I’ll discuss what each of these are and their implications for our company a bit further. We’ll start with inventory accuracy. This KPI measures whether we have both the quantities of material we need to make our products and if we have them at the time they are needed to fill the orders from our brand partners. Failure in this area was the overwhelming contributor to our poor performance in the second half of 2023, causing frequent production delays as we found ourselves short of the necessary raw materials and packaging to meet production demands. Needless to say, this led to substandard margins, unmet customer demands and related inefficiencies. In order to achieve any of the other KPIs requires us to be at 90% or greater for the inventory accuracy KPI, not simply at the end of a given reporting period, but every day.
During Q4, this number never exceeded 80%, being as low as 50% at the beginning of Q4. At the beginning of Q3 and in mid Q4, we made some changes to our supply chain team. Again, this is something we continue to mention because it’s so important to our company, including bringing in an experiencing purchasing leader and bringing this group under the responsibilities of our VP of Operations. In Q1 of this year, we further augmented our buying team and now we expect to bring this KPI inventory accuracy in compliance with our goals by the end of Q1 2024. The next KPI is throughput, fundamentally measures how we perform relative to leveraging our assets and meeting our cost targets as related to labor efficiency. This measure is used at each of the process levels, at making the zinc oxide, making the bulk lotions and finally, the finished goods.
As you can imagine because of the poor results related to inventory accuracy, we had poor throughput in both Q3 and Q4. Because of the high percentage of materials of our material requirements that are produced in-house, our performance related to throughput can be a vicious cycle if we underperform on internal production or virtuous cycle, if we are meeting our performance metrics. During Q4, we were less than 80% of our target for the entire period, though the performance steadily improved throughout the quarter. The final KPI we will discuss is our on time and full KPI, which is commonly referred to as OTIF or [OTF]. We reference this as a customer satisfaction measure as it is one of the two key requirements for retail brands to succeed.
Meeting this measure means that brands have their products they need to sell at the amounts they need to sell them at the time they need them in the retail store. As this measure is an outgrowth of the prior two, it will be no surprise that we underperformed with [OTF] well under 70% in Q4. Note that the top organizations in our industry and in others seek to be greater than 95%. This is our goal for 2024 and further, we expect to reach greater than 90% in Q2 to early Q3. In closing, I do want to mention one other item. I’m sure many of you are familiar with the phrase and philosophy coined by Kara Lawson, handle hard better. This phrase and moreover what it embodies is an important KPI of sorts for us. Handle hard better is for those people and organizations striving to do great things and it is about changing your paradigm from expecting things will get easier over time to expecting that they will not.
According to coach Lawson’s concept, what must happen for any person or organization who wants to achieve greatness, to do what others have not, is to learn to handle what is difficult better. Our company is regularly doing things no other company has done before in terms of the innovations we create and the manufacturing techniques needed to bring them to fruition. We are seeking to do and be great. So this is our challenge, to handle hard better. We are funded and most importantly have the right team to get this done. As my father would say to this statement, your actions speak so loudly I can barely hear what you have said. So we will and do expect, in fact, to let our results in 2024 and beyond be our statement. We look forward to discussing these KPIs further in just a few weeks as we report Q1 2024 results.
Thank you for your time and attention. Back to you, Jess.
Jess Jankowski: Thanks, Kevin. We left 2023 again with demand we were unable to satisfy. This was due to production constraints, not demand issues. The small investments in capital represent an opportunity to increase throughput, shorten response time to customer demand and more than double our current capacity for Solésence products. Our products speak for themselves, our customers love them, the industry rewards them, and we’re going to be able to ship more of them than ever before. I probably worn out some of our investors with this thought but it’s important enough that it bears repeating. Solésence, a wholly owned subsidiary of Nanophase, is still an early stage company. We founded Solésence based on new technology, technology that Nanophase uniquely had the strengths to develop.
We then leveraged deep institutional knowledge of the personal care active pharmaceutical ingredients markets and technical requirements. Developing products takes talent, we’ve done that well. Understanding markets and when necessary developing markets takes experience and grip. We’ve shown that we do that well too. The hard part is doing these two things in concert in such a way that consumers love it and demand more of it. We’ve done that remarkably well. We haven’t scaled our internal processes ranging from supply chain to volume manufacturing as efficiently as we expected to. All of us and many of you listening today have suffered through this with us. We’re turning that corner in 2024. As we continue to grow and do so much more efficiently and profitably, we intend to make this obvious to you as well as the larger investment community.
