The journey through the supply chain is filled with constant movement and activity, and each step holds the potential for delays, wasted money, and errors. The complexities of an extended supply chain make the chances of fulfilling a perfect order unlikely.
Perfect order rate is a supply chain metric defined as the percentage of orders delivered to the right place, with the right product, at the right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer, with the correct invoice. Failure to meet any of these conditions results in a less than perfect order.
The requirements for a perfect order can be daunting, yet despite the challenges, companies can achieve high perfect order rates. The perfect order rate has become an important indicator in measuring supply chain performance. Put simply, the perfect order metric is a measure of whether or not your current workflows are meeting customer expectations.
Companies that boast some of the highest perfect order rates carry less inventory, experience shorter cash-to-cash cycle times, and have significantly fewer stockouts than their competitors.
Imperfect orders lead to increased labor costs for shipping, the need to provide replacement products, and lower revenue due to lost sales and customers. By minimizing imperfect orders, companies can achieve greater efficiencies and increase customer satisfaction.
Many supply chains are comprised of disparate systems that are not fully integrated. Supply chain visibility applications bring cohesion to disparate systems by analyzing data from multiple sources to identify specific points in the process that may require attention. It’s easy to see failure patterns and trends, which can then be targeted as part of continuous improvement efforts.
Calculating Perfect Order Rate
This ecommerce KPI (key performance indicator) is the percentage of orders that move through the fulfillment process with no errors or deviations. It includes taking the order correctly, allocating inventory immediately, delivering undamaged products on time with an accurate invoice. The simplest method is to take the total number of orders from a defined period and apply your indicators to measure the success rate of individual orders. The method that is usually used is described below.
Formula: (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.
The benchmarks associated with the perfect order will vary depending on the business, but usually involves the following:
- On-time delivery (the percentage of orders that arrive at their final destination at the agreed upon time between the customer and the shipper);
- Shipped complete (the percentage of orders shipped with all lines and units);
- Shipped damage free (the percentage of customer orders shipped in good and usable condition);
- Correct documentation (the percentage of total orders for which the customer received an accurate invoice and other required documents).
If you’re able to check off each of these KPIs, then you have achieved a perfect order. But like most benchmarks, the reality is a little more complicated. Despite these complications, the perfect order metric KPI provides useful information. It tells you what percentage of orders are being processed accurately and on time. When you see this number decreasing, it’s time to take a look at your processes and who is doing the processing.
Data shows that, at the median, organizations have a perfect order index of 90 percent. In other words, 10 percent of all orders being shipped have some form of failure. A failure rate this high may be an eye-opener for many organizations, especially for those that use functional metrics such as on-time shipments and line/unit fill rate as a proxy for customer satisfaction.
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Benefits of Using the Perfect Order Rate Metric
There are several benefits of incorporating the perfect order rate KPI into a company’s improvement processes, including:
Measures Current Order Fulfillment Conditions
The perfect order rate metric can track how well a company fulfills orders after they leave the warehouse or production facility. This can give the company insight into current customer satisfaction because the higher the order fulfillment percentage, the higher satisfaction customers likely have with the company. This metric is also beneficial if a company wants to analyze how well individual departments, facilities or regions fulfill orders and meet company goals.
Highlights Areas for Improvement
This metric can help businesses quickly identify areas that need improvement so they can increase their performance and enhance the customer experience. For example, an organization may determine it could improve its ability to deliver the right quantity of products in an order. This information might help the company decide to implement processes to improve its delivery practices.
Monitors Delivery Improvements
This metric allows a company to track the effectiveness of any changes it makes. Based on the results, the company can then create solutions to enhance its performance. Furthermore, this performance metric can help companies monitor delivery performance to determine if the solutions are contributing to their delivery goals.
Maintains Order Fulfillment Performance
This metric can also help a company maintain its order fulfillment performance because it reports current order statuses. Companies can set up an order fulfillment system to provide email alerts and system notifications to inform them if any metrics are below desired fulfillment percentages. For example, if a company has a standard of 99.5% on customer invoicing accuracy, its order fulfillment system can provide an alert if that standard is below this percentage.
Keeps Costs Down
When using perfect order metrics, your company has the ability to lower costs. This is achieved as the supply chain is more efficient thanks to the use of better technology, which means processing orders faster.
Analyzes Faults in your Supply Chain
If supply chains are not integrated well, they will hamper a company’s performance. However, implementing the perfect order index metric allows analysis of the supply chain, which reveals where gaps and inefficiencies remain and can help you discover a solution.
Improves your Inventory Management Process
To maintain perfect order metrics, you need to be sure that all of your ecommerce inventory is being processed, stored, picked, and recorded properly. This way, you can stay on top of your inventory accuracy while also reducing the likelihood of stockouts, backorders, delivery exceptions, and late deliveries that hurt your perfect order metric.
Bottom Line
As supply chain KPIs go, you won’t find a much better all-round measure of performance than perfect order rate. Of course it does have some limitations. For example, as comprehensive as it is, perfect order doesn’t lend itself to the inclusion of procurement into what could otherwise be a complete end-to-end supply chain performance measurement.
If you’re looking for a KPI that promotes cross-functional alignment, and puts the most important elements of inbound and outbound supply chain performance in the spotlight; perfect order is probably the one to implement.
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.
