Determining KPIs for Your Ecommerce Fulfillment Operations

Today, the same or similar product can be purchased at countless online stores. Differentiation is no longer about the products themselves. Successful ecommerce companies earn the sale and buyer loyalty by delivering a great customer experience, and that starts with fast, efficient, on-time fulfillment.

As ecommerce fulfillment operations become the true competitive battleground, shockingly few companies have a robust program for measuring fulfillment performance – particularly when the function is outsourced to a third-party logistics provider (3PL).

Here are 7 tips to consider when identifying and measuring your key performance indicators (KPIs) for ecommerce fulfillment.

Keep It Simple

When preparing for your KPI journey, it’s best to pack light. Reporting and monitoring too many metrics early in the relationship may deflect your 3PL’s attention away from actual execution and be far too cumbersome for your staff to review and make sense of.

For the best results, focus on a few strategic metrics that matter most to your company and customers, bearing in mind you can always add more KPIs as your program and relationship mature. If you can’t answer the “So what?” question about why a KPI has been included, it probably doesn’t belong.

Keep It Real

Setting accurate KPIs requires reliable inputs. When these don’t exist, for whatever reason, it’s best to wait before formulating KPIs. Common barriers to setting realistic KPIs include little or no previous benchmarking (such as for a startup) or a significant business change (rapidly growing sales) that render the old metrics moot.

If you know your company’s fulfillment data is outdated or incomplete, avoid the temptation to simply pull numbers out of thin air – or off the Internet – to create your KPIs.

Seek Input from Your 3PL Partner

Many companies believe allowing a 3PL provider to help shape the KPI program is like asking the fox to guard the henhouse. 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?

Your 3PL eats, sleeps and breathes fulfillment in a way that your company doesn’t. It can provide you with suggestions about performance metrics that are truly mission-critical vs. just window dressing.

Have the Tough Discussions at the Start

Shippers that expect 100% perfect orders all the time are unrealistic. Mistakes, while hopefully rare, are a reality in ecommerce fulfillment. But companies often don’t deal upfront with the issue of what will happen when such mistakes occur. Because of this lack of planning, small failures escalate into larger ones and there is a lot of finger pointing.

The right approach is to sit down with your 3PL partner before orders start flowing and ask the tough questions about every type of potential failure. Who’s accountable? What are the consequences? Nobody wants to think about worst-case scenarios during the honeymoon phase; it’s far better to deal with them now than when issues are happening.

Understand the Real-World Implications

Much like job applicants, some KPIs have an uncanny way of looking better on paper than they do in reality, especially if they’re communicated solely in terms of percentages.

If you currently ship 100,000 items per year, 98.5% accuracy means that 1,500 customers won’t get the right order. According to one customer example you could wind up paying $43.23 per error or $64,845 each year to correct these issues. Based on these numbers, is that KPI really the one you want to hang your hat on? Or does a more aggressive metric make more sense, even if it’s more expensive to achieve?

Don’t Ignore KPIs Until Problems Occur

When customer service issues arise, here’s what happens. The shipper calls the 3PL on the carpet and rails about service quality; the provider then pulls out KPI reports for the first time in months and explains that performance is at or above goal. It’s a standoff.

To avoid such situations, review performance regularly against these established KPI benchmarks. By monitoring KPIs, even when business is running smoothly, you’ll be able to identify fluctuations early and determine if they’re moving in the wrong direction.

Take KPIs Out of the Black Box

KPI metrics appear as tiny numbers on a busy spreadsheet. And too often that’s where it ends. No attempt is made to make the numbers more meaningful to the people who do the work.

For fulfillment center associates, mistakes that make up numbers on a spreadsheet they never see won’t get their attention. You can overcome this challenge by communicating how meeting and beating KPIs contributes to the company’s profitability and progress.

If you use an outside fulfillment partner, look for opportunities to talk directly to the people on the warehouse floor. They will appreciate getting direct insights from the end customer on the importance and impact of their work.

Following these suggestions will alter the perception of KPIs changes from a hammer used as leverage against a 3PL to a positive tool promoting excellence through collaboration.

A robust KPI management program for product fulfillment can pave the way to healthier, happier, outsourced logistics relationships and transform your ecommerce fulfillment and shipping operations into a competitive lever. Any way you measure it, that’s a step in the right direction.

Harry Drajpuch is CEO of Amware Fulfillment