Difference between OTD and Delivery Actualization

Most of the organizations have been measuring many KPI's related to delivery performance to the customers. Out of many measures, commonly used measures are  Delivery actualization % and Ontime delivery (OTD) %. 

Even though those measures are meant for delivery performance assessment, there is slight difference in the purpose and desirable behavior expected from those measures. In reality, both measures often interchangeably used and sometimes confused.

Given below some clarifications on both the measures (KPI's) and its purpose.

Delivery Actualization %:

This measure is calculated as follows

Delivery Actualization % = Quantity delivered / Quantity committed to the customer

for example,

the customer asked for 1000 pieces/month, and as an organization, you accepted to deliver 1000 pieces/month and if you delivered only 800 pieces/month, then 

Delivery Actualization % would be 800/ 1000 = 80 %

Likewise, for each customer, you can calculate and finally arrive at your average delivery actualization.

This measure will indicate your performance towards meeting the delivering commitment in terms of quantity.

Pl, note that this measure is not concerned about the TIMELINE.

This measure indicates your organizational INTERNAL CAPABILITY towards delivery commitment.

On-time Delivery (OTD) %:

This measure is calculated as follows for each customer

On-Time Delivery % = No of components delivered full qty ON TIME / Total no of components

For example, a specific customer has 30 components that must be delivered in full qty as per the timeline committed either as per PO or by 1-1 mutual agreement.

Out of 30 components, you might have met 25 parts delivered on the EXACT DATE  in full quantity as committed and remaining parts, you might have missed out on the DELIVERY TIME COMMITMENT. 

then , OTD % will be 25/ 30 =83 %

This measure indicates your performance towards meeting customer's requirements on time.

Pl note that in the above example, you might have delivered all the quantity by the month-end and might have achieved 100 % delivery actualization. But you missed the timeline (OTD) target.

from the customer point of view, your timeline commitment is also critical even though you met quantity commitments at the end of the month.

To sum up,

OTD is important from the customer perspective on the timeline

Delivery actualization is important from internal capability and loss of sales perspective.

However, as a business head, you must be sensitive to both measures of delivery even though the intention of each measure is different.

Learn the art of conducting Business Review Meeting

In the organization, one of the effective forums for engagement or one of the time-waster can be  REVIEW MEETINGS !. The conclusion depends on the way the business head or the leaders conduct the meetings. 

Conducting a purposeful and Result driven review meeting is an art, and the business head and other leaders can learn with conscious effort.

Let us discuss some of the insights about the review meetings and the solutions approach to make it effective.

Mindset related to review meetings:

some people look at the meeting as wasting of time and believe that the meeting is not going to help. Eventually, they never conduct any meeting, and even if it requires some decision to be taken, they use to call the individuals over the phone or 1-1 conversation and again convey the discussion to someone else. In this process, actually, the business head or leader's personal productivity is getting affected.

I observe that the mindset behind this, the business head is not interested or has not learned the art of conducting review meetings. The reason can be fear of facing people in a forum, not able to hold the review meeting effectively. This root cause needs to be understood and challenged.

Hence, the mindset and belief about the meeting need to be changed. Meeting need to be seen as a forum of related people to discuss, take decision collectively, and in the process, communication issues, the time delay can be avoided. Once the mind shift happens, the leader is in a position to learn the art of conducting reviews.

Fixed Meeting Reviews as much as possible :

In a smart organization, one good pattern, we can see is the fixed meeting reviews on a daily / weekly basis. For example, the sales review meeting will be every Monday at 2pm, Production review meeting every day at 9.30 am, and so on.

When you have a habit of fixing the meeting reviews on a daily / weekly basis at a fixed time, it improves the planning process of all the stakeholders, and the accountability to the meeting outcome will improve eventually as the agenda, and people's responsibilities are almost fixed.

When you call for ad-hoc meetings, the people may not be prepared for the agenda, data may not be available; eventually, the effectiveness of the meeting will also be less. It does not mean that we should not have an Adhoc meeting, as it depends on the business situation. It needs to be understood from the right perspective.

Be clear on the meeting purpose - Business or Technical Review?

I have seen in many organizations, the business head diverts the review purpose by going in microanalysis or shifting the focus to technical aspects. For example, in one of the monthly P&L review meetings, the purpose of the review should be reviewing the previous month's sales performance, expenses, and profitability and to discuss the future action plan. The discussion calls for high-level decision making on specific business-related issues. Rather than focusing on the business issues, the business head and the engineer get into the details of rejections, tool design, and engineering dimensions, and the whole meeting purpose is defeated. The other people's time also was wasted. If the technical aspect is important and to be discussed, nothing wrong in that, that can be done offline along with the respective people in a detailed manner. The business head decision is essential in the business review meeting, and he must be conscious of his/her focus on business and technical aspects.

As a business head, you need to be conscious about working on macro and micro details and need to be aware of switching in and switching out.

The other disciplines of conducting review meetings:

• start on time and finish it on time
• Go by the data or fact, less on opinion and emotional aspects
• Respect each one to voice their concerns, ideas, and suggestions
• Focus more on the decision /actions
• Be patience when others are talking
• Learn the art of questioning and giving feedback with the intention of curiosity and improvements than finding fault and blaming.

The facilitation skill of the chair is important in making the meeting more effective or just time wasters. The good news is that facilitation skill can be learned through awareness and practice!

Relevance of Target setting & Review forums on accelerating business performance

One of the management process to control the business performance is to set the business target and review those targets.

when the organization grows from small to large, complexity also gets grow faster than business growth thanks to more customers, more products, more people and so on. Communication also gets complicated among all the stakeholders.
To overcome the complexity and bring accountability, setting the target and review those targets becomes important.

The targets could be Business targets, Functional Targets, and Individual Targets. The targets can be termed as Key Performance Indicators (KPI's)

Depending on the size of the organization and bandwidth to administer the performance management system, the business head can set the target in the following hierarcy

1. Business Key performance indicators 
2. Functional Key performance indicators
3. People Key performance indicators

From our experience, it would be a right approach, to begin with, Business Key performance indicators covering all functional deliverables in terms of the following categories

• Productivity
• Quality
• Cost 
• Delivery
• People engagement

The business head can set the annual target on the above categories as it covers all functions.

for example, "Manufacturing cost per component" is one of the key performance indicators under the category of "Cost".To achieve this KPI target, all functions have to contribute, by the way, business level KPI target setting covers all functions.

Once the organiztion becomes familiar with target setting at a business level and acquires competency, it can go to the next level of target setting at a functional level and individual level.

The business level KPI's can be set for annual basis which can be tracked every month , every week and every day.

Benefits of Setting Business Targets (KPI's)

1. Business heads and the team get clarity what they want to achieve on business profitability and growth
2. Targets set the direction to the team
3. Brings the people together
4. Improves the focus of the team
5. Improves the communication among team

Review forums :

once the business KPI's are in place, it is the responsibility of the business head to create a review forums to review/discuss the target status along with cross-functional team members and take a counteraction if it is required.

The review forum is nothing but a meeting of a relevant cross-functional team with fixed agenda.

The review forum could be monthly KPI review meeting, weekly reviews or daily performance review.

Benefits of Review forums:

1. Review forum is excellent process to review the target status and take counteractions
2. when the review happens along with cross-functional team members, it brings accountability to all
3. Review forums brings the problem to surface and can be solved along with the team quickly rather than individual review
4. Since each cross functional team member involving and contributing to different KPI's in different roles either as lead or team member, the review forum helps the team to know each other's problem . It helps to bring the bond among the members
5.Review forums if conducted properly with a real problem-solving approach, it enhances the personal productivity of each individual.

When the targets are clear and the teams are facilitated for achieving the targets through review forums, eventually organization sets for performance management culture and it would accelerate the business performance!