It is a performance indicator (KPI) used to determine and quantify the overall efficiency of a company’s supply chain. Its data are very useful for the supply chain manager. Indeed, this indicator gives you the possibility to measure and calculate your client’s satisfaction rate in relation to its initial expectation. Its optimization is important in order to improve your logistics performance.
In other words, “it is a percentage of products delivered on time in the required references and quantities, compared to the request expressed by the customer”. The service level is one of the methods to anticipate a shortage of stock during the next replenishment cycle and thus limit the default of deliveries and sales.
What does OTIF mean for a manufacturer?
OTIF stands for “On-Time In-Full” and refers to the percentage of orders that are delivered on time and in full (i.e., with all items and quantities as specified in the order). This is a common metric used in inventory and manufacturing to measure the efficiency and reliability of the supply chain. A high OTIF percentage indicates that orders are being fulfilled efficiently and consistently, while a low OTIF percentage may indicate issues with the supply chain or production processes. OTIF is often used as a key performance indicator (KPI) for assessing the performance of suppliers and logistics providers, as well as for identifying areas for improvement in the supply chain.
How is the service rate calculated?
The service rate is a key performance indicator used to measure a company’s ability to meet its customers’ demands. It’s typically expressed as a percentage and showcases how efficiently a company can fulfill its orders on time. To calculate it, one usually divides the number of orders delivered on time by the total number of orders and then multiplies the result by 100. For instance, if a company received 100 orders and delivered 90 on time, its service rate is 90%.
What is a good service rate?
A “good” service rate depends on the industry and the type of products or services provided. However, in most sectors, a service rate of 95% or higher is considered excellent. It demonstrates that the company can reliably meet its customers’ demands. However, it’s crucial to note that a 100% service rate isn’t always the goal, as it could indicate excessive stock or unused resources. The aim is to strike a balance between meeting customer needs and operational efficiency.
How to calculate a supplier’s service rate?
A supplier’s service rate is a measure of its ability to meet its delivery commitments. To calculate it, one needs to divide the number of orders received from the supplier on time and in good condition by the total number of orders placed with that supplier, then multiply the result by 100. This calculation allows companies to assess a supplier’s reliability, which is vital for ensuring a smooth and efficient supply chain.
What is the supplier service rate?
The supplier service rate is an indicator that measures the efficiency and reliability of a supplier in meeting its commitments. It’s an essential tool for procurement and supply chain managers to assess and choose their suppliers. A high supplier service rate indicates a dependable supplier who can be seen as a strategic partner. Conversely, a low service rate might signal potential problems and require adjustments or changes in the supplier relationship.
Logistic Performance in Companies: A Comprehensive Insight
1. The Imperative of Logistics Optimization In today’s business world, optimizing the supply chain, especially to enhance the in-store service rate and minimize stock levels, is a cardinal challenge. Advanced software solutions significantly contribute to streamlining various phases of the logistics process: from forecasting sales and synchronizing data across different business functions to managing the physical flow of goods, including order processing and warehouse management. As businesses grow and evolve, so does the need for these tools to communicate seamlessly not only within the enterprise but also with external partners and stakeholders.
2. Adapting to Changing Consumer Behaviors Consumer behavior is evolving rapidly. Trends like nomadism and fluctuating demand patterns compel businesses to continuously adapt their commercial practices. They need to be agile and responsive to the considerably shrinking product lifecycle, especially in the fast-moving consumer goods sector. In this context, Supply Chain Management (or SCM) becomes a primary avenue for business rationalization. Several companies have even carved their competitive edge based on their logistics prowess. It’s estimated that significant improvements in logistics performance can lead to vast savings for businesses. Conversely, sub-par logistics performance compared to industry standards can spell doom. As a result, the strategic significance of logistics is irrefutable, with an increasing trend of this function being directly overseen by top management.
3. The Core Objectives of Supply Chain Management Enhancing supply chain management offers a plethora of benefits:
- For retailers, the anticipated advantages include increased product availability (or service rate) for consumers, paired with a drop in stock levels, especially crucial for products with a short lifecycle.
- For suppliers, the benefits revolve around better finished product stock management, optimization of the manufacturing process (leveraging just-in-time logistics to cut down buffer stocks), and refining distribution costs through improved shipment planning and composition.
4. Incorporating IT Tools for Logistical Enhancement Logistics optimization employs specific actions at different functional levels of companies:
- Predicting sales volume to anticipate business activity, enabling resource adjustment to any changes.
- Synchronizing data and operations across diverse company functions involved in the logistics chain.
- Improving the cohesion of core logistics activities, like order preparation, warehousing, and transportation.
Each decision-making level has its bespoke IT tool, often proposed by specialists catering to each unique challenge:
- Advanced Planning Systems (APS) help automate the planning process concerning purchases, production, distribution, and transportation, ensuring a balance between anticipated customer demands and supplier capacities.
- Enterprise Resource Planning (ERP) systems, more rooted in enterprises, manage daily logistical operations. They are customizable management software integrating data across all enterprise functions, from sales to accounting. In essence, they facilitate planning based on storage capacities, compute the required number of regional warehouses, select the most cost-efficient transportation method, and schedule delivery rounds.
Supply Chain Service Rate: What Is It and How to Improve It?
In the logistics and Supply Chain sector, the Service Rate, also known as the Logistic Service Rate or simply Service Rate, is a crucial Key Performance Indicator (KPI) for measuring customer satisfaction. It calculates the number of orders delivered on time compared to the total number of orders placed. Understanding the difference between the targeted Service Rate and the actual Service Rate is vital for assessing performance and making improvements. Here, we’ll explore the definition of the Service Rate and provide five key tips for enhancing it.
Service Rate: Definition
The Service Rate, also referred to as the Logistic Service Rate or Service Rate, assesses the variance between the rate of orders placed and the rate of orders delivered on time over a chosen period. This final indicator is the actual Service Rate and should be compared to the targeted Service Rate, which represents the initial objective, to evaluate performance.
Overall, this indicator determines the efficiency of the production chain and, consequently, the service provided to customers and their satisfaction. For the Supply Chain manager, this information is crucial and contributes to the continuous improvement of the chain.
Calculating the Service Rate
The calculation of the Service Rate is based on a timeframe that depends on the organization of the company. However, it is essential to consider a longer period to obtain a comprehensive overview, rather than a snapshot in time where fluctuations may be due to transient events rather than the company’s efforts. Therefore, a daily Service Rate has limited value compared to a weekly or monthly rate, which provides a broader and more consistent perspective.
Once the chosen period is established, calculating the actual Service Rate is straightforward:
Actual Service Rate = Number of complete orders delivered on time / Total number of orders placed
You can also incorporate the concept of partial orders into the calculation to weigh this indicator appropriately.
It’s worth noting that while the elements constituting the calculation are relatively clear, their interpretation may vary depending on the type of business or corporate strategy. Therefore, it’s essential to take the time to discuss the construction of this indicator.
Service Rate: A Lever for Supply Chain Strategy
Before improving the Service Rate, it’s crucial to define the target Service Rate. This target is relative to the company’s management rules and Supply Chain strategy. For example, striving for a 100% Service Rate on 100% of products can result in excessive and likely unnecessary stock levels.
The first step is to categorize products (volume, turnover, revenue, margin, strategic or non-strategic) to determine the desired Service Rate for each defined category. For example, a high-value strategic item may have a target Service Rate of 99%, while a low-turnover, non-strategic item may accept a 70% Service Rate. Safety stock levels and, consequently, the target average stock levels will be directly determined by these values.
The next step is to measure the actual Service Rate and develop action plans to achieve the defined targets.
Service Rate: 5 Strategies for Improvement
While perfection may be elusive, it’s possible to improve your Service Rate and move closer to that ultimate goal. Here are five practical tips to implement in your Supply Chain:
- Optimize Inventory Management Since the Service Rate is closely tied to stock management, it’s essential to optimize this aspect.
- Start by conducting an ABC analysis to establish management rules based on product importance. Depending on your prior categorization (A, B, or C), considering factors such as revenue, margin, or volume, you can prioritize specific products.
- Effective stock management for improved Service Rate also involves implementing safety stock. This buffer stock helps address unforeseen events by maintaining a level of stock suitable for demand variability while balancing stock levels to manage excess.
- Lastly, compare the cost of holding stock with the cost of stockouts, and align it with the targeted Service Rate.
- Enhance Sales Forecast Accuracy Achieving a high Service Rate requires finding the right balance on the Supply Chain, with sufficient stock to meet customer demand without being excessive, immobilizing cash unnecessarily. This balance is achievable through more accurate sales forecasts that align closely with end customer expectations.
- Anticipate Needs to Reduce Stockouts While reliable short-term forecasts are valuable, having accurate forecasts for the medium and long term is even better. Forecasts covering the next 24 months allow for proactive supplier engagement, especially with long lead times, and strategic supply planning. Anticipation reduces stockouts and improves the Service Rate. Furthermore, it minimizes emergency interventions in the Supply Chain.
- Promote Communication Across the Supply Chain The Service Rate depends on operational decisions influenced by strategic choices made upstream. Therefore, fostering communication among all Supply Chain stakeholders is crucial. They need access to relevant information to work together towards a common goal. Consensus among all stakeholders is essential for decision-making at each stage of the chain.
- Adopt a Collaborative Multi-Module S&OP Tool To facilitate effective communication and achieve a better Service Rate, the right tools must be available to your team. A Sales & Operations Planning (S&OP) software solution enables the Supply Chain to rely on real-time, shared information to make strategic decisions based on consensus. To be effective in improving the Service Rate, the tool must be collaborative and multi-module. This approach ensures customer demand can be met with a satisfactory Service Rate. Additionally, it enhances employee satisfaction through an improved experience.
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