This is the first of three articles around measuring the health and performance of your fulfillment operations.
Many firms make assumptions that if sales are growing, profit margins are stable, and disruptions are limited then the operations of their firm are being managed correctly. After all, if you are doing well then that must mean you are doing something correctly—no need to get bogged down with the numbers, right?
Wrong. Whether you are succeeding or struggling to hit your goals, you should continuously be looking for ways to improve. When the times are good, improvements to your operations will maximize profits; when times are bad, any improvement at all will help get your firm back on track.
You cannot improve something that you do not measure. Regardless of your industry, it is impossible to understand your strengths and limitations if you do not undergo regular analysis. In addition to helping you understand your firm's health, you can spot easy areas to focus your improvement efforts on. Also, analyzing key performance indicators (KPIs) will allow you to identify trends over time, which will enable you to plan appropriately for the future.
Companies across all industries use metrics to track performance over time to identify trends and opportunities for improvement, compare their volume and efficiencies to historical numbers, and benchmark themselves against competitors. Your business's function needs to track performance metrics, including customer service, marketing, finance, HR, IT, supply chain management, and more. For the articles in this series, we will focus on the critical KPIs your distribution center should measure.
For brands that sell physical goods, distribution needs to run efficiently. Knowing the right performance metrics to track along with best practices for measuring success helps ensure you understand inbound and outbound logistics performance and that you can make the proper supply chain optimizations.
KPIs for order fulfillment can be broken out into five key areas: Customer metrics, inbound metrics, outbound metrics, Inventory control, and financial metrics. This article explores Customer Metrics in greater detail and speaks to the importance of each of the primary KPIs that fall within this crucial area.
Customer Metrics
This bucket of metrics includes all KPIs that relate in some way to your customer. Because these KPIs all have the potential to impact customer satisfaction and the likelihood that they will complete an order or return for additional business in the future, getting them right is critical.
Time to ship: This is the amount of time it takes to ship an order once it's placed. If your firm's fulfillment SLA is same-day shipping for all orders placed by noon local time and the next day for all orders placed after noon local.
Time to ship = Ship date – Date order was placed
Order Accuracy Percentage: Order accuracy percentage looks at several different metrics to determine what percentage of orders ship on-time, complete, damage-free, and correct documentation.
Order accuracy rate = (Total orders delivered correctly / Total orders) x 100
On-time Delivery: Consumers now expect near-instant gratification, meaning online channels must deliver at increasingly rapid rates to remain competitive. On-time delivery (OTD) is one way to stay on top of these expectations. OTD is a measure of customer order lines shipped on or before the requested delivery rate.
(Number of Units Delivered on Time ) / (Number of Units Shipped) = On-Time Delivery
Satisfying customers is a vital responsibility of any firm and requires constant care and feeding. The American Customer Satisfaction Index shows a decline of 4% in internet retail customer satisfaction since the Great Recession. Customer satisfaction with consumer shipping fell 5% over the same period of time. KPIs like Time to Ship, Order Accuracy and On-Time Delivery can go a long way toward improving customer satisfaction by showing customers they can count on your firm to consistently meet their needs. In later articles, we will examine the other four key areas to measure fulfillment operations' health and efficiency.