The Importance of Analyzing the Right KPIs for Your Order Fulfillment Operation
An important part of any business, whether it is order fulfillment or material handling, is analysis: You need to be constantly analyzing your operations to see where you are hitting your goals, where you stand to improve, and where you need to consider a serious overhaul. Looking at your Key Performance Indicators (KPIs) is a way for you to undergo this important analysis.
Free Guide: Top Order Fulfillment KPI Indicators
What Are the Most Important KPIs for Order Fulfillment?
KPIs for order fulfillment can be broken out into four key areas:
- Customer Metrics, which includes factors that directly impact a customer’s likelihood of completing an order, such as on-time shipping, total order cycle time, internal order cycle time, and perfect order percentage
- Inbound Metrics, which includes factors involving materials and product coming into the warehouse, such as the dock-to-stock cycle, inbound orders received, and lines received and put away
- Outbound Metrics, which includes factors involving outbound order fulfillment, such as the fill rate for orders and line items, orders picked per hour, and lines picked per hour
- Financial Metrics, which includes factors impacting the profitability of your operations, such as distribution costs (as a percentage of sales and also per unit shipped) and inventory days of supply
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.