As an ecommerce business, there are so many metrics that you can apply to assess your relative performance. Aside from the usual profit and cash flow ratios — two important metrics that are always on your mind — other metrics judge just how efficiently your business is doing with inventory management.
The fill rate is one such metric that you need to pay attention to. We’ll cover what this term means and why it matters to your business.
What is Fill Rate?
The order fill rate simply refers to the percentage of customer orders that are immediately fulfilled by available stock. It is also known as the demand satisfaction rate because customer satisfaction is closely tied to how many orders that can be filled by stock on hand. A satisfied customer will see all or most of their orders fulfilled and shipped immediately. An unhappy customer will experience stockouts and delays in replenishing stock. Your relationship with an unhappy customer will suffer.
Like all fulfillment metrics, any ratio or number should not be read in isolation. You need to consider it in a basket of inventory management metrics to evaluate just how well your business is doing. A high order fill rate may mask other inefficiencies in your business. And a low fill rate may not be representative of your seasonal sales.
Unfortunately, there’s no standard or agreed-upon measure of order fill rate across businesses and industries. Companies use different ways of calculating order fill rate according to their needs. Thus, you cannot readily compare one fill rate from a business to another. However, a general rule of thumb is that you should be fulfilling 92-98% of your orders.
How is Fill Rate Calculated?
Calculating the fill rate is pretty simple. You just need to divide the number of orders that were shipped by the total number of orders placed and multiply by 100. That means:
Fill Rate Formula = (Total Orders Shipped / Total Orders Placed) x 100
There are two different ways to apply this formula. You can either calculate based on cases or based on line items.
For example, let’s say that your customer places the following order:
50 units of Product A
25 units of Product B
30 units of Product C
20 units of Product D
To keep the example rolling, let’s say you are able to fulfill the request for Products A, B, and C but unable to fulfill the request for Product D.
This means that you can fulfill 3 out of 4 line items which means you have a line count fill rate of 75%. However, you’re only able to fulfill 105 of the 125 requested units, so your case fill rate is 84%.
Why is Fill Rate Important?
The order fill rate is important because it is an indicator of how well you can meet your customers’ demand for your products. If your fill rate is consistently low or dropping, this is a sign that you need to better manage your inventory levels or optimize your fulfillment process.
If you consistently fail to meet your customers’ needs, you risk them turning to other suppliers. In order to earn your customers’ loyalty, you’ve got to maintain a high fill rate.
Keep records of your fill rate so that you can refer to them as you compare and analyze other trends in your business.
- It affects the relationship between you and your consumer – Do you meet the needs of your consumers immediately or make them wait? Or even worse – make them go to your competitors. Or have you positioned yourself as a reliable partner who is all-set to satisfy market needs? Your trustworthiness and availability of your products are strong factors to build long-lasting relations with your partners/customers and increase their loyalty level.
- Shows how well you manage your inventory and use data – Are you a professional manager who is good at working with data and relying on it for long-term business gains? That’s all about your internal management activities that directly influence your sales opportunities. If you can make data-driven decisions instead of resting upon approximate calculations, you can expect stable business growth and a high reputation.
- Warns you that you are losing sales & money because of understocking (if your rate is low) – Your fill rate is 50%. What does this mean? Your customers placed 100 orders and you shipped only 50 of them! You just left money on the table. With fill rate statistics at hand, you will become aware of missed opportunities and take steps to manage them immediately.
Fill Rate vs. Customer Service Level: What’s the difference?
Fill rates and customer service levels are two of the most common KPIs that supply chain managers track to stay efficient. The two terms are often mixed up, but they’re pretty different.
While fill rate defines the percentage of customer order demand that’s met, service level defines the likelihood of not stocking out during an order cycle. Put simply, fill rate measures past performance while service level measures future probability.
There’s often a correlation between these two metrics, but it’s possible to have a low chance of stocking out and still struggle to maintain a high fill rate—and vice versa.
Other Fill Rate Metrics
Although people generally refer to order fill rate when they talk about “fill rate,” the metric is also used in different stages in the order fulfillment process. The different types of fill rate are:
Warehouse Fill Rate
Warehouse fill rate is the same concept as order fill rate but applied in the context of a warehouse. In warehousing, managers strive for as close to a 100% fill rate as possible. Less than 100% means there are more orders than stock to fulfill them, and more than 100% means inventory isn’t being purchased or managed efficiently.
Line Fill Rate
Line fill rate is the percentage of order lines completely filled out of the total number of order lines. An order line is any individual line item on an order bill. As an example, you could have 8 orders out of a total 16 order lines. Once multiplied by 100, this gives you a line fill rate of 50%.
Case Fill Rate
Case fill rate is the number of product cases initially shipped as a percentage of all cases ordered. A case fill rate can apply to both inbound cases for a warehouse as well as outbound cases for distributors and carriers.
This formula is used by warehouse managers and staff to calculate and adjust operational efficiency. For example, if you sold 100 cases of wine but were only able to ship 80, your case fill rate for that day is 80%.
Vendor Fill Rate
Vendor fill rate is the number of vendors who have delivered confirmed orders as a percentage of all vendors. Calculating this percentage is useful for determining the reliability of vendors in order to improve business decision-making.
Supplier Fill Rate
Supplier fill rate is the number of suppliers that have delivered orders on time as a percentage of total warehouse orders. This type of fill rate is similar to vendor fill rate.
Inventory Fill Rate
Inventory fill rate is the amount of inventory being used for customer orders as a percentage of total inventory. Fill rate and inventory fill rate are complementary.
Fill rate shows you the percentage of orders that can be fulfilled based on your existing inventory. If your inventory fill rate is unexpectedly low, this is often the cause of a low fill rate. On the other hand, if your inventory fill rate is too high, you may be stocking more than you need and wasting money.
Fill Percentage
Fill percentage the percentage of confirmed orders that can be fulfilled at any time without resorting to backordering. It is often used interchangeably with fill rate.
Bottom Line
Leaving important metrics to guesswork means leaving money on the table. Keeping an eye on your fill rate helps you catch missed opportunities and see how you stack up to your competitors.
Then, with data in hand, you can take the necessary steps to improve your demand satisfaction rate.
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Tags: KPIs & Metrics
