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Inventory visibility and a real-time overview of warehouse processes have never been more important than they are today. Not least due to ongoing supply chain disruptions, e-commerce companies need to keep extra close track of their stock levels and logistical procedures. Additionally, affordable and fast fulfillment has turned into a crucial purchase factor for customers.
This article will inform you about the most important metrics and strategies for ensuring smooth, transparent, and efficient processes. You’ll read about two main areas:
- Key data points for warehouse quality transparency
- Crucial metrics to keep an overview of as a merchant
The Most Important Warehousing Metrics to Ensure High Logistics Quality
The following aspects are crucial to run a warehouse efficiently. So, if you handle your e-commerce logistics in-house, you should definitely track this data. If you have outsourced fulfillment or plan to do so, agree on minimum thresholds or SLAs (Service Level Agreements) with your logistics partner for those metrics. It will allow you to track and measure the quality of the services you are paying for.
- Inventory accuracy (physical vs reserved stock level)
- Order picking accuracy
- Inventory Turnover
- Warehouse cycle time
- Defects per 1000 orders
Inventory Accuracy
As an e-commerce company, there is barely anything more frustrating than being able to make a sale but not being able to ship the products due to stockouts. Lost revenue, dissatisfied customers, penalties from marketplaces, and negative word-of-mouth are some of the consequences.
To avoid that from happening, you always have to keep an overview of your inventory and stock levels. Whether you operate your own warehouse or work with a partner, inventory management is key. Inventory accuracy is defined as consistency between the actual stock level and what is shown in your systems.
In that regard, make sure to not only keep an overview of your physical inventory but also take reserved stock levels into consideration.
Order Picking Accuracy
Once you can trust your data on inventory levels, another crucial metric comes into play - order picking accuracy. If your fulfillment setup can’t guarantee the accuracy of 100% or close to this metric, you’re facing great troubles.
The order picking accuracy defines how many of your orders were correctly picked compared to the total number of orders. Potential sources of error are human mistakes when picking, human errors when inbounding the products, or technical issues.
Make sure to check processes and update your technical setup to avoid mistakes in that regard at all costs.
Inventory Turnover
The inventory turnover is the average number of times you sell and restock your inventory per period. This metric allows you to understand how efficient your stock levels are. Low turnover rates equate to a large investment in inventory while high turnover rates equate to low investments in your stock.
To calculate it, you divide the costs of products sold (not the revenue) by the average cost of inventory.
Warehouse Cycle Time
This metric is one that allows you to see how fast your warehouse partner works. Hence, it’s one that SLAs should be agreed upon. The warehouse cycle time shows how much time passes between an order submitted and the parcel being handed over to a parcel shipping company.
Defects per 1000 Orders
My grandma used to say, you can’t make an omelet without breaking eggs and wherever people work, mistakes can’t be excluded. As you still want to make sure to keep that to a minimum, keeping track of defects is important. In most warehouses, this metric is measured by defects per 1000 orders. Obviously, high-quality logistics will result in a number close to zero.
Make sure to stay on top of things and hold your partner accountable for diverging numbers.
5 Key Metrics to Keep an Eye on as an E-Commerce Merchant
No matter if you’re running your own warehouses or if you’ve outsourced your fulfillment, the following metrics are key to keeping your business operational and healthy.
- Carrying cost of inventory
- Supply chain cycle time
- Inventory to sales ration
- Customer order cycle time
- Costs per order
Carrying Cost of Inventory
While many e-commerce companies try to increase profits mainly by increasing revenues, tapping into the potential of cutting costs is often overlooked. One big part of the costs, in many cases, revolves around storing your products. The carrying cost of inventory factors in workforce, downtime, energy costs, inbound shipping, freight, insurance, and similar.
Tracking this metric gives you a clear idea of how high operational costs are and where to save money. Obviously, higher stock levels naturally lead to higher costs. As is often the case in regard to inventory, it’s a balancing act to find the perfect middle way of not storing too much or too little.
Supply Chain Cycle Time
In order to assess the risk of too little stock, the supply chain cycle time will help. It determines how long it takes you to fill up your stock. The shorter the time for this KPI, the better your internal supply chain management and the more risk you can take with lower inventory levels. If your supply chain cycle time is long, it might be better to factor in higher costs for stocking up your inventory.
Inventory to Sales Ratio
Similar to inventory turnover, it’s a means of keeping an overview of your stock levels. In this case, however, revenue is a decisive factor. To calculate this, divide your average inventory level by your net sales.
If, for example, you track that metric on a monthly basis, an amount of 3.5 means that you have (theoretically) enough inventory for the next 3.5 months. Obviously, this can change substantially when there are seasonal differences or similar.
Cost per order
The costs per order is a simple, yet crucial metric. It has a direct effect on your margin and should be monitored closely. If your costs per order increase, you have a hard decision to make. Are your margin is high enough, then you can decide to eat up the higher costs and get less profitable per order. Alternatively, you can increase the price of the product, increase shipping costs for your customers, or try to decrease the cost of orders. Besides changes in your operational setup, you can try to cross-sell products. Usually, when shipping multiple products per order, the cost per fulfilled product decrease.
Customer Order Cycle Time
While most of the mentioned metrics are tracked internally, the customer order cycle time is what is one of the most important and visible factors for your customers. It examines how quickly their orders will be delivered to their doors. Obviously, the faster, the better. If you see this KPI change for the worse, act accordingly and figure out how to get back on track quickly.
Smart Tracking and Transparent Communication - The Key to Post-Purchase Satisfaction
Closely tracking crucial warehouse data will allow you to stay on top of things and operate with a more efficient logistics setup. Additionally, tracking relevant metrics will allow you to forward relevant information to your customers which is one of the most overlooked areas to set yourself apart from the competition.
While the vast majority of brands in e-commerce will agree that the post-purchase experience is one of the key factors for customer satisfaction and subsequently returning customers, according to Parcel Perform, more than 4 out of 5 customers claim to be disappointed with the delivery experience they received. Smart companies see that there’s huge potential to outperform their competitors.
Transparency is key to post-purchase satisfaction. So is clear communication after the sale. Your customers want to get a clear picture of what is going on in the warehouse and beyond. For the first part, working with byrd enables you to automate these tasks.
Want to provide info about the order in regards to picking & packing status? No problem! Want to know when the parcel was handed over to a delivery provider? Piece of cake!
In case you want to avoid trouble with wrong addresses, you’ll love the address validation feature. Additionally, you can even change the address of the order as long as it is pending.
Once the parcel is handed over to a carrier the joy of anticipation increases - so does the hunger for updates. In this situation, you’ll want to keep the buyers close to you and offer a customized tracking solution instead of just sending them the tracking link of DHL, UPS, and Co. One of those providers you’ll want to talk to when it comes to optimizing this part of the post-purchase communication is Parcel Perform.
Engaging in transparent communication from the moment when the order is placed across processes in the warehouse and finally during the journey of the parcel will substantially increase the chance of winning a loyal customer.