Most companies have some kind of anecdotal information about their fill rate.
They will say something like “at least 80% of the time my customers come to buy, we can fulfill their order.”
They often base that assumption on things like:
- Feedback from the sales team
- Back orders placed by customers
- A drop in sales
But there are a few problems with this kind of approach:
- Sales people are often very busy and are notoriously bad at reporting
- Often a customer won’t place a back order, but instead, go and purchase from your competitor
- Measuring sales volume is inaccurate, because many factors can influence sales
- You may be focusing on the small group of very vocal customers, although that may not be the most profitable for your business
So there must be a more scientific approach to measuring fill rate.
Here’s a good way to measure the fill rate for a specific item:
- Take a reasonable time frame (like the last 30 days)
- For every day, count how many times the item was in stock and how many times the item was out of stock
- Work out the percentage in stock. For example, if the item was in stock for 20 out of the last 30 days, the fill rate for this item is 66.7%
- Repeat this for every item, or at least your best sellers. Pro-tip: Use an Excel spreadsheet for keeping track of this
This will give you an accurate picture of the Fill Rate you’re achieving for every item, and you may want to rank the items from worst to best fill rate. This will allow you to focus on the problem areas first, by replenishing those items.
You want to replenish those items, because you are losing sales on those right now. However, you may be wasting your time trying to replenish items with a very low margin.
What you really want to do is to rank the items with the worst fill rate, but that are also the most valuable. One option is to work out the non-fill rate for every item, which is really just the percentage of the time the item was out of stock and multiply that number by something like the cost price, or the gross margin of the item.
If you now rank from the highest to lowest, you will actually target the most problematic items first, giving you a much higher chance of making more sales and a higher margin.
Measuring and monitoring your fill rate is an important component of a sound inventory ordering strategy. For a more in-depth discussion of how to optimize ordering, check out our definitive guide to inventory ordering.