The importance of fast, reliable fulfillment for ecommerce customers today cannot be overstated.
The moment an order is placed on any online sales channel, the race to pick, pack, ship, and deliver that order starts – and shoppers expect their products to arrive on time and in perfect condition.
If your ecommerce business fails to meet these expectations, you run the risk of losing customer trust and loyalty. According to recent research, 85% of consumers will not shop with a retailer again after an unsatisfactory delivery experience.
To drive customer satisfaction and revenue growth, you’ve got to get your order fulfillment right.
Some ecommerce businesses handle their order fulfillment in-house, while others opt to outsource the picking, packing, and shipping of their orders to third-party logistics (3PL) providers, like Amazon Multi-Channel Fulfillment (MCF).
Regardless of which approach you adopt, you need to ensure that your fulfillment operations run as smoothly and successfully as possible.
But how can you monitor and measure the effectiveness of your order fulfillment operations?
Many companies track key performance indicators (KPIs) to gauge their performance in order fulfillment (and other business areas) over time.
In this guide, we will discuss the five most important ecommerce fulfillment KPIs that your business should be tracking, and explain how a 3PL can help you improve in those areas.
The first – and arguably the most important – ecommerce fulfillment KPI that you need to be monitoring is on-time delivery rate.
In essence, your on-time delivery rate measures your performance in meeting your delivery promises to customers – which can have a huge impact on customer satisfaction and loyalty.
To calculate your on-time delivery rate, you take the number of orders that are delivered on time over a certain period, divide it by the total number of orders over that same period, and multiply that number by 100. This will give you the percentage of your orders that arrive on your customers’ doorsteps on time.
By working with a best-in-class 3PL, you can ensure your on-time delivery rate hovers as close to 100% as possible. MCF, for example, has an on-time delivery rate of >97% in the US and >99% in the UK.
Generally speaking, if your on-time delivery rate dips below 95%, that’s cause for concern and an indication that there may be an underlying issue in your order fulfillment operations (in-house or with the 3PL you’re using) that needs to be identified and addressed.
Typically, we see a few common root causes that can lead to subpar on-time delivery rates:
By engaging the right 3PL provider, you can pinpoint and resolve the root causes of lackluster on-time delivery rates, and ensure you are consistently able to meet delivery promises to shoppers.
The second ecommerce fulfillment KPI that you should be monitoring is total order cycle time.
This KPI can be calculated by taking the total number of days that elapse between when customers place their orders and receive them over a certain time period, and dividing that figure by the total number of orders shipped over that time period. Total order cycle time measures the average amount of time from click to delivery – and is thus a good indicator of the efficiency of your order fulfillment operations.
The faster your total order cycle time is, the better. If your order cycle time is causing delays in getting your orders out the warehouse door and to customers’ doorsteps, that can have a negative impact on your topline growth. In fact, 25% of shoppers who abandon their online carts do so because the delivery times displayed at checkout are too slow.
Today’s shoppers expect deliveries within two business days – and leading 3PL providers, like MCF, are able to consistently meet these expectations and help ensure your order fulfillment operations run with the highest levels of efficiency. MCF leverages Amazon’s world-class fulfillment network, which has an average “click-to-door speed” of 1.9 days – over 50% faster than other retailers.
The third ecommerce fulfillment metric that you should be sure to keep an eye on is your order picking accuracy rate.
Simply put, order picking accuracy measures the percentage of orders being sent out that contain the correct items that shoppers ordered.
When picking errors occur in the warehouse and the wrong items or quantities of items are shipped out, this can cause significant damage to customer satisfaction and trust and also lead to increased operating costs for inventory and returns processing.
To calculate your order picking accuracy rate, you take the total number of orders that are verified as being picked accurately before shipment over a certain time period, divide that by the total number of orders picked during that period, and then multiply that number by 100.
Your aim should be to have your order picking accuracy rate be as close to 100% as possible. In fact, leading ecommerce companies and 3PL providers often register order picking accuracy rates of 98% and above.
If your order picking accuracy rate is lower than that, you should to investigate and identify the causes of your order picking errors and potentially consider engaging a new 3PL provider to help you boost your order picking accuracy.
By employing warehouse management systems and automation technologies, a 3PL can help you ensure that the right products are always being picked, packed, and shipped to customers.
Another ecommerce KPI that you should be closely tracking is inventory accuracy rate, which measures the difference between the actual amount of stock that you have on-hand in the warehouse and the amount of stock that is recorded in your back-end systems.
To calculate your inventory accuracy rate, you count the number of units you have physically in the warehouse, divide that by the number of units that you have recorded in your back-end systems, and multiply that by 100.
Your goal should be to have your inventory accuracy rate be 100% – as anything less than that could indicate that you have inventory management issues, which can lead to stockouts (that erode customer trust) and excess stock (that ties up working capital).
A 3PL can help you improve your inventory accuracy rate and attain an accurate, real-time view of your inventory levels by:
- Instituting inventory management best practices such as cycle counts and rolling audits to make sure your physical inventory levels tally with what’s showing in your back-end systems.
- Utilizing the latest warehouse technologies such as scanners to track and trace your products from the moment they’re inbounded at the 3PL’s warehouse, and integrations to seamlessly connect the 3PL’s systems with your order and inventory management systems.
Working with a 3PL can enable you to optimize your inventory management and ensure that your inventory accuracy rate hovers as close to 100% as possible.
The last KPI that we’ll cover is average cost per order for fulfillment, a financial metric that reveals how much you’re really paying to store, pick, pack, and ship orders to customers. If you want to maintain a healthy bottom line over time, you have to keep your cost per order down.
Your average cost per order can be determined by adding together all the costs you incur that are associated with fulfilling orders (including inbounding, storage, picking, packing, and shipping costs) over a certain period of time and dividing that number by the total number of orders during that timeframe.
It’s pivotal that you continuously monitor your average cost per order from week to week and strive to keep this figure as low as possible. Even small reductions in your cost per order can have a huge impact on the long-term profitability of your business.
A 3PL provider can help you reduce your average cost per order by:
- Conducting ongoing, in-depth analysis of your average cost per order and identifying the underlying drivers of higher costs.
- Optimizing your order fulfillment operations from click to delivery – so that you can consistently keep your average cost per order down and, at the same time, keep your delivery promises to customers.
The success of your ecommerce business hinges on your ability to deliver orders – as rapidly and reliably as possible – to shoppers’ doorsteps. It’s pivotal that you are continuously monitoring and assessing your order fulfillment performance to make sure you are meeting customer expectations for fast, reliable delivery.
In this guide, we’ve discussed five critical ecommerce fulfillment KPIs that your business should be tracking – but actually there are many other KPIs and metrics that you may want to concentrate on.
Ultimately, the selection of ecommerce fulfillment KPIs you decide to focus on should reflect your business priorities. If you are working with a 3PL or evaluating potential 3PL providers, have a discussion with them to determine how they can help you improve in these areas.
If you engage the right 3PL, they can enable you to elevate your performance against your ecommerce fulfillment KPIs and accelerate your business growth.