The Cost of Poor On-Time Performance for US Retailers

The cost of poor on-time performance (OTP) between consumer goods companies and grocery retailers in the United States cost vary depending on a number of factors, such as the type of product, the size of the company, and the severity of the delay. However, some estimates suggest that the cost of poor OTP can be quite significant as indicated by large Retailer's such as Walmart.

The costs of poor OTP can be calculated in various ways, depending on the factors that are most relevant to your business. Some examples include:

1. Inventory costs: Late shipments can cause inventory shortages and increase the need for safety stock, which can lead to increased inventory carrying costs.
2. Lost sales: Late shipments can also cause lost sales, as customers may turn to other retailers if they cannot find the products they need. The cost has been estimated in the hundreds of millions per year alone on promotional items for a consumer goods company equating to tens of millions in lost sales for the retailer in relation to the single supplier.
3. Additional freight costs: If a shipment is delayed, the retailer may need to expedite the shipment, which can lead to additional freight costs.
4. Stock-outs and lost customers: when a product is not available at the store, the customer might not find the product and look for other options. This can lead to lost sales, and can also harm customer loyalty.
5. Impact on supplier relationship: Poor on time performance might result in supplier penalizations or chargebacks, which can harm the relationship with the supplier, which can lead to higher prices, or even lost of the supplier. One consumer goods company stated they are penalized $50 Million annually in chargebacks for poor OTP.
6. Impact on Service level Agreement: OTP is one of the key performance indicator, and poor OTP might harm the service level agreement with your customers.

It's important to note that these are just examples and that the actual costs of poor OTP will depend on the specific business and industry. It's recommended to conduct a detailed analysis to identify all costs that are relevant to your business and conduct regular monitoring of the performance, to keep track of the progress and take necessary actions.