Running a successful e-commerce company requires more than having good products and a creative marketing strategy. Since customer satisfaction and retention is determined largely by fulfillment components like order accuracy and delivery, your company’s logistics strategy is fundamental to your success.
To help you understand how to maximize supply chain logistics, this blog will cover the top supply chain KPIs for e-commerce success — from order accuracy to on-time delivery.
What’s a KPI?
A KPI — which stands for a key performance indicator — is a measurable value that demonstrates how effectively a company is achieving key business objectives. KPIs are used to evaluate whether or not a business is hitting its target goals.
A business may focus on high-level KPIs (such as annual growth, annual recurring revenue (ARR), and relative market share), as well as KPIs related to processes across departments — like sales, marketing, and logistics.
Metrics and KPIs — What’s the Difference?
Essentially, metrics are measurements of overall performance. They’re usually not tied to specific targeted objectives, and therefore not a great guide as to whether or not you’re on track to reach your goals.
KPIs, on the other hand, measure progress toward specific goals. For example, if you want to know how effective your current order fulfillment process is, understanding the top KPIs for e-commerce success in logistics — like order accuracy and on-time delivery — is much more pertinent than overall sales.
Why It Matters
KPIs help ensure your team is supported and the overall goals of your organization are kept at the forefront. Some of the biggest reasons to prioritize KPIs include the following:
- They unify your team. KPIs keep your team moving in the right direction and give you a common goal to work towards.
- They provide a check-up. By giving you a realistic look at the overall health of your organization, KPIs give you insight into everything from risk factors to financial indicators.
- They create adjustments. Plain and simple, KPIs help you see your failures. While it can be a frustrating process, they help you know what’s working and what’s not.
- They hold you accountable. KPIs help you and your employees track progress and performance.
Logistics KPIs
In this blog, we’re taking a look at the key supply chain KPIs that fall under the order management umbrella. These typically include the following:
- On-time delivery
- Order accuracy
- Inventory accuracy*
- Perfect order
- Number of shipments
*Inventory accuracy usually falls under the “inventory” stage of fulfillment. However, due to its close ties with order accuracy, this blog will touch on what it is and its importance.
These aren’t the only important KPIs in logistics and supply chain operations, though. The supply, inventory, distribution, and transport management stages of fulfillment all have KPIs unique to each process.
Order Accuracy KPI
Approximately 23% of returns are the result of customers receiving the wrong product. As a result, order picking accuracy is a fundamental order fulfillment metric to ensure customer satisfaction and retention.
The order accuracy KPI measures the proportion of orders shipped without errors over the total shipment volume. Divide the number of order errors by the total number of orders, and multiply the resulting number by 100.
Order Accuracy = (# orders verified correctly) / (# of orders picked) x 100
A low order accuracy percentage implies that you do not deliver the right amount of correct items. This is likely due to a deficiency in your picking and packing strategy. As a result of this deficiency, you’re likely to experience dissatisfied customers and costly returns.
Tip: Organizing your product lines and avoiding confusion in the pick-and-pack process can be improved by rethinking your overall inventory management, automating it, and using SKUs.
Inventory Accuracy KPI
Inventory accuracy concerns the difference between the tracked inventory and the physical inventory in a warehouse.
Warehouse management systems and inventory management systems typically track inventory automatically, however, this number does not always reflect the actual quantity of inventory in the warehouse.
An example of this might be theft, damage, miscalculations, or shortages on the supplier’s part. By dividing the number of tracked stock by the stock physically left in the warehouse, the inventory accuracy KPI will show if there is a difference between these two values. The closer the number is to 1, the more accurate your inventory tracking is.
Inventory accuracy = (# items counted) / (# items system lists as present) × 100
Inventory Shrinkage KPI
A shrinkage in inventory is the difference between what you order from the factory and what ends up on the shelves of a warehouse. Shrinkage can happen at three spots in your supply chain:
#1 In the factory. Say you order 20 medical devices from the manufacturer, and they bill you for 20, but the container only has 19 devices.
#2 In transport. Products may sometimes get damaged during transport, though proper palletizing can help prevent this. Additionally, packaging may get dented en route from the factory to the 3PL, meaning the product cannot be sold as new even if it is intact.
#3 In the warehouse. Items lost or damaged after arriving at the fulfillment center should be covered in your 3PL contract (if you are outsourcing fulfillment). Shrinkage in inventory can lead to inaccurate inventory and stockouts, which raises the cost of goods sold.
On-Time Delivery KPI
Every e-commerce business should be using the on-time delivery KPI to assess its ability to fulfill customer orders on time. If a delivery arrives after the delivery date promised, you divide the number of deliveries by the number of orders delivered.
On-time delivery is typically measured by taking the date range five days from the due date. If a product is due by September 1, and it arrives between September 1 and September 6, it is considered on time. If it arrives after October 6, it’s late.
As consumers continue to value speedy delivery, tracking — and actively improving this KPI if necessary — is a crucial component to success for any business that offers online purchasing.
On-time shipping = (# orders shipped on time) / (Total # orders shipped) × 100
Inventory Turn
In a set period, inventory turn indicates how often you sell through your inventory. You can measure your inventory management effectiveness by looking at inventory turns. Inventory turns should increase so that your products are moving and your operating cash is not tied up in unnecessary stock.
Number of Shipments KPI
This KPI measures how many shipments are processed and shipped each day, week, or month. The number of shipments KPI helps identify shipping trends based on holiday or season, allowing your company to plan labor and transportation needs more accurately.
Perfect Order KPI
The perfect order rate KPI measures how many orders you ship without incident. Incidents typically refer to damaged goods, inaccurate orders, or late shipments. Every supply chain organization should aim for a high perfect order rate, as it indicates organizational efficiency and high customer satisfaction. This metric is another top KPI for e-commerce that measures customer satisfaction.
In reality, fulfilling orders is never an easy task. Without an organized system, your business might be on the brink of failure. Having an excellent order fulfillment process can help you deliver orders on time and with accuracy, which in turn will help you avoid the headache of a struggling supply chain strategy.
Managing the ins and outs of supply chain management can be too much to handle for a business — that’s why we’re experts at it. Contact us today to see if we can help you.
