Order fulfillment is the pivotal process of meeting customer expectations by delivering products as promised according to their specifications. Advancements in technology, scanning and cloud-based warehouse management software have significantly enhanced the accuracy of tracking and recording data throughout the order fulfillment journey. These technological innovations also enable businesses to monitor key performance indicators (KPIs) easily.
The range of order fulfillment and inventory KPIs a business can measure depends on the complexity and maturity of its processes. This article delves into some standard and helpful metrics for measuring and improving overall efficiency.
What is a Key Performance Indicator (KPI)?
A Key Performance Indicator (KPI) is a metric that monitors progress towards achieving a strategic goal. KPIs can be formulated for various purposes, such as:
- Assessing specific business processes, technologies, components, or resources.
- Evaluating the business’s overall success in growth, revenue generation, return on investment, or other factors influencing decision-making.
The primary purpose of KPIs is to simplify the evaluation of past decisions and their impact and outcomes. By using KPIs, decision-makers gain a clear and comprehensive view of the company’s performance from multiple perspectives, enabling them to adjust strategies for optimal results.
What is a Service Level Agreement (SLA)?
A Service Level Agreement (SLA) is a written contract defining the specific quality and quantity of service a vendor commits to providing to a customer. It includes the following key elements:
Quality of Service Measurements:
These measurements serve as benchmarks to meet the agreed-upon service levels.
An SLA is essential to support the smooth performance of operations that rely on the services provided by the vendor. It allows customers to understand what level of service they can expect and provides a mechanism for ensuring that the vendor delivers on their commitments.
Achieving High Service KPIs within an SLA
Suppose you have observed an increase in late deliveries recently. Various factors, such as order fulfillment backlogs, inventory challenges, or shipping delays, could contribute to this issue. A thorough examination is necessary to identify the root cause(s) of the problem. You can analyse each area individually by breaking down the process into manageable components. Here are some key areas to investigate:
Assess the efficiency of the receiving process, including how incoming inventory is handled and recorded.
Analyse how inventory levels are monitored, replenished, and managed to avoid stockouts and overstock situations.
Evaluate the order processing system, from order placement to verification and allocation of stock.
Pick and Pack:
Examine the order picking and packing processes for accuracy and efficiency.
Shipping and Delivery:
Investigate the shipping and delivery procedures to identify potential bottlenecks or delays.
To evaluate performance in these areas, establish KPIs that track the flow of inventory and orders from receiving to delivery. Monitor these KPIs over time to gain insights into your operational performance. You can test different solutions individually and track progress using the established KPIs by identifying areas that require improvement.
What Are the Most Important KPIs in Fulfillment?
When outsourcing eCommerce fulfillment operations to a Third-Party Logistics (3PL) provider, one of the initial steps is to clearly outline your expectations for the fulfillment process. Setting clear KPIs is crucial to maintain transparency and accountability in the fulfillment process.
The receiving process in the warehouse involves important tasks such as boxing incoming merchandise, counting and sorting items, and inspecting them for quality issues. To ensure efficient and accurate receiving operations, several Key Performance Indicators (KPIs) are essential:
Supplier Accuracy: This KPI compares the quantity of items ordered from suppliers with the actual quantity received. It helps identify any discrepancies or errors in the shipment, allowing for timely resolutions and accurate inventory management.
Receiving Efficiency: This metric measures how much inventory is processed within a specific timeframe. A lower-than-normal efficiency rate might indicate potential staffing issues or inefficiencies in the receiving process that need attention.
Receiving Cycle Time: This KPI tracks the time taken to complete the entire receiving process, including unboxing, counting, sorting, measuring, weighing, and labelling (if necessary) the inventory after it arrives at the warehouse. Reducing the cycle time ensures quicker availability of inventory for online sales.
Cost per Shipment: This metric calculates the time and labour costs of receiving inventory for each line item or SKU. Businesses can identify cost-saving opportunities and optimise the receiving process by monitoring shipment costs.
Inventory Management KPIs
Effectively managing inventory requires timely and accurate data to make informed decisions. Establishing inventory KPIs enables businesses to monitor inventory levels, determine reorder points, and optimise turnover rates, avoiding excess stock or stockouts.
Inventory to Sales Ratio: This KPI compares the number of units on hand at the end of a month with the number of units sold during that month. Tracking this metric over time helps identify sales trends and assists in forecasting and setting reorder points.
Carrying Cost per Line: This metric calculates the cost of storing inventory for a specific SKU over a given period. It is essential for end-of-year accounting and aids in understanding the financial impact of holding inventory.
Turnover Rate: The turnover rate measures how often an SKU is sold and restocked within a specific period, such as a month. This KPI is vital for making informed merchandising decisions, forecasting demand, optimising warehouse slotting, managing costs, and providing insights into the overall business health.
Stockout Days: This KPI estimates how soon a specific SKU will run out of stock based on its sales rate and current inventory level. Monitoring stockout days helps avoid stockouts and ensures product availability for customers.
Inventory Accuracy Rate: This metric reflects the accuracy of inventory records by comparing the number of physically counted units to the recorded quantity, expressed as a percentage. High inventory accuracy is essential for preventing stock discrepancies and ensuring smooth operations.
Shrinkage: Shrinkage quantifies the amount of inventory lost due to damage, theft, or other causes. It is calculated by comparing the quantity received to the quantity shipped and the current inventory level. Reducing shrinkage helps maintain inventory accuracy and minimise losses.
Order Management KPIs
A centralised order management system is essential for omnichannel businesses to process orders from various sources and manage shipping methods effectively. Distributing inventory across multiple warehouses can reduce transit times and shipping costs, requiring a system to route orders to the most suitable fulfillment center.
Order Lead Time: This KPI measures the time it takes for customers to physically receive their orders after placing them. Monitoring lead time helps assess delivery speed and customer satisfaction.
Order Cycle Time: The order cycle time measures how long it takes for the fulfillment center or 3PL to process and ship an order, from when it is placed to when it is dispatched. Reducing cycle time optimises order fulfillment efficiency.
Orders Shipped per Day: This metric indicates the number of orders shipped daily and provides insights into the fulfillment canter’s capacity and capabilities. It is essential for assessing overall operational performance.
On-time Shipping Rate: The shipping rate tracks the percentage of orders picked, packed, and shipped within the expected timeframe, as defined in the SLA between the warehouse or fulfillment partner and the eCommerce business. Meeting or exceeding SLA commitments enhances customer satisfaction and loyalty.
Return Rate: The return rate calculates the percentage of returned orders, either tracked by SKU or overall. Monitoring return rates helps identify potential product or process issues and
While some fulfillment companies may overlook tracking shipping KPIs, recognising the significance of delivery performance is crucial in meeting customer expectations.
Deliver-by-date Percentage: This KPI measures the percentage of packages delivered within the promised timeframe for a specific shipping method. Tracking on-time deliveries ensures that customers receive their orders as expected, leading to higher satisfaction rates.
Cost per Shipment: This metric calculates the shipping costs incurred per order. Monitoring shipping expenses helps businesses optimise shipping strategies, control costs, and identify potential cost-saving opportunities.
I-Fulfilment Late Order Cut-off Time
At I-Fulfilment, we understand the importance of meeting customer expectations and providing efficient order processing. Our late order cut-off time is set at [specific time in UK local time] to ensure timely shipping and delivery.
Orders placed before this cut-off time will be processed and shipped on the same day, allowing our customers to receive their products promptly. We prioritise meeting customer expectations and strive to deliver exceptional service at every stage of the fulfillment process.
I-Fulfilment’s commitment to maintaining high SLA and service KPI rates to meet and exceed customer expectations
Our dedication to service excellence sets us apart in the fulfillment industry. We have meticulously crafted SLAs that define the quality and scope of service we promise to deliver to our esteemed clientele. These SLAs encompass a comprehensive set of performance metrics, allowing us to assess and measure our services’ qualities accurately.
Beyond the UK, I-Fulfilment’s innovative approach has inspired merchants seeking to expand to the USA and the EU to choose I-Fulfilment. As businesses seek to streamline their operations, enhance customer experiences, and optimise fulfillment processes, they may look to I-Fulfilment as a partner for success.
Our commitment to service excellence and continuous improvement resonates across borders, transcending geographical boundaries. The potential impact of I-Fulfilment’s innovative practices on the fulfillment industry cannot be understated, as it showcases the importance of customer-centricity and operational excellence in achieving sustainable growth and success.
Contact us now to explore how our innovative practices can transform your fulfillment operations.