Order fulfilment is one of the most important processes for eCommerce businesses. It has a direct impact on both business and customer-related aspects. Order fulfilment affects supply chain management, profit margins, distribution strategy, and more. It also has a significant impact on a company’s revenue. On average, order fulfilment expenses account for 70% of the order value.
On the customer-facing side, order fulfilment has a direct impact on sales. Fast shipping is one of the biggest purchase drivers. Whereas, slow order fulfilment can lead to cart abandonment. Order fulfilment also has a significant impact on customer experience as well. Three of the top four contributors to a positive customer experience are concerned with order fulfilment.
Hence, you need to measure order fulfilment metrics. It plays a crucial role in bringing business and maintaining it. So you need to ensure that your order fulfilment operations are fast and cost-effective.
What are Order Fulfilment Metrics?
Order fulfilment metrics are a standard of measurement used to analyse the fulfilment processes. You can use a particular metric or a set of metrics to analyse the performance of fulfilment operations. This set serves as a key performance indicator (KPI) for the process. These order fulfilment KPIs can help you understand, manage, and optimise the operations.
You can use different metrics and KPIs to monitor the overall performance. You can also use them to measure the efficiency of individual components. Furthermore, different metrics will help you measure different aspects of the process. By analysing the results, you find out problem areas and opportunities for fulfilment optimisation.
How to Measure Order Fulfilment Metrics?
The measurement process for each order fulfilment metric is different. Some metrics measure efficiency while others measure the overall output. Furthermore, the criteria for measuring order fulfilment KPI changes based on the stage of fulfilment. You can divide the order fulfilment metrics into the following categories:
1. Shipping Related Metrics
2. Operations Related Metrics
3. Finance Related Metrics
Each of these represents a stage of order fulfilment activities. Let’s go through some of the most important order fulfilment metrics and KPIs. We will look at the formulas for measuring these metrics and how you can measure them. Some of these metrics can be measured simply based on the output information. But, you will need to employ specific processes to measure some of these order fulfilment metrics.
Shipping Related Order Fulfilment Metrics
These order fulfilment KPIs measure the performance of outbound processes. These metrics concern order processing and shipping. These are the processes that begin after the customer places an order. Let’s see the most important metrics for this stage.
On-Time Shipping
With this order fulfilment metric, you measure the percentage of orders that are shipped on time. This metric is calculated at the fulfilment centre level. To calculate this order fulfilment KPI, you first need to define a time frame for dispatching orders.
All the orders dispatched within this time frame are counted as shipped on time. The percentage of on-time shipping allows you to analyse the efficiency of the order processing part of order fulfilment operations.
Formula:
On-Time Shipping = Number of Orders Shipped On-Time / Total Orders Shipping x 100
You have to measure this metric for a specific period. It can be a month, quarter, or a year. In an efficient order fulfilment process, this value should remain over 95%. You need to work on the inventory organising, picking, and packing processes to improve this metric.
On-Time Delivery
This metric helps you analyse the next step in order fulfilment performance. It measures the percentage of orders delivered to the customer within the promised time. The metric is also measured for specific periods. You can expect certain fluctuations in this order fulfilment KPI during high-demand seasons.
Formula:
On-Time Delivery = Number of Orders Delivered on Time / Total Orders Shipped x 100
If you are using a 3PL service, you can use this metric to measure their efficiency. However, you need to consider the orders shipped on time if you control inventory and order processing. You can replace “Total Order Shipped” with “Number of Orders Shipped On-Time”. This will give you a more accurate picture of fulfilment performance.
This metric has a direct impact on customer satisfaction, loyalty, and retention. 69% of customers are less likely to shop with you after delayed deliveries.
Order Cycle Time
This order fulfilment and inventory KPI represents the average customer’s waiting time. It measures the number of days between purchase and delivery. This is how long your customers wait to receive their orders.
Formula:
Order Cycle Time = Shipping Days after Purchase / Total Number of Orders
This metric has a significant impact on online sales. 36% of shoppers will not buy if the delivery time is too long. But, you need to measure this metric in several different contexts. The order cycle time can change based on customer location and distribution strategy. You will see shorter order cycle times with strategies like micro-fulfilment.
Perfect Order Fulfilment Percentage
This order fulfilment metric shows the overall performance of your fulfilment process. It shows the percentage of orders you can ship without any errors. You will need to calculate several other individual metrics to calculate this order fulfilment KPI. These include:
-
The ratio of orders delivered on time
-
The ratio of orders delivered
-
The ratio of orders delivered without damages
-
The ratio of orders shipped with accurate documentation
These ratios are derived against total orders in a given period. For example, if you delivered 45 out of 50 on time in August 2023. The ratio of orders delivered on time will be 0.9.
Formula:
Perfect Order Fulfilment Percentage = [(ratio of on-time deliveries) x ratio of completed orders) x (ratio of order delivered without damage) x ratio of orders with accurate documentation)] x 100
The value of the order fulfilment percentage is directly associated with product returns and delivery exceptions. 48% of customers return products because of damages. And incorrect documentation accounts for 41% of delivery exceptions.
This order fulfilment metric shows the percentage of completely error-free deliveries. Such orders are less likely to get stuck during shipping. They are also less likely to be returned. Hence, you will have to spare less expenses on reverse logistics.
You can evaluate individual ratios in this order fulfilment and inventory KPI. It will help you detect problem areas that are driving up the cost of fulfilment.
Order Picking Accuracy
This metric shows how accurately orders are processed at your fulfilment centre. You need a count of accurately picked orders to calculate this metric. But first, you need the number of orders returned because of shipping the wrong products. Then you deduct this value from the total orders shipped. This gives you the number of correctly picked orders.
Formula:
Order Picking Accuracy = Number of Orders Correctly Picked / Total Orders x 100
You need to calculate this metric for specific periods. This can be a quarter or a year. On average, 23% of orders are returned because the customer received the wrong product. This means that the average order-picking accuracy is 77%.
However, you should not let this order fulfilment metric drop below 90%. Reverse logistics are expensive and time-consuming. They also adversely affect customer satisfaction and brand reputation. If this order fulfilment KPI drops below 90%, you need to improve your warehousing and inventory management process. Both of these are necessary for fulfilment optimisation.
Product Return Rate
This metric shows the percentage of orders that get returned. This can be because of several reasons. Some of the most common ones include shipping the wrong products, damaged products, delivery delays, or customers not liking the product.
Though not all of the factors concern order fulfilment management. But, you still need to account for all the returned orders to calculate this metric.
Formula:
Product Return Rate = Number of Products Returned / Number of Orders Shipped x 100
The product return rate can vary greatly between industries. The return rate for fashion products is 12%. While that for cosmetics is 5%. You need to consider the industry standard when setting the benchmark for this order fulfilment and inventory management KPI.
You can also identify the biggest contributors to product returns by replacing the values in this formula. You can put in the number of products returned because of a particular reason. Then divide it by the total number of returned orders. Then you can work on that particular problem to reduce this metric.
Fulfilment Accuracy Rate
This is a simpler version of the perfect order fulfilment percentage. It shows the percentage of orders shipped and delivered without an error. For this order fulfilment metric, you first need the number of accurately fulfilled orders. When you deliver the right product on time, it counts as accurate fulfilment.
Formula:
Fulfilment Accuracy Rate = Number of Accurately Fulfilled Orders / Number of Orders Shipped x 100
It is a simple yet effective metric to measure fulfilment performance. Here you only account for factors that affect customer satisfaction. You only deduct orders that were delivered late. You also need to deduct orders that were returned. If an order was shipped late, but delivered on time. It counts as an accurately fulfilled order.
Operations Related Order Fulfilment Metrics
These metrics help you measure the efficiency of warehousing operations. These are concerned with supply, warehousing, and inventory management. These processes are precursors to order fulfilment. Let’s understand the important order fulfilment KPIs for this stage.
Dock to Stock Cycle Time
This metric shows how long it takes for you to stock the inventory after receiving it from the docks. Here docks refer to the point of domestic distribution. It can be an airport, seaport or domestic distribution facility.
Formula:
Average Dock-to-Stock Cycle Time = Sum of Hours to Receive Stock / Number of Supplies
If you are receiving your entire stock in a single shipment. You can directly use the hours to receive this shipment. If you are receiving inventory from multiple vendors. Then you need to sum up the hours it takes to stock each supply unit.
The output will give the average hours it takes for you to stock your inventory after receiving it domestically. This metric only incorporates the process that is in your control. If you want a more holistic view, you can use the time required to receive stock after placing the order. This value will help you define timelines for inventory replenishment.
Inventory Accuracy
With this order fulfilment and inventory metric, you measure inventory accuracy in two places. First is the inventory management system. Second is the warehouse. This metric shows how accurately your inventory management system depicts the actual stock. To calculate this metric, you will need to conduct a stock count for all SKUs.
Formula:
Inventory Accuracy = Units in Inventory / Units in Records x 100
This metric also tells where the inaccuracy lies. If the output is below 100. Then your inventory management system is showing more than the actual stock. If the output is more than 100. Then you have more stock on-hand than shown in the inventory management system.
Ideally, the output should be 100%. Maintaining inventory accuracy will help you prevent understocking and overstocking. Hence, you should periodically measure this inventory management KPI.
Average Warehouse Capacity Used
This metric shows you how you are utilising the storage unit. This can be a warehouse or a fulfilment centre. You can calculate this inventory management metric for a particular period. This metric can greatly vary depending on the season. You will use more of the warehouse space during high-demand periods such as the holiday season.
Formula:
Average Warehouse Capacity Used = Inventory Volume / Warehouse Capacity x 100
This metric can help you make decisions for fulfilment optimisation. Say the annual average warehouse capacity is lower than 60%. Then you can consider smaller storage options. You should also measure this warehouse management metric for different months.
If your average is widely different from month to month. Then you can consider outsourcing inventory management logistics. So you only pay for the space you use instead of the whole warehouse.
Inbound Orders Received
This metric only concerns the inventory-receiving process. So all the values you use in the formula should only focus on this aspect. The purpose of this order fulfilment metric is to measure the labour hours spent in receiving, processing, and organising inventory in a warehouse.
Formula:
Inbound Orders Received = Total Orders Received / Total Labour Hours
A high value in this metric means that you are efficiently receiving inventory in your warehouse. The standard unit depends on several factors. These include warehouse size, inventory volume, product type, and more. You can use industry-specific standards to determine a benchmark for your fulfilment operations.
Orders Picked Per Hour
Similarly, you can calculate the efficiency of order processing. You only need to replace orders received with orders processed. This will show you the average outbound orders processed per labour hour. Here you should only account for labour hours spent in order processing. This includes picking, packing, and shipping the order.
Formula:
Orders Picked per Hour = Total Orders Picked / Total Labour Hours
The higher this value, the better your warehouse staff is performing. It is an indicator of efficient order fulfilment management.
Order Fill Rate
This order fulfilment metric concerns warehouse and inventory management. It shows the number of orders you can ship in a given period. Here you only count orders shipped from existing inventory. However, you can include the orders that are shipped late.
Formula:
Order Fill Rate = Number of Orders Shipped / Number of Orders Placed x 100
This order fulfilment and inventory KPI represents your capacity to serve customers. If the order fill rate is 85% for 2022. It shows that you were not able to ship 15% of the received orders. It means that 15% of your customers received their orders late.
Finance Related Order Fulfilment Metrics
These metrics help you measure how much you are spending on order fulfilment activities. Using these metrics, you can measure the overall expenses and costs per unit. Let’s understand the important financial metrics for fulfilment operations.
Inventory Days of Supply
This order fulfilment and inventory KPI shows the average time a product spends in storage. It is a measurement of how it takes for you to sell your inventory after receiving it. It is closely related to several aspects of supply chain management. Marketing and sales also have a direct impact on this order fulfilment metric.
Formula:
Inventory Days of Supply = (Average Inventory Value / Cost of Goods Sold) x Number of Days
The benchmark for inventory days of supply changes is based on industry. Companies selling perishable products will have low inventory days of supply. You will need to find the benchmarks in your industry.
You can then set standards for your fulfilment operations accordingly. However, you should align your order fulfilment activities to keep this value low. A high value shows that you are not selling goods fast enough. It also means that you are incurring additional storage expenses.
Warehousing Cost per Order
This metric tells you about the storage expense incurred for every order fulfilled. It is directly proportional to inventory days of supply. If one of these values is high, the other will be high as well.
You need to account for all warehouse-related costs to calculate this value. This includes labour, rent, packaging material, and so on. But, you do not include the cost of stocked inventory.
Formula:
Warehousing Cost per Order = Total Warehousing Cost / Total Orders Fulfilled
Typically, you would calculate this metric for a quarter or a year. The output shows how much you are spending on storage for every order. You can compare this with the average order value. This will give you the percentage of revenue that goes towards storage.
Distribution Cost per Order
Similar to warehousing costs, you also need to calculate the expenses incurred for distribution. You need to account for all distribution-related costs. These include expenses concerning receiving, storing, and shipping.
Formula:
Distribution Cost per Sale = Total Distribution Cost / Total Sales
This metric gives you an overview of the fulfilment performance in terms of cost-efficiency. It shows you the money you are spending to fulfil each order. You can also use this order fulfilment metric to evaluate a distribution strategy. You can compare the cost-effectiveness of different strategies using this order fulfilment and inventory KPI.
Distribution Expense against Revenue
This metric tells you the percentage of revenue that goes into order fulfilment activities. This includes several aspects of the supply chain. You will have to include the cost of equipment, labour, shipping cost, inventory management software, maintenance, warehouse rent, and so on.
Formula:
Distribution Expense = Total Distribution Cost / Total Sales Revenue x 100
The benchmark for this metric depends on industry, pricing, and distribution strategy. If you are using lean distribution strategies, distribution expenses will be low. However, if the strategy does not work out as expected, the expense can be high.
As with distribution cost per sale, you can also use this metric to evaluate the performance of different distribution strategies. You can also use it to evaluate the efficiency of different distribution channels. This metric is very valuable for making supply chain decisions.
Conclusion
You need to measure order fulfilment metrics to optimise your fulfilment operations. Monitoring these metrics helps you pinpoint the problem areas. Then you can focus on removing the bottlenecks that are hindering your order fulfilment activities.
You can also reduce the burden on your part and outsource order fulfilment to PACK & SEND. Then you don’t have to worry about any of the processes. You only pay for the services you use and we can help you reach domestic and international markets through our expansive logistics network.
FAQs
What are the KPIs for order fulfilment?
There are several KPIs for order fulfilment. The KPIs help you measure the performance of the order fulfilment operations. Some of the most important KPIs for order fulfilment include on-time shipping percentage, order cycle time, order full rate, distribution cost per order, and perfect order percentage.
You can also define specific KPIs to analyse the process at different stages. Order fulfilment KPIs can also convey attributes of the process such as speed, cost-effectiveness, efficiency, and so on.
How do you measure order fulfilment?
You can measure order fulfilment using different metrics and KPIs. Different metrics represent different stages of the fulfilment process. For the overall order fulfilment operations you can measure broad metrics such as fulfilment accuracy rate, perfect order fulfilment percentage, order fill rate, distribution cost per order, and so on. The metrics help you measure the overall efficiency and cost-effectiveness of the order fulfilment activities.
What is a good order fulfilment rate?
The benchmark for good order fulfilment rate depends on the industry and company size. However, a value above 95% would be considered a good order fulfilment rate for any industry. It means that you can ship 95% of orders without adding inventory.
However, you should endeavour for an order fulfilment rate of 97% to 99%. This would ensure that the majority of your customers receive their orders on time.
How can you optimise the order fulfilment rate?
You can optimise the order fulfilment rate by modifying the process of fulfilment. This includes warehousing, inventory management, distribution, and shipping. The order fulfilment rate depends on several processes. If you want to optimise order fulfilment, you need to streamline the entire supply chain for maximum speed and efficiency.
Image source: Meili Robots