“If you can’t measure it, you can’t manage it.” The words of business management expert Peter Drucker have always held true for ecommerce fulfillment operations, but the need for effective measurement is now greater than ever.
As ecommerce sales ramp up, merchants face growing pressure to deliver the perfect order. To meet consumers’ expectations, you need to get the right product to the right customer in the right quantity at the right place and time.
To that end, you must keep a close eye on your ecommerce fulfillment operations and continually measure their efficacy. To do so, you need to establish meaningful key performance indicators (KPIs).
What Should I Measure?
KPIs should be strategically aligned with your specific business goals. Start by thinking about what you’re trying to achieve. Then, determine what needs to be done every day to make that happen, and how that activity can best be measured.
Every ecommerce seller will have different answers to those questions and therefore different methods of measurement. As a rule, however, it is wise to establish ecommerce fulfillment KPIs pertaining to the following areas within the FC walls.
Receiving
First, consider how inbound inventory is handled. Are products received into the fulfillment center in a timely manner? On-time receiving can be determined by calculating the percentage of late receipts over the number of closed receipts.
It’s also important to measure accuracy. For example, if you ordered 10 blue shirts, did you receive all 10? Discovering discrepancies early on allows you to be proactive in resolving them to avoid problems down the road.
Put away
Once products are received, how quickly are they made available for sale? One common way to evaluate this is to look at the percentage of items that are put away on shelves or pick faces on time.
Inventory Management
To help ensure inventory accuracy, a WMS can be utilized to track SKU picking activity and replenishment and conduct cycle counts on a regular basis (annually, quarterly or even daily) in addition to doing a full physical inventory. KPIs for cycle count accuracy usually show the percentage of counts that require no adjustments and, where adjustments apply, how many.
Order processing
Of course, order turnaround time is also critical. Once an order is received, how fast can it be accurately picked, packed and prepared to ship out in the most efficient manner? To satisfy consumers’ ever-increasing demands, there is an expectation to fulfill orders the same day they are received.
Shipping
With increased pressure to turn orders faster, most merchants also establish KPIs related to on-time shipping. For example, they might set expectations that all orders received by 1 p.m. and express orders received by 4 p.m. will go out same day. Their KPI, then, identifies the target percentage of orders meeting those expectations.
Measurement doesn’t stop once orders are out the door. The transit element is a key area of consideration, particularly in light of recent delivery delays by major carriers during the pandemic. How many of your orders arrive on time? To track this, you will need to work with your parcel carrier (or third-party fulfillment provider if you’re shipping on their parcel account).
Quality
Order accuracy can be challenging to evaluate quantitatively. Performing audits after pack-outs can help to track the quality of order picking. This also enables any errors to be corrected before shipping to the customer. However, this process can be time consuming and cost prohibitive for companies that are striving to achieve extremely high accuracy rates. Many sellers prefer to track quality issues via returns data, customer complaints (although there can be high potential for fraudulent claims) and anecdotal feedback.
Some merchants establish KPIs associated with protecting their brand, i.e., “white glove” packaging quality for a positive consumer experience. This may involve metrics around specialization or customization.
Implementing KPIs Effectively
While these are all relatively simple concepts, they typically require sophisticated data management. Data must be captured from a robust WMS efficiently and accurately and analyzed carefully.
If you choose to work with a third-party fulfillment partner (3PL), be sure to involve them in establishing your KPIs upfront. They can help determine the most pertinent criteria for achieving your strategic objectives and the most efficient, economical methodology for measuring them. They are also likely to have the advanced technology necessary to support their efforts.
While establishing clearly defined KPIs takes time, resources and expertise, the extra effort will help to ensure optimal performance for your ecommerce fulfillment operations and deliver results beyond measure.
Perry Belcastro is SVP, Fulfillment Services for Saddle Creek Logistics Services