Order fulfillment is the process of fulfilling a sales order to the customer’s specifications and delivering goods as promised. As consumers increasingly move online to shop, it’s more important than ever to get order fulfillment processes in order.
Technology such as radio frequency (RF) scanning and cloud-based warehouse management software has made it much easier to accurately track and record the data around the order fulfillment process and track key performance indicators (KPIs).
There are many order fulfillment and inventory KPIs a business can measure depending on the complexity and maturity of its processes. This article explores some common and helpful metrics.
How Do You Measure Order Fulfillment?
Order fulfillment is the process of fulfilling a sales order to the customer’s specifications and delivering goods as promised. It involves six steps:
- Receiving goods from suppliers
- Storing goods in the warehouse
- Processing and packing
- Delivery to customers
- Processing returns if necessary
By tracking metrics related to these steps, your business can benchmark order fulfillment processes against past performance as well as against other similar companies.
What Order Fulfillment KPIs Should I Measure?
Each year, the Warehousing Education and Research Council (WERC) surveys hundreds of businesses about which metrics they use and groups them in five categories: customer, operational, financial, capacity/quality and employee. The “DC Measures” benchmarking study looks at key warehousing and distribution performance metrics.
Its most recent survey showed that companies are shifting focus from measuring employee productivity to measuring operations. The top KPIs reflect that there is a push to fill orders on time with the correct quantities. Companies are increasingly planning for inventory and safety stock, focusing on employee safety and engagement and maintaining relationships with key suppliers.
Key metrics companies are tracking include order picking accuracy, warehouse capacity and on-time shipments. Inventory management software can help drive profit and customer satisfaction while efficiently managing stock and inventory.
What Are Some Order Fulfillment KPIs?
There are many order fulfillment and inventory KPIs a business can measure depending on the complexity and maturity of its processes. Here are some common and useful metrics.
- On-time shipping percentage
- Total order cycle time
- Internal order cycle time
- Perfect order percentage
- Order picking accuracy
- Rate of return
- Fulfillment accuracy rate
- Percentage of orders received damage free
- Order documentation accuracy rate
- On-time ready to ship
- Dock-to-cycle time
- Inbound orders received
- Lines received & put away
- Inventory accuracy
- Average warehouse capacity used
- Peak warehouse capacity used
- Inventory count accuracy by location
- Part-time workforce to total workforce
- Cross-trained rate
- Order fill rate
- Orders picked per hour
- Lines picked & shipped per hour
- Distribution costs (as a percentage of sales)
- Distribution costs (per unit shipped)
- Inventory days of supply
- Average cost per order
26 Order Fulfillment KPIs
Some of the most popular metrics used by businesses measure customer satisfaction, warehouse or inbound metrics, operations or outbound metrics and financial metrics.
On-time shipping percentage: How often do your orders get sent on time?
This is the percentage
of orders shipped within the expected timeframe. Anything less than 93.4% is considered
a major improvement
opportunity for the business.
On-time shipments = Number of orders shipped on time / total orders shipped over same period × 100
Total order cycle time: How long on average does it take after
customers place orders for them
to receive them, including delivery time? People are impatient, and ecommerce consulting
group Econsultancy found that nearly half of potential online orders are abandoned if
the estimated delivery time was six or more days.
Total order cycle time = Number of days elapsed between when all customer orders are placed and when customers receive product / number of orders in the time frame examined
Internal order cycle time: Similar to total order cycle time, this
looks at how long it takes
to prepare, package and ship customer orders. It does not account for shipping time.
This helps you examine your
own processes, without relying on whether customers choose a slower shipping option or
other shipping delays.
Internal order cycle time = Number of days elapsed between when all customer orders are placed and when orders are shipped / number of orders in the time frame examined
Perfect order percentage: This metric examines how likely your company
is to take an order
correctly, allocate inventory immediately, deliver the product on time and send an
accurate invoice. In the DC
Measures survey, the median perfect order probability was 90.
Perfect order percentage = Percent of orders delivered on time × percent of orders complete × percent of orders damage free × percent of orders with accurate documentation × 100
Order picking accuracy: This measures how well your processes result in
correct orders. This
was the most popular metric in the 2019 DC Measures annual benchmarking survey. Low
numbers here indicate that
more incorrect orders are being shipped. Best in class companies reported order picking
accuracy percentages of
Order picking accuracy = number of orders that are picked and verified to be accurate prior to shipping / total number of orders picked that period × 100
Rate of return: Returns are lost revenue and costly to process. A high
rate of return can be
the catalyst to do some digging and find out where the problem lies. Is something
broken? Did the shipment
arrive on time? Or maybe there’s an issue with packaging? After identifying
problem, you can start to
Rate of return = Number of orders sent back / total number of orders shipped
Fulfillment accuracy rate: An order is considered accurate if the right
product is delivered on
time, to the right customer in the right condition.
Fulfillment accuracy rate = Total number of accurately filled orders / total number of orders shipped during a particular period
Percentage of orders received damage free: Most orders should arrive to
undamaged. This metric helps you track that. Try to keep this above 99%.
Percentage of orders received damage free = (Number of undamaged orders / total orders) × 100
Order documentation accuracy rate: What percentage of orders include
the correct documentation?
This should be near 100%.
Order documentation accuracy rate = (Number of orders sent to customers with correct documentation / total number of orders sent to customers) × 100
On-time ready to ship: This measures the percentage of orders ready for
shipment with all
necessary documentation at the planned time. Best-in-class operations have 99.8% of
orders ready to ship on
On time shipment readiness = (Number of orders shipped on time / total number of orders shipped) × 100
Dock to stock cycle time: This measures the time products are received
from a supplier to when
they are put away and recorded in inventory management systems. This was in the top 10
metrics in the DC
Measures survey because it is a way to view the efficiency of dock management and
material handling at a glance.
Dock to stock cycle time = Sum of the cycle time in hours for all supplier receipts / total number of supplier receipts
Inbound orders received: This metric tracks how many inbound orders are
received per employee
each hour in receiving. Higher numbers indicate more efficient operation.
Inbound orders received = Total orders processed in receiving / total person hours worked in the receiving operation
Lines received & put away: Lines are all the items that make up a
shipment received in your
warehouse. Sometimes the shipments are all the same product or stock, and sometimes
made up of various,
unrelated items. This measures order and warehouse efficiency.
Lines received & put away = Total lines received / total person hours required to correctly store all stock in order
Inventory accuracy: By making sure the physical inventory matches
what’s on the books or in
your inventory management software, you’re able to better fill customer orders on
Inventory accuracy = Number of counted items that perfectly match every aspect of the record / total number of items counted
Average warehouse capacity used: This measures the average amount of
warehouse space used over
a specific interval, such as a monthly or yearly window. Companies efficiently managing
warehouse space in the
DC Measures survey hit 92.5%.
Average warehouse capacity used = (Amount of warehouse floor space used / total warehouse space) × 100
Peak warehouse capacity used: Closely related, the KPI measures the
amount of warehouse
capacity used during designated peak seasons.
Peak warehouse capacity = (Amount of warehouse space used / total warehouse space) × 100
Inventory count accuracy by location: This KPI measures the accuracy of
physical inventory in
relation to inventory reported in warehouse management and other inventory tracking
software. Best in class
companies achieve 99.9%.
Inventory count accuracy by location = (Number of accurate inventory locations / total number of inventory locations counted) × 100
Part-time workforce to total workforce: When your company doesn’t
enough employees to meet
demand, you may have to pay overtime or turn to seasonal, part-time or temporary
workers. This can be costly and
inefficient. Keeping an eye on part-time to total workforce can help you keep labor
Part-time to total workforce = (Part time employees / full-time employees) × 100
Cross-trained rate: Cross training employees increases productivity,
helps employees progress
in their careers and protects against loss of knowledge from employee turnover.
Cross-trained rate = (Number of employees trained in more than one area / total number of employees) × 100
Order fill rate: Track how many customer orders are fulfilled with
available stock without
placing a backorder or missing the sale. This helps you fill orders quickly, keeping
customers happy, and can
even stop them from turning to a competitor for quicker shipping.
Order fill rate = (Number of customer orders shipped / number of customer orders placed) × 100
Orders picked per hour: You should include the hours it takes for all
activities from the time an order is received to when it is shipped. Compare this metric
against others in your
industry to create benchmarks and goals. Orders are the complete shopping basket made up
of different products,
Orders picked per hour = Total orders picked and shipped / total hours worked in picking and shipping
Lines picked and shipped per hour: Customer orders are made up of
different products, or lines.
An order that comes through may consist of multiple lines and take a long time to fill.
This metric looks at on
average how long it takes to pick and ship each line. It’s a measurement of your
facilities performance and
Lines picked and shipped per hour = Total order lines picked and shipped / total hours worked in picking and shipping
Distribution costs (as a percentage of sales): This metric considers
all warehousing expenses
involved including receiving, putting away and storing the product. It also includes the
costs for fulfilling
orders through picking, packing and shipping, as well as processing returns. As sales
increase or decrease, keep
an eye on distribution costs. If there’s a spike, it could indicate an issue that
Distribution of costs (as a percentage of sales) = Total distribution cost / total sales
Distribution costs (per unit shipped): Much like looking at the costs
as they relate to sales,
this metric can be used a benchmark and monitored as more or fewer units are sold. When
consider all warehousing expenses, including receiving, storage and preparing customer
Distribution costs (per unit shipped) = Total distribution cost / total units shipped
Inventory days of supply (IDS): On average, how long do you keep
inventory before you sell it?
Benchmark against peer companies, as this metric changes by industry. For example,
grocers that sell perishable
food would have a shorter IDS than a consumer electronics store. A shorter IDS is what
you’re after because it
means you are selling your goods.
Inventory days of supply = (Average inventory value in a year / cost of goods sold in the year) × 365
Average cost per order: Total all warehousing costs, including
receiving, storage, picking and
packing for the year. Divide that by the number of orders received. Keep an eye on this
metric as sales increase
or decrease and watch for spikes. Compare against peer companies, and even against other
accounting periods; are
costs remaining steady by quarter or even by month?
Average cost per order = total warehousing costs for accounting period / number of orders received in the same period
Getting your products in the hands of your customers quickly and accurately is the ultimate goal. Here are a few order fulfillment metrics to track for customer satisfaction.
Warehouse or Inbound Metrics
Before products can be picked, packed and prepped for the customer, you first have to receive, count and store them. Making the inbound process as efficient and accurate as possible helps you save money while ensuring you have the products your customers need.
Operations or Outbound Metrics
After an order is placed, how quickly can you turn it around and get it in the hands of your customer? There are a few metrics to help you track performance for this stage of warehouse management and order fulfillment. Consider using an inventory management system to track, measure and improve your operations.
Warehousing and order fulfillment costs need to be monitored to find opportunities for improvement. It can be helpful to look at distribution costs as a percentage of sales, per unit shipped and per order placed.
Monitoring Order Fulfillment KPIs With Software
You can only start to improve your operations workflow after you understand and track it. With so many moving parts and so much data to crunch, warehouse and inventory management software can automate processes, as well as house all the data needed to track KPIs.
With warehouse management software, you can integrate with shipping partners, processing returns and automate reordering inventory. After tracking order fulfillment KPIs, you can identify problem areas and begin implementing improvements that will enhance customer satisfaction and boost your bottom line. With warehouse and order fulfillment software, you can take control and monitor inventory, order fulfillment and shipping costs to improve warehouse operations and labor efficiency.
To stay competitive in today’s economy, you have to operate on tight margins. And warehousing costs can eat into profits and wreck your bottom line if you’re not careful. Monitor KPIs for receiving, operations, outbound orders, customer satisfaction and financial measures. Inventory management software is essential to gather, store and analyze the data needed for each of the KPIs and improve your warehouse operations.