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Delivery

Delivery is one of the legs of the QDC (quality, cost, delivery) acronym. It is a very simple concept—to get paid, you have to get your product to your customer.

For such a simple concept, delivery plays a large role in a company’s performance. Doing well at delivering quickly can give a company a competitive advantage. Doing poorly can cost a company its customers.

Delivery is both a goal and a byproduct of continuous improvement efforts. Lean, and the transition from batch to flow, can greatly reduce the lead time for a product. Reduction of cycle time further speeds up throughput. This enables a company to promise delivery sooner than they had been doing, and hopefully sooner than their competition.

Companies compete with each other regarding delivery in a variety of ways. One is to emphasize the ability to deliver products or services quickly. Another is to focus on the reliability of delivery. Consider the following two situations. Which is ‘better’?

  1. A company that promises delivery in 3 days, but is only on time 60% of the time. About 10% of the time they take over 10 days.
  2. A company that promises delivery in 6 days, but hits their target 99% of the time.

Each would likely have an advantage in certain situations. Company A is likely to deliver sooner than company B, sometimes much sooner. But, it promises incorrect information to a customer about when it can deliver. In the modern business world, expectations are getting much, much higher. Companies are carrying much less inventory. Reliable shipments are critical to those efforts. In the case above, a Lean company might be best served placing frequent small orders with company B, knowing that the product will be there when needed. It would be hard, though, to manage spikes in demand due to the long lead time. You would have to know 6 days in advance if you were going to land a big order.

The takeaway is that the delivery performance of a supplier has to match the delivery expectations of a customer. Keep in mind that customers are often willing to pay extra for additional delivery performance. This is true in both the business world, where ‘red’ deliveries are used to compensate for running out of inventory. Many online retailers now offer some form of expedited service for consumers. In most cases, overnight or even 2-day delivery is not needed by a customer. They are normally willing to wait a little longer for the product. Occasionally, though, they might need something to arrive before a particular date and are willing to pay extra.

Expedited delivery, though, is only of benefit if the normal speed is proportionally longer. If a company is extremely fast overall, there may be no incentive to a customer to pay for expediting.

Measuring Delivery Performance

Most businesses rate their vendors’ delivery performance. The variety of metrics used is broad, and will depend upon what is important to the purchaser. These metrics track things like:

  • Average delivery time
  • Average delay
  • % of on time line items (or percent of late items)
  • % of orders shipped complete on time
  • Order accuracy

Note that is some overlap between delivery and quality. The accuracy of an order, for example, can arguably fall into both categories.

It is important for the vendor and purchaser to agree on what is important. A company may think it is providing 96% on time delivery by line item, while its customer thinks the 78% on time metric at the order level is more relevant. If the two do not understand each is measuring performance, there can be strain on the working relationship.

Vendors should also be careful about gaming the metric system. For example, if a product is in short supply and backordered, every new product might go to fill a late order and leave an on-time order unfilled, ticking towards another late ding. If the metrics are done wrong, there might be an incentive to fill the current order first, while letting the late order get even later.

 

Using Delivery for Competitive Advantage

Business customers often requesting customized delivery options—reduced package size, specialized packaging, or periodic deliveries. This sort of customer focus can make delivery a competitive advantage for a company.

Lean companies are at a distinct advantage in industries where specialized delivery is important. Without having large amounts of finished goods or long lead times to deal with, customization is much easier to support.

 

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2 Comments

  • tweber says:

    These definitions are very helpful, especially when you are looking for a quick refresher. The discussions really help in the details! Something I recently came across in measuring delivery performance is that there are different ways a company may actually define “delivery” or OTD. For example, our corporate parent bases OTD on customer request date and is measured to the customer. Our company metric for OTD is based on ship date and is measured to the shipping dock.

    • Jeff Hajek says:

      Can’t believe I didn’t include that here! Yes, all metrics have to take into account how your customers are grading you. It is very easy to be thinking you are doing great because you are hitting your promise date and the customer is thinking you are doing poorly because they have a X-day standard.

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