Successfully running an eCommerce company is much more difficult than it seems at first glance — especially when you’re rapidly growing and in need of seamless, accurate eCommerce fulfillment. Whether you’re self-fulfilling or working with a 3PL, it’s important to regularly measure the success of your supply chain partners and processes — after all, these could be the things that make or break your eCommerce business.
Tracking supply chain KPIs, from rapid receiving to inventory accuracy and order accuracy to on-time delivery will help you ensure that your procedures are keeping your customers satisfied, which in turn keeps your online store profitable and growing.
Why measuring supply chain performance is vital
An efficient supply chain drives profitability for eCommerce companies in multiple ways:
- Understanding your inventory’s lead time from manufacturer through fulfillment helps avoid backorders.
- Inventory shrinkage (lost or damaged products) can drain your profits.
- Savvy inventory planning and management can save you money on stock and storage.
- Fast and accurate fulfillment drives customer satisfaction, and delivery times are another critical driver of customer happiness.
You can’t fix what you don’t know. Measuring supply chain key performance indicators gives you the data you need to solve problems and continuously improve your supply chain.
Essential supply chain KPIs
To compile our list of essential supply chain KPIs, we spoke with three people at Red Stag Fulfillment with deep knowledge of order fulfillment and logistics services: COO Dave Carroll, Director of Logistics Lorrie Watts, and VP of Business Development Spencer Moore.
“The reason you have the metrics is so you can tell a story. The before, the now, and what are you projecting in the future.”– Lorrie Watts, RSF Director of Logistics
Here’s what you need to measure to adequately assess your fulfillment processes.
Carrier performance from factory to fulfillment
Watts recommends this KPI, which breaks down product shipments from your manufacturer to your fulfillment warehouses by the transport provider. Inbound transport time is critical in your order fulfillment cycle time because it allows you to plan properly and accurately adjust your inventory supplies or pivot quickly when backlogs occur.
Inventory receiving is also called putaway time or inbound. This KPI measures the time it takes from when your stock arrives at the 3PL to when it’s available to pick. Carroll notes that you should expect this dock-to-stock time to be two business days or less at most major 3PLs. If your inventory sits in the yard, you could be losing out on sales.
Red Stag Fulfillment guarantees that your inventory will be in stock within two business days and we back up that guarantee with a promise to pay you $50 if we don’t. That’s a crucial part of RSF’s business philosophy because our founders were eCommerce entrepreneurs who saw their sales declining because their product sat in the receiving dock instead of being quickly placed on shelves. We know how slow putaway can hurt your business.
Inventory accuracy is how well the SKU counts in the warehouse management system match the products on the shelf.
According to Moore, to keep tabs on this supply chain KPI, your 3PL should do two to four cycle counts and one physical inventory per year. A cycle count tallies the units in each storage location for each SKU and matches that to what should be in inventory based on the inbound and outbound stock since the last count. Unlike a complete physical stock count, cycle counts don’t halt the fulfillment process.
Red Stag Fulfillment had 99.991% inventory accuracy for our clients in 2021.
“The idea is minimizing your risk and finding the problem, so you don’t have a lot of shrink,” Moore says. “The tighter your processes are, the fewer counts you need to stay accurate.”
Inventory shrink is the difference between the stock you order from the factory and what ends up in stock on 3PL shelves. Shrinkage can happen at three spots in your supply chain:
- In the factory: You order 20 electric bikes from the manufacturer, and they bill you for 20, but the container only has 19 bikes.
- In transport: Products may sometimes get damaged during transport, but proper palletizing can prevent this. Also, packaging may get dented en route from the factory to the 3PL, which could mean the product can’t be sold as new even if it’s undamaged.
- In the warehouse: Items lost or damaged after arriving at the fulfillment center will be covered in your 3PL contract. Inventory shrinkage can lead to inaccurate inventory and stockouts and increase the cost of goods sold.
Moore notes that most 3PLs have at least a 0.5% shrinkage allowance, but Red Stag Fulfillment has a zero shrinkage policy. And Carroll says, “If you ship RSF 10 things and we can only find nine, we pay you for the 10th. If Red Stag received it, we should still have it unless we shipped it.”
We consider shrinkage a vital KPI for any eCommerce business looking to grow. In fact, Red Stag Fulfillment’s founders were appalled that the fulfillment industry had a shrinkage allowance at all. They strongly believed that it should never be acceptable for 3PLs to lose or damage products — so here at Red Stag, it’s not acceptable. We have cameras covering every inch of the warehouse so that we can track back and find out exactly what happened to a damaged product or where a lost product ended up.
Inventory turn measures how many times you sell through your inventory in a set period. Turn is a supply chain KPI that will tell you how well you manage your inventory. The goal is to increase your inventory turns, so you’re moving products and not tying up your operating cash, holding unnecessary stock. “It’s good to look at inventory turns year over year,” Watts says.
Of course, the number of inventory turns that you aim for will depend on the products you sell. Items such as clothing that might quickly go out of style might have more turnover than a large product such as a hot tub or a paddleboard. However, even if you sell items designed to move more slowly, inventory turns is a critical supply chain KPI because holding stock for too long can lead to higher storage fees.
If your agreement with your 3PL calls for same-day fulfillment, this supply chain KPI will be expressed as a percentage of your orders that shipped the same day. Moore notes that you should expect 95% of orders placed before your same-day cutoff to go out the same day.
Currently, the fulfillment industry standard is to fulfill 90%-95% orders on the same day based on the warehouse’s cutoff time. In 2021, Red Stag Fulfillment had a 99.965% on-time fulfillment rate. And we take it one step further with our order processing guarantee — if we don’t send your order out based on your chosen service level, we’ll cut you a check for $50.
Order accuracy is a measure of picking accuracy. Did the picker pull the correct items for the order? An accurate order contains the right things, the correct SKUs, and the proper amount of each unit. Moore notes that 98.5% order accuracy is the industry standard, and Red Stag Fulfillment had a 99.976% order accuracy rate in 2021.
Tracking this supply chain KPI will show how well your 3PL is handling your orders. All three of our experts flagged this as a critical KPI for your eCommerce success. And, of course, that makes sense. You worked hard to market your products and make the sale, you don’t want it and future sales lost because the customer receives the wrong SKU. That’s exactly why Red Stag Fulfillment has an order accuracy guarantee in place that says if we send out the wrong order, we will not only make it right, but we’ll also pay you $50.
On-time carrier delivery to customers
On-time delivery means meeting customer expectations and this KPI measures whether the delivery times matched the service levels chosen by the customer at checkout. It’s vital to keep an eye on your carriers’ on-time delivery performance to ensure that packages arrive within the stated delivery window. As you know, late deliveries lead to unhappy customers.
3PL customer support
Team support is an internal supply chain KPI that Red Stag Fulfillment tracks and reports to our clients. It measures the time it takes to respond to a client request or question and how long to resolve the issue. You can use this KPI to determine if your fulfillment company is giving you the level of customer service that you need.
How Red Stag Fulfillment helps clients boost supply chain KPIs
Many crucial supply chain KPIs depend on excellent eCommerce fulfillment capabilities. If you use a third-party logistics company, picking the best 3PL for your business is vital.
Red Stag Fulfillment helps eCommerce companies grow and scale by providing on-time and accurate fulfillment services. Our fulfillment guarantees are in place to hold us to the high standards we aim for, and if we miss one of our guarantees, we will make it right and pay you $50. Plus, our inventory shrinkage allowance is zero — we pay the replacement cost for any items lost or damaged while in our care.
At Red Stag Fulfillment, we strive to provide stress-free order fulfillment so that you can focus on your business. But, if something does go wrong or if you have a question, we work to get you answers fast.
And we believe in transparency. Check out RSF’s performance metrics in our 2021 fulfillment report card. Then give us a call to find out what excellent fulfillment can do to boost your supply chain KPIs.
More about improving supply chain KPIs:
- 3 Lessons Learned from the Supply Chain Backlog
- How Red Stag Offers Rapid Fulfillment While Maintaining Accuracy
- How to Improve Your Order Fulfillment Process by Partnering with a 3PL