5 Most Useful Fulfillment Metrics
When establishing fulfillment center metrics, catalogers should use performance measures to drive a change in behavior. These help you track progress and meet goals. Turn that valuable data into meaningful and actionable information, otherwise it's analogous to having a data dump.
Which metrics should you track? Consider your company’s goals and objectives, improvement opportunities, strategic projects and what’s most important to your customers. You may find that the most popular metrics often aren't the most useful. For example, the top metric, on-time shipments, shows how effectively your warehouse ships orders. But not if customers received their orders when they wanted or if orders were complete. However, there are five very informative metrics every cataloger should track.
The Most Popular Metrics
Don’t measure just for measurement’s sake; focus on collecting metrics in areas where you’d like to drive positive changes to further your company’s objectives. Only a few statistics can become process measures. And just a few among them are key performance indicators that’ll track progress toward strategic goals.
Catalog companies have two primary goals:
✔ meet the customer service level commitment; and
✔ improve operational efficiency — to reduce or at least maintain operational costs.
However, many companies track metrics that only reveal small bits of information that factor into these goals, and not holistic measurements that may reveal how to close those gaps.
In a survey my firm performed last year for the Warehouse Education Research Council, we asked respondents what metrics they use. This list shows the top 10 metrics companies track. Then we'll introduce five more metrics that reveal the processes that actually cause shortfalls in these areas.
1. Costs/Sales Relationship
Distribution typically includes processes related to tracking inventory and product availability, receiving, incoming inspection, storage, pick/pack, product shipment, transportation management, and management of third-party logistics storage and shipping performance. Process improvements will lower costs, while process inefficacies will increase them. As such, this is an excellent high-level metric, especially if you’re tracking ongoing improvement projects. Distribution costs can also be rolled up as a component of total supply-chain costs as a percent of sales.
2. Cash-to-Cash Cycle Time
Cash-to-cash cycle time is commonly regarded as a good indicator of the health of a company’s supply chain and of overall market competitiveness. It's calculated from this equation:
inventory days of supply
days of sales outstanding
Cash-to-cash cycle time indicates how your supply chain processes impact your company. Inventory days of supply are impacted by your ability to manage inventory, how well you forecast and plan, how reliable your suppliers are at making on-time deliveries, and how effective your transportation management and warehousing processes are.
While internal operational and financial measures can affect value, the most obvious to the customer are those associated with the perfect order. The perfect order index is a widely recognized and recommended measure that combines a number of key metrics.
3. Perfect Order Index
The individual metrics of a perfect order (shipped complete, delivered on time, damage-free with the correct documentation, pricing and invoicing) are multiplied together to calculate the perfect order index. For instance, if you were performing at a 95 percent level in each of the four individual measures, your perfect order index would be 81.5 percent (95 percent x 95 percent x 95 percent x 95 percent).
This index measures your performance and value from your customer’s view. Unfortunately, many companies have problems measuring what happens outside their distribution centers and find this metric difficult to track. But information flow on shipments from carriers and the ability of companies to process this information are getting better.
4. Back Order Fulfillment
It may not do those orders any good, but you find out how well your back orders are cleared. Track this, and review and address the root causes of back orders, because they have a huge impact on customer satisfaction. Resolving them is nonvalue-added work, but it's a cost that shouldn’t be incurred.
5. Fill Rates
Measure both order fill-rate and line fill-rate to get a clearer picture of your ability to meet customers’ order requests. Calculate fill rates based on how well you fill initial orders rather than modified orders. Base them on the customer-requested shipment dates. Those orders not meeting the dates shouldn’t be counted as complete. Measure strategic outcomes using metrics that are process-oriented rather than functionally oriented.
Balance is an essential element of successful metrics programs because it ensures there’s a holistic view of the business. Identify and use a broad spectrum of metrics that together reflect the key contributors to the success of the business strategy.
Embed your measurement process within a culture of continuous improvement. In short, turn data into metrics and metrics into performance management programs that drive tangible and lasting improvements in your organization.
Recap: A Closer Look at Some Metrics
Inventory count accuracy is important to the company’s ability to fill a customer order. Inventory accuracy errors cause unknown out-of-stocks that impact order fill rates. Pair measuring the accuracy with correcting the root cause of the errors.
Order picking accuracy ties to customer service — getting what was ordered — and to operational performance. This measures the accuracy of the orders picked based on errors caught prior to shipment.
Order cycle time is the time between customer order placement and order shipment. Customers’ expectations vary depending upon your shipment policy, such as a same day vs. a 48-hour policy.
Kate Vitasek is the founder and managing partner of Supply Chain Visions, a consulting firm that specializes in benchmarking and education. You can reach her at kate@SCVisions.com, Web site: SCVisions.com.