How you manage order fulfillment for your business is a huge indicator of the level of satisfaction your customers will have.
That means that it’s important to understand your customers’ points of view.
Fortunately, there are some key metrics that you can look at that will provide you with that information and you won’t have to dig deeper into other parts of your operations to get it.
While there is some overlap with metrics for warehouse, inventory, and fulfillment management, the following key performance indicators focus on the order as a unit, making it easy to understand customers’ perspectives.
Definition: The total cost it takes to fulfill an order.
Formula: Total fulfillment costs ÷ Total # of orders
What it means: This KPI can be calculated in different ways depending on several factors related to your business. Most importantly, it is important that when you calculate your fulfillment cost per order, you do so consistently over time, or you may have data that varies significantly.
Definition: The rate at which customer orders are filled correctly.
Formula: Orders completed correctly ÷ Total # of orders
What it means: This metric allows you to see the rate of accurate customer orders. If your fulfillment accuracy rate is low or decreasing, then your order fulfillment process, as well as employee performance, may be under par.
Definition: The percentage of shipped items that are returned to you.
Formula: Number of Items Returned ÷ Total # of Items Shipped
What it means: This KPI tells you how much of your stock is returned to you due to defective or malfunctioning products, inferior quality products, etc. This allows you to address issues with suppliers and employees to lower the number of items that are sent back.
Definition: The average length of time it takes from when a customer places an order until they receive it.
Formula: (Time the order was received by customer – Time the order was placed) ÷ Total # of orders shipped
What it means: Customer order cycle time lets you know how effective your warehouse is at fulfilling and shipping customer orders. When your average order cycle time is short, it means that your business is responsive to your customers’ orders.
A longer cycle may show that you need to address other areas, like invoicing times, supplier lead times, and accounts payable or receivable, to resolve issues and lower the amount of time between order and delivery.
Definition: The percentage of orders that your warehouse delivers without incident.
Formula: Orders Completed Without Incident ÷ Total Orders Placed
What it means: This measurement tells you how often the correct order is sent to the correct customer and is on time and in good condition. If your perfect order rate is low, it’s time to identify the issues and review best practices to ensure that your customers are receiving the products they want, when they were promised.
Definition: The ratio of orders that were shipped on or before the requested shipping date versus the total number of orders.
Formula: Orders shipped on time or early ÷ Total # of orders shipped
What it means: This KPI tells shows the efficiency of your order fulfillment and shipping process. If your on-time shipping metric is too low, it means that orders are not being picked, packaged, and shipped in an acceptable amount of time, and you need to address the issue or risk customer dissatisfaction.
If you aren’t tracking the above order management KPIs, it’s likely that you don’t understand your customers’ level of satisfaction, which is a crucial piece of information to have.
Of course, there are other metrics that you can measure additionally that will provide you with an even more in-depth look at your order management processes.
The important thing is that you find the KPIs that work best for your operations and customer satisfaction.
Start tracking these key metrics today – before the holidays are here. That way, you can make adjustments as needed following the busy shopping season and have the data you need to back it up.
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