For ecommerce businesses it’s essential to understand where data and metrics can provide insights on your operations and workflow. With the right set of metrics businesses can learn valuable insights and implement strategies and optimizations to increase ROI when it comes to their ecommerce fulfillment.
There are several order fulfillment performance metrics that ecommerce retailers can use to analyze and optimize their order fulfillment processes. Fine tuning your order fulfillment processes starts with building key metrics—which can help you understand what is happening at every stage of your operations so you can meet customer demand and expectations, optimize your solutions, and ultimately, boost your customer satisfaction.
If you don’t have the time or resources to track and analyze your supply chain metrics (KPIs), partner with a third-party logistics provider (3PL). They have the tools and expertise you need to monitor your supply chain performance metrics and improve your operations. In this post we will define the key metrics, how they work, their importance and benefits, and how you can use them to improve your order fulfillment process.
Total Order Cycle Time
As more and more customers are getting accustomed to same-day and next-day shipping, total order cycle time is one of the top order management performance metrics you should not ignore. Order cycle, also called inventory cycle time measures the average cycle time it takes for a customer to receive a product after placing an order.
The formula of this metric is the following: Actual Ship Date – Customer Order Date
Short order cycle times indicate you’re responsive to customer orders. On the other hand, long order cycle times mean your operations aren’t in sync with one another. Review all of the processes that go into picking and shipping orders and see where you can automate some processes to save time. Order cycle time is a beneficial metric because it tells you how effective your 3PL partners, warehouses, and carriers are at fulfilling and shipping customer orders. Lengthy order cycle time means that you need to resolve and address issues with your 3PL vendors and shipping carriers to lower the amount of time between order processing and delivery.
Order Picking Accuracy
Order picking accuracy is one of the most crucial ecommerce fulfillment metrics to track. Order measures the ratio of the number of error-free orders over the total orders shipped. To arrive at this metric, divide the number of error-free orders by the total number of orders, and multiply the resulting number by 100. Low order picking accuracy means that you are not delivering the right amount of the right items to your customers most of the time. This increases the cost of issuing returns as well as affecting the likelihood of repeat purchases due to dissatisfied customers. You can improve this key metric for fulfillment by analyzing your overall inventory management process and automating it with an efficient SKU system to better organize your product lines and avoid confusion in the pick and pack process.
Order Fill Rate
Order Fill Rate is calculated by dividing the orders delivered on the first attempt by the total orders shipped, and then multiplying the resulting number by 100. This performance metric helps you track the percentage of orders that are successfully delivered on the first attempt. Your order fill rate percentage should be as close to 100% as possible; otherwise, you need to interrogate your supply chain and last-mile delivery systems and resolve any issues. Addressing your supply-chain lead time, interrogating your shipping carriers, packaging process, and keeping your customers updated with possible delivery dates and times through an efficient order tracking system will help you improve your order fill rate and streamline your fulfillment processes.
Perfect Order Rate
Perfect order rate measures how much orders you ship without errors or deviations. This metric helps you track your storage and delivery operations, manage costs, and gauge customer satisfaction. Four factors contribute to achieving a perfect order: the delivery must arrive complete, on-time, undamaged, and with proper documentation.
Perfect order performance is calculated as follows:
(Percent of orders delivered on time) x (Percent of orders complete) x (Percent of orders damage free) x (Percent of orders with accurate documentation) x 100.
Data from the American Productivity and Quality Center shows that, at the median, organizations have a perfect order index of 90%. Steps you can take to improve your perfect order performance include improving your ability to take orders correctly, allocating inventory quickly, delivering products on time and sending accurate invoices.
Orders Picked Per Hour
This is an essential order management performance metric you should be measuring to reduce stockouts and backorders. Inventory accuracy helps you establish whether the inventory count recorded in your inventory management system reflects the actual physical inventory count you have in your store. This metric measures the accuracy of your inventory by comparing physical inventory with what’s recorded in your database. Maintaining inventory accuracy can help reduce inventory carrying cost and stock outages.
To calculate inventory accuracy follow this formula:
Database Inventory Count / Physical Inventory Count
Your goal is to get an inventory accuracy rate between 95% and 99%. Ways to increase inventory accuracy include establishing good inventory naming and labeling practice. You can also leverage warehouse management and inventory management systems to eliminate manual data entry and reduce human error.
Shipping Cost Per Order
This is among the top order management performance metrics to track because it helps you know the amount of money you are spending to deliver each package to your customers. You can calculate this ecommerce fulfillment KPI by dividing the total shipping cost over a certain period by the total number of successful deliveries during that period. To realize decent margins and remain profitable in your e-store, you should keep shipping cost per package as low as possible. If your shipping costs are low, it means that you can transfer these benefits to your customers and delight them with lower prices, or offering free or low-cost shipping.
On-Time Shipping
69% of customers are less likely to shop in your store if you don’t meet your delivery window, making on-time shipping one of the top order management performance metrics to track. It gives you a ratio of orders shipped earlier or on the requested date versus the total number of orders shipped. You can calculate this metric by dividing orders shipped early or on time by the total number of orders shipped.
Let’s say you have shipped 100 orders in two days, and only 25 of them have been shipped earlier or on time, then your on-time shipping is: 25/100=0.25 or 25%
On-time shipping is a great ecommerce fulfillment metric to track because it tells you whether your buyers’ packages are being shipped on time. If this metric is too low, it means that there are delays in picking, packing, and shipping orders, and you risk customer dissatisfaction if you don’t address the issue. This KPI can be improved by streamlining the pick, pack, and ship cycle through automation so that orders are out on transit within the shortest time possible. A high on-time shipping rate indicates an efficient supply chain operation. While a poor on-time shipping rate means orders take too long to reach customers. It’s essential that you resolve poor on-time shipping issues fast to avoid losing customers.
Rate of Return
Almost one out of three online retail orders are returned, making the Rate of Return an important metric to track to gain insight into why customers return orders. The rate of return is measured by dividing the total number of returned orders by the total number of fulfilled orders.
Incorrect order processing, wrong packaging, broken or missing products on transit, long delivery times, and lower quality of merchandise than represented online are some of the issues you can address to lower the rate of return. Addressing these issues will spare you the wrath of dissatisfied customers who can slap you with negative reviews, save you costly return processing, and help you boost customer satisfaction. Keep your eyes on this order management performance metric to avoid frustrating your customers and save on return processing costs.
Bottom Line
Taking the time to assess, analyze and improve your fulfillment processes and systems by tracking your ecommerce fulfillment metrics will help you improve your bottom line, and make life easier for you and your employees. If you discover the fulfillment process is consuming too much time and resources, it might be time to consider outsourcing with a third-party logistics provider (3PL). There are many benefits of outsourcing order fulfillment to a reputable and well-connected 3PL. They can save you time and money, increase conversions, and scale your business while remaining at the top of your order management performance metrics, hence delighting your customers with a streamlined fulfillment experience.
If you are looking for a 3PL partner to work with we would love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.
Tags: KPIs & Metrics
