
say you’re going to deliver when you say you’re going to deliver it is a primary challenge
for any supply chain. That’s why the metric on-time and in-full (OTIF) causes so much
consternation.

OTIF went mainstream as a supply chain metric around August 2017 when Walmart began
evaluating suppliers by their score and penalizing those that couldn’t comply with fines.

In January 2018, Walmart raised the bar. At the time, Steve Bratspies, CMO for Walmart,
said the new standards were not meant to be “unreasonable”— just to enable better store
operations. 

Date OTIF standard Penalty based on shipment's

value
August 2017 75% 3%
January 2018 85% 3%
March 2019 87% 3%

In March, the retailer separated the on-time and in-full parts of the standard. "The separate
metrics will help suppliers increase their focus on delivering in-full, which we see as a key
to continued improvement with in-stocks," spokesperson Michelle Malashock told Supply
Chain Dive in March.

Walmart is not the only retailer relying on OTIF, Michael Zimmerman, a partner at A.T.
Kearney, told Supply Chain Dive in an email. Other retailers "do not have a choice because
if shippers prioritize Walmart with their best carriers, that means the other shippers are
more likely to get the lower OTIF service carriers," Zimmerman said.

He explained the controversy around the KPI, and particularly the fines, stems from when
retailers don’t optimize their own receiving processes. When carriers have long wait times
to drop off their loads, shippers can end up with fines and lower OTIF scores along with a
cascade of later deliveries — even when the shipper has done everything they can to deliver
on-time and in-full. 

Additionally, the metric is often perceived to serve only the retailer, because more precise
deliveries allow retailers to keep inventory tighter by requesting fewer, more frequent
shipments.

Zimmerman said while that is certainly a retailer benefit, there are many more, like better
insight into receiving labor scheduling, reduced administrative costs and more control over
dock congestion. Plus, “if you avoid a partial, that’s a shipment less to compensate for the
partial,” he added.

Embedding OTIF into company fiber

Graham Teague, head of customer supply chain at Kraft Heinz, called the metric “a
common index within the industry” and told Supply Chain Dive his team had been moving
toward it before the world’s largest retailer upped the OTIF stakes.

Teague said Kraft Heinz’s conversion to the controversial KPI began in 2017. Kraft and
Heinz merged in 2015 and the combined entity produced roughly 11,000 truck trips per
week. With a larger network to manage, Kraft Heinz executives saw several customers
marching toward formal, enforced OTIF standards and decided to follow suit, said Teague.

But instead of a burden, Teague said using the guiding star of OTIF has benefited the
organization in the long haul — mainly because it demands a data-driven approach to
performance.

“It's a very helpful because it can measure across dimensions. We can measure OTIF by
customer, group of customers, group of products, subset of our network, and we do exactly
that,” said Teague. Although customers have picked up and dropped the metric over time,
Kraft Heinz finds it a helpful gauge of customer satisfaction.

"If shippers prioritize Walmart with their best carriers, that means the other shippers are
more likely to get the lower OTIF service carriers."

Michael Zimmerman

Partner, A.T. Kearney

Embedding OTIF into the fiber of Kraft Heinz took considerable effort. Teague said Kraft
Heinz has a strong “culture of rituals.” Existing processes needed to be augmented to serve
the metric — engrained like “muscle memory,” Teague described. The morning meeting in
the war room is one such routine.

Prior to 2017, the shipper used case-fill rate and on-time delivery. Placing one central OTIF
metric overtop of these keeps the focus on the customer experience. OTIF "pulls together"
all other KPIs. It's the starting place for any review process regarding almost any issue of
supply chain performance. 

Like many shippers, Teague said the OTIF score can be shocking when shippers start
marking it.

“When you're in school, a good grade is in the nineties or the high nineties. Right?” said
Teague, whose OTIF score three years ago was not a grade most parents would approve of.
“We had to get our heads around when the metric was introduced what our target is, and
what good is. So it took some acclimation,” he said.

OTIF in action

Today, Kraft Heinz has a better OTIF score, and a new level of confidence in decision
making. Though the company would not share its exact score, a spokesperson said the
company gained five percentage points in 2018 alone.

The measure helps the Kraft Heinz teams make complex decisions affecting multiple
customers since with OTIF as the prevailing measure, priorities became more clear. 

This confidence in Kraft Heinz’s ability to deliver orders on-time and in-full has also
spread into its freight management. Kraft Heinz does not have a fleet of its own, but
employs common carriers. A better OTIF score allowed the shipper to work with more drop
trailers.

“We had an opportunity to expand the amount of asset-based carriers that we used versus
the broker carriers. And that has had a positive impact on our delivery results,” said
Teague. Better supply chain reliability with the help of Four Kites GPS tracking has
allowed Kraft Heinz to deepen partnerships with carriers as a result.

"We had to get our heads around when the metric was introduced what our target is, and
what good is. So it took some acclimation."

Graham Teague

Head of Customer Supply Chain, Kraft Heinz

Teague told a story about a day where product was needed for an immediate outbound
shipment. The company as able to quickly dispatch product to the correct distribution
center and get it to the customer — tracking it all the way. That’s the type of situation Kraft
Heinz might have struggled with before OTIF.

Teague’s goal for the near term is to increase Kraft Heinz’s customer-side supply chain
agility. OTIF has given his team the ability to turn around faster, more accurate shipments,
but he’s still working on feeling confident reacting quickly to customer needs on a regular
basis.
Though the constraints of OTIF are indeed constraints, Teague’s view is they’re the kind of
constraints that beget growth.