Order Fulfillment KPIs: Measuring Progress & Success
An important part of any business, whether it is order fulfillment or material handling, is analysis: You need to be constantly analyzing your operation to see where you are hitting your goals, where you stand to improve with slight adjustments, and where you may need to consider a serious overhaul.
That’s where key performance indicators (KPIs) come into play.
By identifying which key performance indicators are most important to your order fulfillment operation and bench-marking your current performance, it is possible to both identify potential targets for optimization and measure the effect of any improvement efforts that you put in place.
Free Guide: Top Order Fulfillment KPI Indicators
Without this continuous monitoring, it can be difficult (if not impossible) to truly pinpoint what efforts are working (and which should therefore be replicated elsewhere in your operation) and which might not be hitting the mark as expected.
What Are the Most Important KPIs for Order Fulfillment?
KPIs for order fulfillment can be broken out into four key areas: Customer metrics, inbound metrics, outbound metrics, and financial metrics. Below, we explore each of these buckets of KPIs in greater detail and speak to the importance of each of the major KPIs that fall within it.
1. Customer Metrics
Broadly speaking, this bucket of metrics includes all KPIs that directly 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.
- On-Time Shipping Percentage: This refers to the percentage of orders which are shipped on time. Because as many as 69 percent of customers are less likely to shop with a retailer who does not meet the promised delivery window, this is an important number to track.
- Total Order Cycle Time: This refers to the average processing time from the point a customer places an order to the point that it is shipped. It encompasses all processes that fall within that window. As customers become more and more accustomed to same- and next-day delivery options, understanding how your operation performs and how you can improve your performance matters.
- Internal Order Cycle Time: This specifically refers to the amount of time that it takes for your operation to internally process an order. It is typically measured from the moment that an order is released into the warehouse for processing to the moment that it is shipped.
- Perfect Order Percentage: Perfect order percentage looks at a number of different metrics to determine what percentage of orders ship on-time, complete, damage-free, and with correct documentation. By understanding your perfect order percentage, you can take action to improve your order accuracy and other pain-points within your operation.
2. Inbound Metrics
This category of key performance indicators refers to any metric related to product coming into the warehouse. These metrics are often overlooked, unmeasured, or neglected, but because your operation is dependent on the inventory it has on hand, they should be viewed as having the same urgency and importance as all other KPIs.
- Dock-to-Stock Cycle Time: This refers to the amount of time required to put away goods. Measurement begins when product enters the warehouse and ends when it is put away and available for sale. It is typically measured in hours.
- Inbound Orders Received: This refers to the number of inbound orders that is processed per person per hour, once product is received at your facility.
- Lines Received & Put Away: This is related to inbound orders received. Instead of measuring the number of orders received, this metric specifically measures inbound lines processed per person in an hour at receiving.
3. Outbound Metrics
Outbound metrics relate to the status of orders as they leave your facility. While customer metrics are related to metrics that specifically impact your customer, outbound metrics are more focused on measuring the efficiency of your processes. By understanding these metrics, it may be possible to improve your labor processes, become more efficient, and ultimately boost your bottom line.
- Fill Rate: Fill rate is used as an indication of a perfect order. It can be measured by order (as a percentage of orders filled 100 percent complete compared to the total number of orders filled) or by line items (as a percentage of order lines filled 100 percent to the total number of order lines).
- Orders Picked Per Hour: This number measures order fulfillment and shipping productivity in lines per hour per person. By measuring this metric, it is possible to identify potential areas for improvement—for example, by utilizing automation to reduce travel time associated with picking.
- Lines Picked & Shipped Per Hour: This refers to the productivity of picking and shipping in lines per person per hour. By considering the total lines produced across all labor functions, a true representation of operational efficiency can be measured.
4. Financial Metrics
These KPIs refer to factors which have the potential to directly impact the profitability of your operation. By understanding how you are currently performing and taking steps to improve them, it is possible to immediately improve your financial performance and free up capital for use elsewhere in your business.
- Distribution Costs (as a percentage of sales): This metric refers to the cost of distributing orders as relative to your operation’s total sales. It can be used as a quick gauge of the overall health of your organization. As revenues accelerate, any change in quality or a sudden increase in the distribution cost can indicate the need to take corrective action.
- Distribution Costs (per unit shipped): This metric refers to the cost of distributing orders relative to the total units shipped through the operation. Because it is more focused in nature, it can be leveraged in creating a more specific optimization approach.
- Inventory Days of Supply: This refers to the amount of finished goods/inventory that is on hand to cover a number of days of projected usage. Generally speaking, this number should be high enough to cover the needs of your business, but low enough so as to not tie up valuable capital and storage space which can be used for other purposes.
To ensure that you’re taking a holistic approach to analyzing your business operations, it’s important to evaluate all of these key performance indicators regularly. Focusing on just one or two of these metrics—say, inbound and outbound metrics—can easily skew your understanding of your strengths and weaknesses. You must see the big picture to truly know where you need to focus your improvement efforts.
You Can’t Improve What You Don’t Measure
It’s easy to fall into the habit of making assumptions when it comes to how your operations are performing, especially when you are going through a period of rapid growth and profit. After all, if you’re doing well then that must mean you’re doing something correct—no need to get bogged down with the numbers, right?
Wrong. Whether you’re succeeding beyond your wildest dreams or you’re struggling to hit your goals, you should constantly be looking for ways to improve. When the times are good, these improvements will let you maximize your profits and build up a reserve that can see you through the lean times; and when the times are bad, any improvement at all will help get you back on track.
But you can’t improve something that you don’t measure. Regardless of your industry, it’s impossible to truly understand your strengths and limitations if you don’t undergo regular analysis. In addition to helping you spot easy areas to focus your improvement efforts on, analyzing your KPIs will also allow you to identify trends over time, which will allow you to plan appropriately for the future.
Are you Crushing Your KPIs?
If, after analysis, you realize that you’re consistently scoring high in all of your KPIs, congratulations. Chances are, though, that you’ve got at least one or two areas that can stand to improve. Even relatively small improvements can lead to big gains in profitability. To illustrate this point: Just a 3 percent increase in your number of perfect orders can increase your profit margin by 1 percent.
If you aren’t comfortable leaving that percent on the table—and you shouldn’t be—then you’ve got to put in the time to analyze your metrics. It isn’t the most exciting work, but it’s the surest way for you to consistently hit and improve upon your goals.
Not sure where to start in benchmarking your KPIs and putting a plan in place to improve them? A trusted systems integrator can help and a no-obligation consultation will certainly make a difference.