A critical step in determining the effectiveness of your ecommerce fulfillment process is determining the key performance indicators (KPIs) that matter most to your business. Once you know the metrics that are most important to your operation, you can benchmark your current performance and monitor improvements and progress towards your goals.
While the formulas used to calculate these KPIs may seem simple, it helps to explain them so you can figure out which one is applicable to your unique business situation. Below, we have gathered some of the most important formulas for supply chain and order fulfillment KPIs.
Key Ecommerce Supply Chain Formulas
Perfect Order Percentage
Perfect order percentage measures what percentage of orders ship on-time, complete, damage-free, and with correct documentation. It is a measurement of whether or not an order fulfillment operation is meeting customer expectations.
Formula: % orders on time X % orders shipped complete X % orders shipped no damage X % orders with correct documentation
On-Time Shipping Percentage
On-time shipping measures the percentage of orders that are shipped on time from an order fulfillment operation. Like perfect order percentage, on-time shipping percentage is a critical KPI used to monitor whether or not an operation is meeting customer expectations.
Formula: number of orders shipped on time / number of orders shipped
Order Fill Rate
Order fill rate reflects the percentage of orders filled 100 percent complete to the total number of orders filled. It can be used as a broad indicator of the accuracy and efficiency of an operation.
Formula: total orders filled to customer request / total orders filled
Line Item Fill Rate
Like order fill rate above, line item fill rate is another way that an operation can measure their overall efficiency and identify room for improvement. It reflects a ratio of order lines filled 100 percent to the total number of lines.
Formula: total order lines filled complete / total order lines filled
Orders Picked Per Hour
Orders picked per hour is a metric that measures order fulfillment and shipping productivity in lines per hour per person. This is a bottom line benchmark that allows an operation to compare their performance against others in the industry. It should include all functions within the operation and the total hours worked across shifts.
Formula: total orders picked and successfully shipped / total hours worked in picking and shipping
Lines Picked and Shipped Per Hour
Lines picked and shipped per hour measures the productivity of picking and shipping operations in lines per person per hour. By determining the total lines processed throughout your operation, it is possible to gain an accurate representation of your operational efficiency.
Formula: total order lines picked and successfully shipped / total hours worked in picking and shipping
Inventory accuracy, as the name states, is used to calculate the accuracy of your inventory management process. It works by taking a count of items in stock and comparing that number against what’s recorded in your database. Bench-marking and monitoring your inventory accuracy can help ensure that your bookkeeping and data management practices are in order.
Formula: # of items counted / # of items books count
Storage Utilization Rate
Storage utilization rate reflects how efficiently you are utilizing the amount of available space in your warehouse or fulfillment center. Operations with suboptimal storage utilization can leverage a number of options to reclaim lost space.
Formula: inventory cubic ft. / total warehouse cubic ft.
You are likely to find that your utilization rate is low. This is because you must maintain enough space around the inventory for machinery and personnel to operate.
Inventory Days of Supply
Inventory days of supply (IDS) measures how much inventory you have on hand within your operation to cover a number of days of projected use. For most operations, a lower IDS is ideal, but should only be measured within the content of the operation. It can vary widely between industries, product lines, business models, and even warehousing strategies.
Formula: on-hand finished goods inventory value / total annual COGS(cost of goods sold) / 365
Total Order Cycle Time
Total order cycle time, also referred to as inventory cycle time, reflects the average length of time that passes between a customer placing an order and the order being shipped. Because the velocity and efficiency in which orders move throughout the fulfillment process impacts profitability and customer service, monitoring and improving total order cycle time is critical for most order fulfillment operations.
Formula: time order received by customer – time order placed / total number of orders shipped
Internal Order Cycle Time
Internal order cycle time reflects the average amount of time that it takes from the moment that a customer order is released into the warehouse for processing and the moment that the order is shipped. It is a key reflection of all of the order fulfillment aspects that a fulfillment center has control over.
Formula: time order shipped – time order received / number of orders shipped
Once you have bench-marked your key performance indicators, it is possible to track your performance over time and identify which areas of your business and operation might benefit from added attention. Once you know what component of your operation you would like to optimize, a trusted third-party logistics provider (3PL) can help you consider your options, whether that includes adjustments to your internal workflows, deployment of automation technologies, or something else altogether.
Are you having trouble setting KPIs and could use a 3PL to outsource your order fulfillment ? 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: Calculators & Formulas