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The "Perfect Order" Considered
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March 12, 2009 - Supply Chain Digest Newsletter

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Is The "Perfect Order" the Perfect Metric?

It’s hard to believe, but in the 5 years since we launched Supply Chain Digest, I don’t believe I have ever done a piece on the “Perfect Order.” We done several news stories and even a Videocast on the subject (view Achieving the Perfect Order on-demand), but never a First Thoughts column.

The term Perfect Order came out of the grocery industry many years ago, and while generally recognized by most supply chain professionals, it can mean different things to different companies and supply chains.

The most common definition, I believe, is that an order is “perfect” if it is:

  • On-time
  • Complete
  • Damage Free
  • Correctly “documented”

There are several caveats or gray areas, however.

Gilmore Says:  

“One key question obviously is: just how perfect do you want to be? There is a cost to be perfect, and above a given level of perfectness it actually starts to reduce profit. Where do you draw the line? "

What do you say?

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First, many companies use other definitions. Several years when I was in the supply chain software world, we did a survey of our customers and found something like 11 different metrics in total that companies used to calculate Perfect Order. I believe the Grocer Manufacturers Association has suggested recently the use of seven different attributes.

There are some important questions. For example, some use whether the order was shipped on-time rather than delivered on-time in their calculations. While we could say this is an out-of-date view of things, the reality is there are many things often outside of the shippers control – like not being able to secure a appointment at the retailer’s DC consistent with the stated delivery date – that can really mess up the metric.

At one point, Hershey Foods only considered that an order “perfect” (in addition to the other attributes) if it was received/entered into its order management system once and then not touched again. I am not sure if they are still looking at Perfect Order that way, but it played havoc on the achievement scores, as you can imagine.

I have also heard many companies that have problems with their “on-time” metric due to delays in delivery notifications from carriers. So, if you look at Perfect Order performance weekly, as some do, last week’s numbers often look not so good because confirmation still hasn’t been received from the carrier. Sometimes they have to spend resources tracking it down to avoid an inaccurate Perfect Order “miss.”

“Documentation” is also an issue. First, documentation can mean many things, including invoices, shipping manifests, bar code labeling, carton contents labeling, advanced ship notices, and even now RFID tagging, I suppose. Of course, customer requirements for these and other “documents” vary dramatically between industries and individual customers.

I did some work a few years back with one of the major beer companies which was trying to benchmark its EDI success with advance ship notices. It wanted to compare how well it matched up with others in terms of having ASNs that: (1) were actually sent by suppliers; (2) showed up before the shipment itself arrived (many of its suppliers were very close by physically; and (3) which matched the shipment and invoice exactly.

My memory is their number just for that element of a supplier perfect order was about 50%, and in a sense they had a rather simple scenario, in that many of their shipments were full truckloads of just cans, for example, making  the ASN easier to construct than it would be for many others. Later, they found that many of the issues with the ASN not being received before the shipment were due to batch processing and other delays within its own IT system. So, as a supplier, do you deal with that in measuring your perfect order performance?

The great challenge, of course, in achieving the Perfect Order is its binary nature. In theory, if you were supposed to ship 10,000 widgets and you can only ship 9,999, the order isn’t perfect – so you get a big Zero for that particular shipment.

So, the chances of actually achieving a Perfect Order can be very small. Our blogger and well known supply chain performance management guru Kate Vitasek of Supply Chain Visions and our friend Dr. Karl Manrodt of Georgia Southern University last year literally analyzed thousands of orders using real data from the “compliance tracking systems” for three major retailers. The results were put together in an excellent report, in which they calculate something they call a “Perfect Order Index.” The POI is calculated by multiplying the percent of orders there were on-time by the percent complete by the percent documented correctly. Undamaged was calculated at 100% (obviously not reality) because that data couldn’t really be obtained. Report is available from SCDigest: Perfect Order Report.

Even using that, the Perfect Order Index for these three retailers and their suppliers came in at just 27%. The good news is that was up from 19% in the same study two years before that. The actual true “Perfect Order” percentage you would have to assume was much lower than the index, given the binary nature across all four categories.

Perfect Order has a bit of a consumer goods to retail connotation, though many other companies and industries (such as pharma) use it as well. In some industries, the related term “On-Time and In-Full” (OTIF) is used, though it generally does not have the same scope as Perfect Order (labeling, EDI, etc.). Several years ago, for example, industrial giant 3M launched a big program to improve OTIF company-wide after an analysis showed a very high percentage of backordered product. The improvement program was linked to the company’s aggressive Lean Six Sigma efforts.

So what’s the point of the Perfect Order?

Many companies certainly use the metric. One key question obviously is: just how perfect do you want to be? There is a cost to be perfect, and above a given level of perfectness it actually starts to reduce profit. Where do you draw the line? That’s part of the real rub. You certainly could (and some do) model those trade-offs (including estimates of the revenue and margin lift from increasing perfectness). Some companies simply strive for higher levels of service than financially optimal in the short term in the hope of long-term customer satisfaction and market share.

Several years ago, AMR Research put Perfect Order as one of the top three measures in its hierarchy of supply chain metrics, along with forecast accuracy and supply chain costs. That probably stemmed from research AMR did a few years ago that found a 3 percent improvement in perfect order fulfillment translated to a 1 percent increase in profit margin, while a 10 percent increase meant an additional 50 cents in earnings per share.

Is that right? I am not so sure. As we all know, association does not equal causation. A subtle but important point is that it could just be that companies with excellent supply chains both enjoy better financials and higher perfect order scores.

I also think that from a financial perspective, the “on-time, in-full” view is probably a bigger driver of financial results than a broader definition of Perfect Order that includes labeling, ASNs, etc. Not that those things aren’t important, especially to some customers (e.g., retailers) but in other cases may be more ancillary in considering overall supply chain excellence.

Recently, Forrester Research also did a take on “Perfect Order” from a whole other perspective – how the customer views the experience in this multi-channel retail and distribution world. That was very interesting too.

I am out of space, but we’ll pick this back up again in a few weeks.Until then, would love to know your thoughts on Perfect Order as a metric and what you use to calculate it.

How important is the “Perfect Order” or OTIF to your supply chain? What do you use or think the definition should be? How “perfect” should you really strive to be?

Let us know your thoughts.

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This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week: Barriers to Integrated Supply Chain Planning and Execution

This Week's Supply Chain by the Numbers - Oil Price Prediction, Card Check Opposition, Baltic Dry Index Recovery, Coca-Cola's Chinese Investment


It was another week of worse going to “worser” on Wall Street.  Almost incomprehensibly, 21 out of 22 stocks in our Supply Chain and Logistics stock index fell even further than the week before.

In the software group, Descartes fell another 9%, now down for the year 42.2%.  In the hardware group, Intermec lost another 10.9% and Zebra fell 5% - down 59.9% and 48.9% on the year, respectively.  In the transportation and logistics group, Yellow Roadway closed out the week at $1.56 a share, down 29.1%, and off 88.9% for the year.  Also suffering double-digit losses within the group were FedEx (down 17.2%), Ryder (down 15.1%), NSC (down 13.6%), and CSX (down 12.5%). 

See full stock report.

Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
March 10, 2009 Edition


Supply Chain InView
by Ann Drake

You and Your Bright Ideas

Achieving Performance Excellence Methodology Can Help Generate Supply Chain Insight

Supply Chain Insight for
Medium-Sized Businesses
by Dr. Chris Norek

SMBs Should Invest in Supply Chain Technology NOW?!?!

On-Demand Supply Chain Solutions Change the Financial Dynamics, and May Help Improve Cash Flow Right Away

THIS WEEK ON Distribution Digest


HolsteHolste's Blog: Optimizing the Number of Sortation System Diverts and Pallet Positions

>> Top Story: Can Shrinking Warehouse Space Caused by Rapidly Increasing Inventory Levels Put the Squeeze on Productivity?

What is the "Forrester Effect?"

A. Click to find the answer below


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We know it’s late, but this is the first chance we've had to publish the many emails we received upon the death in December of long-time AMR supply chain analyst and our friend John Fontanella.

In a sense though, we think it’s good to have some space. Too often, we quickly forget those we’ve lost, and if this somewhat delayed post helps to remember a good one we’ve lost, that’s probably a good thing. If you knew John at all, you will enjoy some of these emails that we publish below.

On Remembering John Fontanella:

I had the good fortune of knowing John for 25 years, going back to our days together at Digital Equipment.

He was always a thoughtful, caring man, who was willing to help in many ways. Few people were as knowledgeable about supply chain management and related software, and no one in the industry was as good as John in explaining what you needed to know in straightforward English, without 'dumbing down' the content.

While I did not know John's family, he was always the kind of friend I could call after a hiatus of 6 months or 6 years, and his response was always cordial and supportive. We have all lost a friend -- and a light of insight and reason-- way too soon.

Abbott Weiss

I have nothing but the highest respect for John. He was my mentor during his tenure at Aberdeen, giving me the benefit of his experience and wisdom at every turn. I saw him in action on numerous occasions, on the stage, working the crowd, being a pundit and a sage, and behind the scenes as a core member of his team. I will miss John. His passing is a loss to the industry and to his friends around the globe.

Russ Klein
Vice President, Product Engineering
Delfigo Corporation

What tragic news to lose John. He and I interacted in a variety of situations from the mid-90’s through recent days in formal analyst briefings to informal meetings of the mind at conferences and phone conferences. Always a great listener and open to all notions of improvement for clients, but politely able to focus on the tangible. It really showed in his interactions and publications that he had roots as an operational practitioner! God Bless!

Jon Kirkegaard

I met with John and some of his fellow analysts several times over the years to discuss product developments and other trends in supply chain software. We also bumped into each other occasionally at industry conferences and other events.

While some analysts seem more interested in telling you what they know, John was genuinely interested in learning about solutions that he had not yet been exposed to. He was a professional and a gentleman, and he will be missed.

Stephen T. Hopper, P.E.
Senior Manager & Business Development Leader

I have had the pleasure and honor of working with John several times throughout my career. First, in the 'old days' of Digital's CIM marketing group, later, several times as an AMR client and, more recently, we worked together at Aberdeen, co-authoring a number of articles.

Professionally, John was always knowledgeable and anxious to learn more; and personally, I considered him a friend that was thoughtful, kind, and a natural mentor. He will be sorely missed by all of those that knew him.

Jane Biddle
CMO & VP US Operations
Eqos Ltd

Just wanted to mention that I just read your weekly SCDigest and noticed feedback from John Fontanella of AMR. I worked with John for many years at DEC and saw him last month at the AMR Research Annual Meeting in Boston. I was shocked to hear this. He was a great person and a expert analyst in Supply Chain. We will miss him.

Tom  Dadmun
VP Supply Chain Services

John and I have been friends since our days at Digital Equipment, over twenty years. While his knowledge and leadership ability were always impressive, I would have to say his passion for what matters most in life made him special. He enjoyed learning, he wasn’t afraid to challenge himself, and he liked to laugh. It was easy to be friends with John. That is why so many people will miss him.

Jim Uchneat
Supply Chain Consulting LLC


Q. What is the "Forrester Effect?"

A. The Forrester Effect is, unbeknownst to most, really what most know today as the Bullwhip Effect. In 1961, Jay Forrester, a professor at MIT (he's still there), described in a book what we would now term "the Bullwhip Effect," later popularized by Standford's Hau Lee in a series of articles in the early 1990s.

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