It’s no secret that one of the most costly aspects of running an ecommerce business is order fulfillment, and it’s…
In ecommerce businesses order fulfillment is considered a back-end aspect of operations because it doesn’t directly affect the rate of sales. But that doesn’t mean that it isn’t an important aspect of your business—you should invest time and resources into making sure that your order fulfillment is as efficient as possible, because it contributes to your bottom line. To streamline any system, you must track and measure all aspects of it accurately, and to do so for order fulfillment operations means finding the right performance indicators (KPIs) that will keep you goal oriented and constantly growing. If you partner with a third-party logistics provider (3PL) to outsource order fulfillment they should be instrumental in helping establish relevant key performance indicators and provide you with detailed reports.
Having the right set of KPIs will allow you to look deep into the operations of your warehouse and order fulfillment process (or in the case that you work with a 3PL, how your products move through their fulfillment center). By collecting the right metrics over a set period of time you will be able to better forecast trends and plan for growth in the future. KPIs will also help you set benchmarks as goals, or to see how your business compares with other industry competitors. By looking at the benchmark KPIs across all aspects of your business you will be able to determine where you might need to add resources, where you’re losing money, or where your supply chain may not be working at maximum efficiency.Before you dive into KPIs that cover all aspects of your business, here are some key order fulfillment metrics you’ll want to focus on, since order fulfillment operations usually includes receiving, put away, storage, picking, packing, and shipping.
Below are some examples of KPIs and how they can help you streamline your order fulfillment. A 3PL will usually have a standard set of KPIs that they use for all of their clients, but they should also be able to put together customized reports that fit your unique business and marketplace.
Inventory accuracy measures how well the fulfillment center workers that are receiving and preparing your products are operating. Inventory accuracy is measured in two ways: the first is called a cycle count, and the second is a physical inventory count. A cycle count involves counting a small subset of your inventory in a specific location on a specific day. You can then extrapolate that to give you a better picture of your overall inventory accuracy. A physical inventory count is much more time consuming and tedious task. With a physical inventory count you actually go through your entire inventory and count every product and SKU. In both of these, you take the numbers that you get from the count you perform and compare it to the records you have of what the inventory numbers should be. If they are outside the normal error rate that you preset, then there is an issue in your supply chain that needs to be fixed.
Perfect Order Rate
This measures the number of orders shipped to the customer without any negative incidents, errors or mistakes. These could be damaged goods, inaccurate orders, late shipments, etc. This KPI can tell you how well your fulfillment center’s operations are running, where it matters the most—the final fulfillment of order, shipped out of the warehouse. This is an important KPI because it measures the direct impact a problem in your supply chain could have on customer satisfaction. If you score high in your perfect order rate metrics, then you can avoid costly things such as returns, refunds, and the need to have a larger customer service department to deal with all of the negatives.
This metric tells you how well all of the physical equipment that is necessary throughout the order fulfillment process is being used. If you find that some equipment is being underutilized then you might consider if it is worth being involved in the fulfillment process, and if you believe that it is, figure out how it can be better integrated. On the flip side, if a piece of equipment is being overutilized then you might need to consider investing more capital to purchase additional units of that equipment. Overutilization can also lead to higher maintenance and potential replacement costs. Idle equipment depreciates without giving anything in return. Over utilized equipment can lead to breakdowns and stop the entire supply chain, leading to a loss in productivity. Your equipment must be running at optimum levels to ensure that you are getting maximum value from it.
This KPI measures the total time taken since the products arrived at the fulfillment center and were picked up by the shipper for delivery, as a part of an order. The shorter the cycle time, the less money is tied up in working capital. An end-to-end cycle time includes the transit and transportation time taken by the shippers for the final delivery to the customer’s premises.
Average Cost Per Order
This KPI measures how much you are spending, per order, to run a fulfillment center. It is calculated by taking the total number of orders that are fulfilled, and dividing that by the total costs that are incurred in operating your fulfillment center. These costs can include labor, damaged products, returns, operational costs (such as utilities, taxes, rent, etc.), equipment costs, and other variable costs depending on your unique warehousing needs. You want to ensure that these costs are as low as possible since a higher average cost per order can cut into your profits.
There are many KPIs that are important to measure and understand the efficiency of your order fulfillment operations. While some are touched on above, it is important to figure out what is important for your specific business. Partnering with a 3PL can go a long way in helping you to establish KPIs and measure them over time to make sure you are getting the most efficient and cost-effective order fulfillment possible. They can customize KPIs and provide you with detailed reports to help you manage your operations now, and forecast for future changes.
Are you having trouble setting KPIs and could use a 3PL to outsource your order fulfillment to? 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