How to manage your service level?

How hard can it be?

At R&G Global Consultants, we are often asked how to improve an organisations customer service level. Clearly, this is one of the most essential topics for any business. Whether it is a manufacturing or a service organisation, in both B2B and B2C businesses. It is however also one of the most complex areas to improve, as it is truly a holistic measure of operational performance. It is basically the reflection of whether you can manage your full supply chain in a predictable manner.

In other words, together with our customers we reduce the variation in the Order-To-Cash process so you can live up to the promises you make. At the end of the day, this will create value for your customers.

An obvious first step in managing your service level is to measure it. This process capability is measured as On-Time Delivery (OTD), which is a critical metric for different reasons:

• On-time delivery drives good collaboration with your customers, ensures reliability of delivery and most importantly customer satisfaction and loyalty.
• Customers expect you to meet the delivery date. It is important to set and document the right expectations of your customers and meet them. If you cannot meet your customer’s expectation and deliver on time, then they will find a supplier who can.

Moreover, consistent problems with on-time delivery will not only disrupt your business or result in loss of reputation but it will also affect many other areas of a company’s supply chain, and can irreparably damage customer relationship and long-term success.

So, how to measure On-Time Delivery?  

Measuring OTD for a single delivery seems very straightforward: actual delivery time -/- requested delivery time by the customer.

However, as I see many inadequate OTD calculations, I would like to share some of my experiences regarding how to measure it optimally to fully connect to the customers’ expectations.

1. Measure OTD on a transactional level

The appropriate way to measure and reveal this process capability, not only for management reporting but also for process improvement, is to measure and report each individual delivery.

In case of a late customer delivery, you cannot hide behind an average OTD score of 95%. This does not mean anything for this individual customer; he expects his delivery to be on time.

By measuring on a transactional level, you will not only be able to monitor the OTD %, but also how many days or hours too early or too late individual deliveries arrived at the customer. This is what your customer feels, not a %! 

2. Use the requested delivery date as a reference

I see too often that the promised delivery date is used to calculate OTD. However, if feasible use the requested date by the customer as a reference, even if you feel this is not a realistic date. Also, as the name suggests, if (transport) data is available, measure until the customer receives the delivery; not when you shipped it. 

3. Measure On Time and In Full separately

Finally, by aggregating On Time and In Full in one On Time In Full (OTIF) metric, you will lose valuable insights. They can have their own root causes that you will probably miss by measuring OTIF. Therefore, both elements should be separately monitored.

Improving OTD with Data Driven Leadership

At R&G we apply Data Driven Leadership, in which we use the above-mentioned considerations and technologies such as process mining to improve OTD. Process mining takes transactional event data from your IT systems and calculates OTD based upon the order lines that were delivered. It will also show all actual process variations that occur and its impact on OTD. As it is data extracted from your IT systems, it is more likely to be free of human interpretation and assumptions.

Together with Leadership and process experts we use process mining and other technologies to create fast and valuable insights into your supply chain. There is a world of variation that is hidden behind the average OTD percentage. Understanding and reducing this variation is key to provide ultimate service to your customers.

Frank Stieger is Operations Director at R&G Global Consultants.