Peter Drucker famously said,” You can’t manage what you don’t measure”.
This rings true for omnichannel eCommerce sellers whose relationships with customers get impacted in the absence of order management KPIs. Managing orders efficiently reduces the risk of miscalculations and errors propagating forward- contributing to operational excellence, financial performance and ultimately-customer retention.
34% of retailers have admitted to selling products that were unavailable in their inventory, which would have definitely impeded shipping by introducing delays to the process. Multiply this by a factor of 100 or 1000, and you end up seeing trust erode with customers walking out the door for good. Understanding and setting performance indicators can prevent this turning into recurrences and enable merchants to gauge the 3Ps - Profits, Productivity and Performance.
Let’s take a closer look at what order management is, and set out the KPIs that streamlines the core of your supply chain operations.
What are Order Management KPIs?
While order management entails all steps to ensure a customer’s order reaches them on time, order management KPIs are parameters that allow businesses to see if performance is satisfactory and optimal. An order management system helps eCommerce businesses keep track of critical metrics which overlap with inventory kpi and warehouse kpi.
Why is it important to have Order Management KPIs?
No eCommerce enterprise runs without risks, but disregarding its magnitude and choosing to resolve it at the nth hour compromises integrity and tacks on more costs, which is undesirable.
The purpose of order management KPIs is to stay on track for operational and financial success. Metrics inform you of what you’re up against, enabling you to mitigate or prevent risks and errors entirely before they snowball. Suboptimal and mismanaged inventory can spill over to order picking, packing and shipping, indirectly creating a headache. The right inventory, order and warehouse kpis provide visibility into all aspects of operations. Consequently, eCommerce merchants can assign accountability across inventory, order, sales, payments and returns and ensure that ground-level coordination and marketing efforts do not go to waste.
That being said, it can be challenging to establish KPIs in a space that evolves as rapidly as omnichannel eCommerce. As additional offline and/or online touchpoints are added and buyers flock to those channels and stay invested and engaged, it gets harder to keep track of orders flowing in and sticking to delivery commitments. The eCommerce opportunity paradoxically becomes a Gordian knot.
A scrutiny into inventory and warehouse KPIs give insight into what aspects eat up a large share of your budget and what efforts aren’t making you money. For example, if you’re selling small volumes of a low-margin product, you might consider setting a size threshold to sell more and avoid imposing shipping fees that could potentially deter a customer. By making such judgment calls, you can ensure the customer commits to the buyer journey and reward them for their loyalty with payment flexibility and/or discounts that do not harm your bottom-line.
11 High-Impact Order Management KPIs
1. Cost per Order
The Cost per Order refers to all costs excluding the product price and includes labor, warehousing, storage and shipping. It is calculated as
This order management kpi determines whether profits are lower than fulfillment costs, and can be improved with labor automation and Minimum Order Quantities (MOQs).
2. Internal Order Cycle Time
The internal order cycle time is total order shipping time and is calculated from the minute the order is received. It is expressed as a difference, as
Using an automated order management solution can cut down manual intervention and ensure on-time shipping, improving the internal order cycle time.
3. Purchasing Frequency
As the name suggests, Purchasing Frequency refers to the regularity of orders being placed, and is expressed as
If purchase frequency trails off and dips, it could be due to seasonality or a difference in brand reputation as more competitors emerge offering advantages. Historic sales and SKU performance reports available on order management systems can reveal the exact cause and allow you to make corrections, which include
- Identifying and reordering more of best selling products to keep them in stock for future order fulfillment.
- Inviting customers to join a sign-up program that entitles them to early-bird offers, lightning deals and discounts.
- Offering zero-cost replacements as a gesture of goodwill that increases the customer lifetime value.
4. Order Placement Percentage
The order placement percentage is a useful order management KPI for omnichannel sellers because it indicates and ranks channels from the least to the most lucrative, ensuring the right products show up to the right customers. It measures the percentage of orders from each channel, computed as
It is a subjective rather than absolute metric and helps the seller determine relative performance. This way, the seller can study high-performing channels and determine what’s working there that is repeatable to the point of improving an underperforming channel. Or, use the examination to take down low performing channels altogether to cut out unnecessary platform fees. For example, if a brand’s website order volume beats a particular marketplace’s on account of customers landing better deals, why continue to pay a seller fee to maintain an account with that marketplace?
5. Average Order Value (AOV)
The average order value looks at the amount of revenue generated from an order and is a useful order management kpi in adjusting pricing points.
Increasing Average Order Value is the fastest way to increase turnover without new launches. When combined with the cost per order, you get a more comprehensive picture of the fulfillment cost and margins per order.
The Average Order Value helps sellers understand buyer behavior and can be computed at either a channel or product category-level. A few ways to improve the AOV include
- Offering express delivery over a certain amount or taking off shipping fees.
- Running deals such as BOGO (Buy one, get one) and encouraging bulk purchases.
- Personalizing the shopping experience with recommendations to complement cart items.
- Offering to split orders that qualify for offline payment with BOPIS or Buy-Online and In-store Pick-up which drives footfall while supplementing the online order’s value. With an order management solution, merchants can route orders to fulfillment centers closest to their customer, ensuring no delivery disruption.
6. Order Fill Rate
The Order fill rate indicates the extent to which on-hand inventory fulfills orders.
Considering that a dependency on supplier timeliness is created when you reorder goods, your existing inventory should suffice to confirm orders until you’re restocked. The only cautionary note here is to avoid holding onto too much inventory because working capital can get tied up in it and mobilizing it can take more time than expected. The answer is to practice demand forecasting so that you have a window of visibility into demand over a longer time period and can stock up accordingly.
7. Order Picking Accuracy
Order picking accuracy is a gauge of picking efficiency and is measured by
Optimizing picking accuracy cuts down the picking time, making it a crucial order management KPI. Some ways of improving order picking accuracy are
- Using barcode scanners on a mobile warehouse management system to scan SKUs and confirm if it matches against orders for correct selections.
- Segregating inventory with picking methods to club similar products in pallets or bins so that the picker knows where to go and what they’ll find.
Post- Ship Metrics
8. Order Fulfillment Cycle Time
The distinction between internal order cycle time and this order management metric is it factors in delivery date from the time the customer’s order is placed. The mode of transportation and region impact this metric. If a customer is willing to pay more for express or Same-Day-Delivery (SDD) then the order fulfillment cycle time will be a small value. An automated omnichannel order management solution that accommodates carrier integrations can filter courier partners by their reliability and rates, ensuring your eCommerce business does not incur exorbitant charges.
9. On-time Delivery
On time delivery (OTD) is a performance metric that looks at delivery efficiency in terms of fleet performance and timely order fulfillment. It is expressed a percentage and is computed as
For example, if there are 500 total deliveries and 10 late deliveries, the OTD will be 98%.
A high on-time delivery indicates effective processes and streamlined workflows. The precursor to OTD would be the on-time shipping rate which is calculated as
The two together indicate fulfillment efficiency and extent of streamlining applied to workflows. Ship velocity is a differentiator, with customers preferring a quicker option over slower shipping. The easiest indication that the delay is from a shipper’s end is If the order fulfillment cycle time is high but the lead time is low.
10. Rate of Returns
Clothing and footwear typically see a higher rate of return versus other goods on account of the likelihood of wrong fit, size, color etc. Understanding the cause behind return rates can help you catch the misstep at the fulfillment stage itself.
In rare cases, returns are initiated when the product reaches a customer beyond the promised date. They might have ordered a product for a specific occasion and if the delivery occurs after the date has passed, a disgruntled customer can choose to return it back as it’s no longer needed or relevant. While this is a shipping delay, it’s the brand that is taken to task, which is why it’s imperative to employ strategies to minimize high return rates. These include;
- Being descriptive and representing the product as accurately as possible to set the expectation in terms of how it works, what it does, who it’s meant for and how long shipping will take from the start.
- Using automated returns reconciliation to update inventory. Items making their way back to the seller can be passed subject to quality-compliance to ensure it can be restored and reshuffled to fulfill another order.
- Examine returns reports to understand the reason behind return and remedy it with recycling or replacements.
11. Perfect Order Rate
As the name implies, The perfect order rate refers to the number of error-free orders delivered to customers over a certain time period, say a month . It is expressed as
In order to ensure a high Perfect Order rate you can use reports to reduce the number of orders idling in your warehouse and perform quality compliance practices at every step of the order management process
Tracking order management KPIs offer numerous benefits to eCommerce sellers including the
- Ability to make and drive informed decisions : It prevents you from having to guesstimate your spend and redistribute the budget across the supply chain, ensuring your budgeting decisions produce favorable outcomes.
- Release inventory: With forecasting analytics, you can see which warehouses are starved of inventory and optimize levels to ensure adequacy, reducing the working capital tied to it.
- Grow sales: An AI-powered order management software gives visibility into channel and product performance, allowing you to make strategic improvements where required. The power of insights from reporting analytics is that it brings up discrepancies and helps you arrest bottlenecks to ensure undisrupted continuity.
- Redesign layout: Once you know which products are performing, you can make them reachable to manual and robotic pickers by redesigning the warehouse layout, ensuring minimal efforts and maximum productivity.
Inspired to see positive numbers on your clipboard? Watch a demo of the EasyEcom solution and benchmark these order management KPIS for assured growth!
1.What are the most appropriate KPI for order management process?
The top order management KPIs to measure are
- Average order processing time
- Rate of returns
- Perfect Order Rate and
- Cost per order
2. What is the perfect order rate?
The Perfect order rate is a kpi that measures the percentage of orders getting delivered to the right customers on-time without any deviations to the packaging, documentation and product quality. Several factors contribute to the perfect order rate such as
- On-time delivery which looks at orders that reached the final destination within the promised timeline.
- Damage-free shipments that check the percentage of orders reaching them undamaged.
- Documentation which reveals how many orders were correctly invoiced and contained all relevant documents.
3. What is KPI order lead time?
The lead time, aka, order cycle time is the number of calendar days for a product idling at warehouses. Longer lead times mean internal bottlenecks which if left unaddressed skyrockets other expenses such as returns, shelf space and storage rent.