When you outsource product fulfillment to a third-party logistics company (3PL), you place your trust and your customers' satisfaction in its hands. Yet it's shocking how many Etailers have no well-developed KPIs for order fulfillment to monitor performance.
We recently updated our guide: “10 Keys to Creating Order Fulfillment Metrics.” If you’re looking at your own KPIs, this detailed article could be a helpful reference guide to spark your thinking. The following is a sneak peek at some of these keys.
Include order fulfillment KPIs in your RFP
Many companies hastily decide upon fulfillment metrics and KPIs just before the work starts, and sometimes after. Big mistake.
When outsourcing fulfillment services to a 3PL, it’s best to include KPIs in your Request For Proposal (RFP). Your RFP should reflect your specific needs and circumstances. The more clearly you can articulate your desired performance levels up front, the better aligned you’ll be with your 3PL partner – about expectations and what it will take to deliver to that standard. Keep these objectives aggressive, but reasonable. 3PLs expect to be challenged, but will want performance objectives to be realistic.
Does this mean that you’re stuck with these fulfillment KPIs ad infinitum? Absolutely not. In fact, once you’ve chosen your 3PL, one of your first action items should be to schedule a working KPI discussion to hash out the particulars. What it does mean, however, is that you’ve invested time to get your relationship started off on the right foot – with clear, objective expectations.
Seek input from your 3PL on KPIs for order fulfillment
Many companies believe allowing 3PL providers to weigh in on what kinds of fulfillment warehouse metrics they should track is like asking a den of foxes how to guard a hen house. But think about it: If you were weighing the pros and cons of two different medical procedures, wouldn’t you ask your doctors what they’d choose for themselves?
If you work with a B2C-focused 3PL, that company likely eats, sleeps, and breathes multi-channel fulfillment in a way that your company doesn’t. It can provide you with suggestions about performance metrics that are truly mission-critical versus those that are merely window dressing.
Set realistic order fulfillment KPIs
Good KPIs require reliable, real-world inputs. When these don’t exist, for whatever reason, it’s best to wait before formulating KPIs.
Common barriers to setting realistic KPIs for order fulfillment include:
- Little to no previous benchmarking. During a company’s early years of growth, tangible information about its average order pick rates, inventory accuracy, and shipping velocity can be difficult to come by, especially if there’s been no formal information gathering process in place. Sometimes, the data exists, but the resources and efforts have not been in place to capture them yet.
- A significant business change. Sometimes a company’s fulfillment particulars have changed so drastically or quickly (perhaps business has recently doubled or tripled, or the delivery window has been shortened), the old rules and KPIs no longer apply.
- Unrealistic thinking. It’s perfectly reasonable for companies to ask their 3PLs to bring significant performance improvements to the table. However, it’s impractical to set goals so ambitious that even a team of Supermen would have difficulty achieving them.
If you know your company’s fulfillment operations data is outdated or incomplete, avoid the temptation to simply pull numbers out of thin air – or off the Internet – to create your KPIs. That will be counterproductive. Inaccurate numbers are much worse than no numbers at all because they will undermine your metrics dashboard and risk making all your measurement efforts an operational mess.
Which Order Fulfillment KPIs Should You Track?
Online sellers can use many performance benchmarks to analyze and optimize order fulfillment processes. But, in Amware’s experience, the most important KPIs for order fulfillment are:
- On-time shipping – the ratio of orders shipped on or before the requested date or cut-off time versus the total number of orders shipped. This metric could be #1 in importance given that 69% of shoppers are less likely to shop with a merchant again if their order is not delivered within two days of the date promised. Another 14% will stop shopping with the merchant if their delivery is late just once. If your on-time shipping ratio is poor, you may need to change shipping methods and/or boost your warehouse operations efficiency by streamlining warehouse layout and adding automation.
- Receiving efficiency – the time it takes from arrival of goods at the dock to when they are available for sale (also known as dock-to-stock time). Just because your product has arrived at the fulfillment center doesn’t mean it’s available to fill orders. Deliveries have to be checked to ensure that the items and quantities received match what was expected, then checked for damage, scanned into the warehouse management system and placed in their assigned racks or bins. Only then are they available for picking, packing and shipping to customers. If your dock-to-stock time is too long, it’s costing you money in unfilled orders.
- Inventory accuracy – the variance between the product count recorded in your inventory management system and the actual physical inventory in your warehouse. Variances can occur if there are inaccuracies in receiving or order shipping data, sometimes as a result of spikes in order volume. If the variance is too large, you may experience stock-outs and backorders, resulting in higher costs and unhappy customers. To prevent this, some companies periodically perform cycle counts to manually verify physical inventory and reconcile it against data in the system.
- Shipping accuracy. Nobody’s perfect, but shipping the wrong item or the wrong count can cost your company big time for additional and/or return shipments and restocking costs. There’s also the cost of sales lost when customers cancel an order rather than wait for a replacement. Research shows that 23% of ecommerce returns result from customers receiving the wrong product. Accurate order picking helps you maintain both customer satisfaction and profitability.
Partner with a 3PL to define and track KPIs for order fulfillment
If you lack the time or resources to develop and analyze KPIs for order fulfillment, consider partnering with a third-party provider like Amware Fulfillment. In addition to other advantages of logistics outsourcing, Amware can help you define the fulfillment KPIs that make sense for your business goals and provide regular and on-demand reports of performance against those metrics.
For more information on our ecommerce fulfillment capabilities, contact Amware.
