24 October 2021 Understanding the logistics indicator Order Fill Rate, understanding its importance, knowing how to calculate it, and how to increase the percentage achieved Order Fill Rate What results have you achieved in your business? Could it, for example, indicate the reasons that led to success? If you don’t know how to answer, it’s likely that positive results are due to luck. Now, if you track and prioritize performance indicators, being able to see what led to success means you have good management. To know if your business is profitable, if your customers are satisfied with the service received, and if there are growth prospects, you need to know the numbers of your operation. Moreover, to make accurate decisions on where to invest more to increase profits, it is essential to have clear information on all sectors of your business. For this, the first step is to have a good Indicator Management, relying on the collection and analysis of data on the progress of your business, as they will give you the certainty that everything is going well. And it is worth noting that indicators are not only used to know the reasons for success or to make decisions: they are essential for identifying failures and acting on their rapid correction. In logistics, measurement is essential Managers are often very focused on financial indicators and give less importance to other metrics that show how the company is doing. When it comes to intralogistics, it is not enough to follow the numbers that refer to expenses and earnings; it is necessary to evaluate the progress of each process and, above all, monitor the level of customer satisfaction, in order to ensure efficiency and profitability of the business. If, for example, you have a sales boom, but you have delayed delivery or sent the wrong product, even if you gain financially, the image of your company could be damaged, after all, the customer is your biggest seller. That’s why it’s so important to evaluate how work is carried out in the warehouse (if there are failures or delays) and how orders are fulfilled. In this context, there are a series of indicators that must be evaluated, which we highlight: – Order Fulfillment Rate or Order Fill Rate (OFR) – On-Time Delivery Percentage or On-Time Delivery (OTD) – Perfect Order or On Time In Full (OTIF) – Order Cycle Time or Order Cycle Time (OCT) In addition to these, it is necessary to monitor whether the inventory contained in the system is equivalent to the physical inventory, measuring, in this case, Inventory Accuracy (Inventory Accuracy). And, to measure productivity, there are a series of indicators, which show the performance of each employee in the sector in which they operate, through incoming productivity, picking, replenishment, and checkout, detecting the error rate, evaluation of the number of internal movements, and also analysis of load performance. Numerous metrics are available, and the most important thing is that you prioritize those that make sense for your business, that is, those that are essential for the proper functioning of your operation. In this article, we will specifically talk about the Order Fill Rate indicator or “Order Fulfillment Rate“. You will understand what it is, how to measure it, and the importance of implementing it. Check it out below. Order Fill Rate (OFR): What does it measure? This indicator aims to measure the company’s performance during order processing, considering all the time spent from receiving the order to its departure for delivery. As a benchmark for performance evaluation, what is agreed with the customer is considered, that is, the Order Fill Rate measures the efficiency with which a demand can be met with total precision. Using the Order Fill Rate as a performance indicator, the manager is able to assess whether their operation can meet the customer’s needs at any time. If the OFR has a high rate, it means that the company has excellent performance in fulfilling orders within the first-time service level (time between the order placed by the customer and the delivery of the goods). And it is worth noting that consistently meeting lead time is a competitive advantage, hence the importance of evaluating this indicator. The recommendation is that this indicator be measured with daily, monthly, or weekly frequency, separating it by customer, product line, or in a total analysis. A diligent evaluation allows identifying bottlenecks and making quick corrections to avoid delivery errors and ensure customer satisfaction. How to calculate the Order Fill Rate (OFR) The settings and calculations of the OFR can vary significantly. Broadly speaking, the indicator calculates the service level between two parties (customer and selling company). It is generally a measure of total order fulfillment performance expressed as a percentage of total orders processed. Some examples of fill rate metrics are: Line Fill Rate, Unit Fill Rate, SKU Fill Rate, and Case Fill Rate. The Order Fill Rate can be considered a breakdown of the OTIF indicator, as it measures the percentage of orders completely fulfilled in the items and quantities requested by the customer. The indicator is calculated by dividing the completely fulfilled orders by the total shipped orders and then multiplied by 100. For example, if 1,200 orders are completely filled in items and units out of a universe of 1,250 shipped orders, we will have a fill rate of 96%. Attention: if the shipment of an order is divided into more than one delivery, only the items shipped in the first shipment count as the order fulfillment level (e.g., the customer orders 10 items, 7 are fulfilled the first day, and 3 only four days later. In this case, this order has only a 70% fulfillment). The goal of companies, considering global best practices, is to achieve an OFR rate of 99.5%. Why is it important to measure the order fill rate? This indicator, seemingly simple, is a measure of how well your company can meet customer demand. A high order fulfillment rate suggests that you are managing stock levels efficiently to avoid stockouts. You accurately forecast demand, replenish your inventory in time, and have sufficient safety stock. In this way, you can promptly fulfill customer orders. However, a high OFR rate can also mask an overstock scenario. Although the percentage achieved shows how well you are fulfilling customer orders, it does not suggest an efficient inventory level to minimize obsolescence, loss, or damage. This metric also does not give you an idea of which product lines are selling best and which are flawed. Therefore, the Order Fill Rate must be viewed in the company together with other important stock indices. On the other hand, a low OFR rate is a sign that it is necessary to organize demand forecasting and purchasing strategy. A low OFR indicates that you are unable to fulfill a portion of customer orders at a given time. You are out of stock because you may not prioritize Just-In-Time or may not have sufficient safety stock. Customers will be unhappy and may switch to your competitors. It is worth adding that a low rate can occur for several reasons. You may have been caught off guard by a sudden increase in demand for a viral product. Or a series of seasonal sales in quick succession left you with low inventory levels that could not be replenished in time. Therefore, it is essential to evaluate in detail the causes of the low Order Fill Rate percentage so that corrective actions can be taken. How can you improve the order fulfillment rate? Continuous improvements in Order Fill Rate can be achieved, reaching the percentage related to global best practices. To help you improve your processes that directly affect the order fulfillment rate, we have listed some suggestions: A. Have a system that gives you real-time information Your sales representatives are working in the field. They visit retailers, send quotes via email, and fill out sales orders. Why not provide them with the tools and information to keep them informed about your inventory? With WMS, the warehouse management software, all data related to the operation and stored products are updated in real time, through the Vista Management solution. In this way, your salespeople will not sell unavailable or limited stock products, reducing the risk of orders not being fulfilled promptly. B. Improve your forecasts and purchasing models In addition to real-time information, data is extremely useful for forecasting sales of specific products. By analyzing your warehouse’s information history, you can see which products you should order, how much, and when to order them. And don’t forget the impact of trends and seasonal events. C. Offer alternatives and substitutes If your company works with retail distribution and, at some point, has empty shelves due to lack of stock in your warehouse or a long delivery cycle, an emergency solution could be to offer alternatives and substitutes. The idea is to fill the order balance with similar products available immediately. Conclusion The Order Fill Rate (OFR) is an important indicator that, in addition to revealing the quality of service offered to your customers, can give you clues about improvement points in various sectors of the operation. The ideal is to evaluate the percentage achieved and, if the value is low, analyze other indicators that reveal the causes of the problems and talk to your team to understand the current situation of your operation. If you have a warehouse management system (WMS), data collection and analysis becomes simpler, as the software records everything that happens in the operation and presents the data in real time. What is Order Fill Rate (OFR) and why should you use it? Deagor WMS per ecommerce può aiutarti!