On-Time Order Fulfillment: Your one metric for e-commerce success

People have a way of manipulating metrics to drive their narrative. It’s really hard. I’ve done it a few times. Not easy especially in startups when you’re struggling to hit your target month on month. I like to keep them simple and measure them at their first order effect.

When you run an ecommerce company, you should monitor your profits month on month. Without measuring profits, you soon die. Ecommerce a tricky but beautiful business. But Profits mean nothing for your long term success without a key constraint metric. On Time Order Fulfillment.

What is On Time Order Fulfillment?

It’s simple, of the 100 orders I’m fulfilling in my business, how many get done on time. The typical number of a mature business is 84%. Pretty abyssmal if you ask me.

Why is it important?

Businesses that consistently deliver the fastest don’t win. Businesses that consistently deliver on their expected time, do.

Assuming you’re selling something customer wants, the biggest factor in your all around customer experience is if the product arrives at the expected time. Around 40% of the customer’s NPS is for Ecommerce companies is driven by on time fulfillment.

But that’s not just the reason why it’s important.

On Time Fulfillment is only possible if you do everything right.

I mean everything.

• You need to have enough inventory to fulfill. Means your procurement and manufacturing need to work
• You need to have the orders to be packed and dispatched on time. Meaning your stock and warehouse management needs to be on point
• You need the right dispatch providers to deliver to the customer on time.

This covers your entire supply chain! Do one of these things wrong, you don’t deliver on time.

So, if I want to generally know if your business is going well, all I have to look at is on time fulfillment.

The common sense metric setting principle

An overview into my framework in setting metrics. You need to be able to distill your business metrics at any level into just 2 metrics.

1. A directional metric that shows progress and growth. Eg., Revenue, Profit, No of orders, customers etc.
2. A quality metric that acts as a constraint. Eg., On time fulfillment %, NPS etc.

That’s it. In the case of ecommerce it is Absolute profit and on time fulfillment.

On Time Fulfillment Calculator

Here's a simple calculator to see how you're doing w.r.t your on time fulfillment.

How to improve on-time fulfillment?

Improving on time fulfillment will get your business on track. Let’s see what we can do. There are no shortcuts here. You need to be diligent and meticulous in every part of your business to achieve this. The first step is to set the operations culture to focus on this.

Step 1: Goal setting

Set On time fulfillment % as your primary goal for your operations. Your secondary goal for each function should be derived from this org level goal. Few examples below.

Procurement:

Primary Metric:

% stock outs - % of orders which cannot be fulfilled due to stockouts. If you have manufacturing, this is production outage due to stockouts.

Control Metric:

Also known as Days Inventory Outstanding (DIO), this metric indicates the average number of days inventory remains unsold. A higher DOH value might suggest excess inventory. The formula is:

Days on Hand(DOH) = (Inventory/Cost of Sales​)×365

Manufacturing:

If you have manufacturing, the same stock outs will apply but at the Finished goods level.

% stock outs - % of orders which cannot be fulfilled due to stockouts.

Dispatch:

Primary Metric:

Dispatch has the following primary metric.

% On time dispatch: No of orders that are dispatched on time/Total no of orders

Control Metric:

% Logistics Delay: This the % of orders that are not fulfilled on time by the logistics provider. This can be either in house or 3PL.

The same goes for labour, audit and other departments.

Step 2: Periodic Review

Review these metrics on a weekly basis so each team is aligned. Bake their performance into this. What gets measured gets delivered. That means as an org when you start measuring these metrics, the whole org will align to deliver these metrics.

Step 3: Set Expectations to Customers

An often missed part is setting expectations to customers. It’s not about how fast you can deliver but it is about setting the right expectations and beating them. Understand your typical process, set the right expectations so customers do not get disappointed. Amazon does it really well.

That’s it. That’s all you need. Do this diligently, you’ll automatically get into the right track.

As a closing thought, I would like to emphasize why happy customers is the key to the success of a business. We work really hard to deliver the best product but it's equally or probably more important to deliver the best service. For an ecommerce business, that is by setting the right expectations and fulfilling those expectations every time. Hopefully, this approach has been helpful to you. If you'd like to know anything else related to this topic, let us know by writing to bala@zorp.one.