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.
By Emma Cosgrove
Published June 18, 2019

E
very 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 ber

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.

This story was first published in our weekly newsletter, Supply

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