In an age of growing customer expectations, tracking your order fill rate is vital for business success and growth. The order fill rate is a percentage of the orders you fill without backorders or stock-outs compared to the orders placed in a given time.
Happy customers depend on a high order fill rate. If you can’t meet your orders, you’ll lose sales, customer trust, and loyalty. In addition, backorders have a detrimental effect on operational efficiency. They increase transport costs and are labor-inefficient.
Analyzing and responding to fill rate problems helps businesses optimize inventory and reduce the risks of stock-outs and backorders. Efficient order management keeps customers happy, costs down, and grows sales and revenue.
Why is fill rate important?
Fill rate is an essential metric for any business. It impacts customer satisfaction, operational efficiency, and profitability.
- Customer satisfaction: Fill rates affect customer trust and loyalty. Customers will seek supply alternatives unless your business provides them with the products they want when they want them. Frequent stock-outs will lead to lost sales, and customers may also migrate to your competitors.
- Efficient inventory management: Fill rate metrics can help you to balance your inventory. You reduce your risk of stock-outs without carrying excess stocks by understanding what causes order fulfillment failure.
- Revenue and business growth: Your business growth and revenue depend on meeting your sales targets. Satisfied customers will return and may recommend your business to family and friends. Excellent order fulfillment can build customer trust and loyalty.
- Contribution to supply chain optimization: Expedited shipping is expensive. Lower transport costs and improve order processing time through higher order fill rates.
Businesses have built success on meeting order promises
Retailers like Walmart and Amazon invest heavily in optimized supply chains for enhanced fill rates. These retailers ensure that customers almost always get what they want. They have grown into retail giants with millions of customers across the globe built on customer service excellence.
Likewise, consumer electronics manufacturers, Samsung and Apple, structured their manufacturing and supply chains for enhanced fill rates. These companies have loyal customers who trust their ability to supply. Loyal customers wait eagerly for new products to launch and are prepared to pay high prices for new products.
How to calculate fill rate
The order fill rate expresses, as a percentage, the number of orders fulfilled completely on the first try. The formula follows below:
Order Fill Rate = (Orders Shipped Completely / Total Orders Placed) x 100%
Where: Orders shipped completely: The number of orders with all items requested shipped without any backorders or stock-outs.
Total orders placed: Total number of orders placed with the business over a period.
If you assume that over the last 30 days, you received a total of 100 orders. Of those, you could ship 70 orders completely with no backorders.
Order fill rate = (70/100) x100%
Your fill rate = 70%
You could simplify the process by creating a spreadsheet to track your order fill rates.
Considerations for Accurate Measurement
The order fill rate provides a foundation for measuring your order performance. Still, other factors bear consideration, including:
- Timing: The measurement timeframe and fulfillment window can significantly affect the result. Define clear timeframes for consistency.
- Backorders: The basic fill rate formula does not account for backorders. A backorder is counted as a filled order even though it was delayed.
- Partial fulfillment: The basic formula counts orders as fulfilled or not even if some orders are partially fulfilled. To account for this, use the line fill rate.
What are the different types of fill rates?
Depending on what you want to measure, there are several fill rate calculations.
Order fill rate
Order fill rate measures the company’s ability to fulfill an order completely with the first on-time shipment. It is the percentage of orders fulfilled with no delays or backorders. A high order fill rate reflects an effective inventory management system. It enables efficient picking and packing, reducing backorder costs and improving operational efficiency. High fill rates build customer trust.
Line-Item fill rate
This is the percentage of individual items filled from the total number of order lines. Line-item fill rates give you insights into problems at a product level that might be missed with an acceptable order fill rate.
If an item regularly presents problems, there may be a stock problem. Issues may relate to higher demand than forecast or problems with supply. Line-item fill rate can also help to refine product forecasts.
SKU fill rate
The SKU fill rate takes the fill rate measurement down to an even higher level of detail, all the way to stock keeping unit (SKU). If you’ve ever looked for a clothes size where the racks have every size except yours, you’ll understand the frustration of customers who can’t find what they are looking for. Perhaps you settled for a similar product in another color or left the store to find something more suitable elsewhere. This demonstrates the importance of managing SKU fill rates.
Businesses use SKU fill rates to refine product forecasting, reduce the stock-outs risk, and increase sales.
Unit fill rate
The unit fill rate is the percentage of total units shipped without backorders. If an order has ten units over three products you can only ship eight units. The unit fill rate is 80%. The unit fill rate shows the company’s ability to ship orders completely on the first attempt. Use it to measure service levels and identify bottlenecks in your order fulfillment process.
5 Strategies to improve fill rate
Here are five strategies that could help you to improve your fill rate.
1. Enhancing Forecasting and Demand Planning Explore advanced forecasting
With modern technologies such as Netstock, you can take forecasts beyond the numbers. Add quantitative statistics to the mix to consider factors like market trends and supply chain disruptions. This broader view of the market leads to more accurate forecasts.
Modern businesses harness the power of AI and machine learning to create accurate forecasts. Accurate demand forecasts mean lower risk and fewer inventories.
2. Inventory Management Optimization
An optimized inventory management strategy strikes a balance between three key objectives.
- Order fulfillment without stock-outs
- Reduce inventory holding costs
- Optimize operational efficiency
There are several systems geared towards these objectives, including:
- Dynamic reorder points: Seeks the ideal Inventory levels for a given demand over time. Reorder points are often combined with Economic Order Quantities. The objective is to optimize operational and inventory holding costs.
- Just-in-Time Delivery (JIT): JIT works particularly well in manufacturing environments. In these environments, demand is often consistent and known. Suppliers deliver stocks on time. Customers hold very little or no safety stock.
- Vendor-Managed Inventories: Supplies manage inventory levels, replenishing the stock themselves.
As an inventory manager, you must choose the system best suited to your product and circumstances.
3. Supplier Relationship Management
Modern technologies have improved communication and collaboration along the supply chain. Transparency enables agile supply chains, and a common database supports alternative plans in response to supply chain disruptions.
Collaborative forecasting allows businesses along the supply chain to align capacity with demand. This lowers the risk of stock-outs and streamlines material flows to meet customer demand.
Better communication reduces lead times and impacts positively on order fill rates.
4. Logistics and Distribution Adjustments
Businesses can automate almost every link in the supply chain using Warehouse Management Systems and transport optimization. Optimized warehouses improve picking and packing. Automated systems enable real-time inventory tracking and optimized picking routes. The result is accurate inventory records and enhanced operational efficiency.
Route optimization software minimizes delivery routes for better fuel efficiency and quicker delivery.
5. Regular Review and Adjustments
Your inventory efficiency will improve with a regular review of Key Performance Indicators (KPIs). You need to monitor performance to understand where you are and where you need to change.
Order fill rate is only one of the KPIs you must track to identify trends and adjust as needed. Market trends and supply chain conditions constantly change, and businesses must adapt or face the consequences.
By choosing the right metrics and tracking them you’ll understand your strengths and weaknesses. You can use this understanding to identify priorities and develop targeted improvement strategies.
Reduce fill rate issues with Netstock
Fill rate analysis provides valuable insights to identify bottlenecks and inefficiencies. The percentage of orders fulfilled completely on the first shipment is a crucial KPI. It reflects a company’s ability to meet customer demand efficiently. A high fill rate translates to happier customers, increased sales, and a competitive advantage.
Fill rates will remain critical to business growth and expansion as customer expectations rise. New technologies like automation, real-time inventory tracking, and data analytics offer businesses the tools to optimize inventory management.
