Running a successful business requires creating positive customer experiences and capitalizing on customer satisfaction. While this starts with your product and funneling customers through product listings and to checkout, it doesn’t stop there.
What happens after your customers click “buy” is just as important, and one of the most crucial aspects of this after-checkout process is how quickly you can ship their orders. Thankfully, there’s a metric to help you know just where you stand — known as order cycle time.
We’ll explore the important KPI known as order cycle time, how to increase it, and how partnering with a 3PL can help you do so.
First Things First: What Is Customer Order Cycle Time?
The definition of order cycle time is relatively simple: it spans the time it takes to ship an order after the request for the order was placed. This metric is calculated based on an average, and it excludes the actual shipping time. Order cycle time is one of the most important KPIs to track in the order fulfillment cycle, as it helps you get a much more accurate picture of the efficiency of your operations.
How to Calculate Order Cycle Time
Calculating order cycle time — which is done by tracking order date to ship date — can be done by following the formula below:
Order Cycle Time = (Delivery Date – Order Date) / Total Orders Shipped
The delivery date refers to the day your customer received their order, and the order date refers to the day the order was placed by that same customer. The total number of orders shipped refers — not surprisingly — to the total number of orders you shipped within a particular time period. Self-explanatory, sure, but too many businesses fail to accurately track order cycle time.
While tracking order cycle time, you may choose to make the calculation for a specific time period such as a month or a quarter — just be sure you’re choosing a set of time that’s long enough to give you an accurate picture of your efficiency.
Takt Time: A Helpful KPI for Increasing Order Cycle Time
Takt time, which measures the frequency of receiving customer orders, is a helpful metric for calibrating the speed needed for cycle time. A simple analogy for understanding takt time is the following:
If a restaurant received a drink order every five minutes, that would mean they would need to fill one drink order every five minutes to keep up with the demand — that is known as takt time. Now, if it takes five minutes to prepare a drink order, that is known as cycle time. In this case, that would mean the restaurant would need to have an order cycle time of five minutes to keep up with order demand and not fall behind.
Now, if it takes a total of seven minutes to serve the coffee from the time the order was placed to the time the customer receives it, this is known as lead time.
In reality, order cycle time is a component of lead time, and takt time is useful for helping you understand what your order cycle time should be. Obviously, on a larger scale, the sheer volume of orders and the cycle time will increase, but it’s helpful to understand these KPIs so you can avoid having to be reactionary more often than not.
Why Order Cycle Time Matters
Like every aspect of the supply chain, each step is one link in the systematic chain of the order fulfillment process. Order cycle time is important because it helps you measure the efficiency of your fulfillment process, and it’s directly related to other KPIs, like your on-time shipping rate and order lead time.
You want to aim for as short an order cycle time as possible, as the more responsive your company is towards your customers, the quicker your delivery time can be — something that’s a growing demand of customers across the country.
Gauging Customer Satisfaction
As we just mentioned, your order cycle time has a direct impact on customer satisfaction. Long order times often result in fulfillment delays and long delivery times, and delayed delivery times — even promised delivery times of over two days — are universal negatives across industries (even though Amazon may be falling behind on the culture they’ve created).
Spotting Issues In the Supply Chain
Spotting issues in your supply chain can feel daunting — that’s why tracking your KPIs is so important. If you’re noticing a longer order cycle time, then it’s probably an indicator that you need to reassess your supply chain process to identify where the inefficiencies lie.
For instance, you may be able to trace long order cycle times back to your process of manual order receiving, a practice that is both time-consuming and prone to errors.
Understanding Readiness to Scale
Scaling your business is the goal, and understanding your order cycle time can help determine whether you’re ready to take the next step with your company. However, properly scaling your business requires an efficient supply chain that’s capable of handling more orders accurately and efficiently.
If you find yourself in a position where you can’t keep up with the number of orders you’re receiving, or you’re failing to increase your order fulfillment cycle time, then it may be time to consider partnering with a third-party logistics provider who can help you with your order fulfillment process.
An experienced 3PL will have the space, processes, and software necessary to handle significant order volume, coupled with a trained team who can ensure orders are received, tracked, shipped, and delivered with utmost accuracy.
How to Improve Order Cycle Time
Once you understand what your order cycle time is and why it’s important, the next logical step is to find ways to improve it. We’ll explore four of the most important places to start below.
Warehouse Optimization
A poorly designed warehouse is a recipe for slow orders and disastrous mistakes. Can your pickers find items easily? Is the warehouse floor optimized so as to diminish the amount of back and forth or bottleneck pickers experience? Are shelving racks positioned appropriately so as to allow space for pickers to move around quickly?
These inefficiencies can often go overlooked when you don’t know what to look for (or how to design) a properly optimized warehouse space. Along with measuring order cycle time, keeping an eye on your warehouse setup — and even KPIs like order picking accuracy — can help you understand if your warehouse is optimized for success or set up to fail.
Protocols and Limits
It’s not only about how your space is designed, it’s also about the culture you create and the protocols you have in place. For instance, perhaps you need to limit picking batch size to speed up the process and get orders from the shelves to the packing bay in a more efficient manner.
Also, maybe you need to set up guidelines on how and where to leave returned items, and maybe you need to set a limit on when to place inventory reorders to avoid stockouts and back orders — both are elements that can slow down your order cycle time.
Continue Measuring Cycle Time
You can’t just measure order cycle time for a month — it needs to be an ongoing process to ensure you’re not missing areas of inefficiency. Since order cycle times can fluctuate with changes and disruptions to the supply chain (or based on order volume if you’re a seasonal company), it’s important to look at quarterly or annual data to get an average, and then continue tracking cycle time from there.
You may also realize — after tracking order cycle time — that your slow order cycle time doesn’t stem from an inability to ship orders on time, but instead from a failure to efficiently manage returns. If your company is struggling with returns, you’ll want to assess whether the problem stems from mispicked orders or a lack of an efficient returns process.
Outsource Fulfillment
At a certain point, it’s out of the realm of possibility to increase order cycle time on your own. Having to focus on growing your company and foreseeing and managing changes to the supply chain, tracking KPIs, and ensuring orders are met accurately and on time can simply become too much.
Outsourcing fulfillment to a 3PL is an effective way to ensure orders are quickly received, recorded, picked, packed, and shipped. Be sure the 3PL you partner with has up-to-date technology that can seamlessly integrate with your online store, and has the warehouse space and reach to store your inventory and deliver orders across the county quickly and efficiently.
At Jay Group, we understand what it takes to increase customer satisfaction and help our partners scale their businesses. Contact us today to see if we can help you do the same.
