Outsourcing inventory and operational responsibilities to a fulfillment partner can be a very scary business decision for retailers. Customer satisfaction must not be put at risk since it is a fundamental driver of retail growth. To keep customers coming back, retailers need to know that their orders will be shipped on time, undamaged, accurately, and at a fair price.
KPIs, which stand for key performance indicators, are the best measures to hold your fulfillment partner accountable. There are many different KPIs businesses use to measure operational success, but some are more important than others. Here are five of the most popular KPIs to consider in the fulfillment world:
- Cost per Order: This measures the efficiency of a fulfillment operation. This tells you how much it costs you to fulfill, pick, pack, and ship a single customer order on average. This metric is heavily influenced by the productivity of the labor force.
- Fulfillment Accuracy Rate: This measures the effectiveness of a fulfillment operation. This is found by simply dividing the number of accurately filled orders by the total number of orders shipped.
- Inventory Turnover: This measures how many times a year your organization is able to sell its entire inventory. To calculate inventory turnover, use the following formula: cost of goods sold ÷ average inventory. Inventory turnover is an important indicator of the quality and demand of the inventory you carry, and if you have good buying practices. Generally speaking, a higher turnover rate is better, while a lower turnover rate suggests inefficiency and difficulty turning stock into revenue.
- Inventory Accuracy: This compares the accuracy of your inventory by taking a count of items in stock and comparing them to what’s recorded in your order management system. This KPI requires you to perform cycle counts of inventory.
- Rate of Return: The Rate of Return KPI measures the rate at which shipped items are returned to you. The key to this metric is providing a breakdown for the reasons why items are returned so you can identify trends and reduce your rate of return ratio by addressing issues at their source.