No matter what type of business you run, it's important to keep your customers happy. One obvious way to do that is by making sure your orders are shipped in full and on time, every time. While it's possible to guess your shipment rate based on customer backorders and complaints, a much more scientific method is to calculate the fill rate.
The fill rate shows the percentage of customer demand that is met in full and on time through immediate stock availability.
What Is the Fill Rate?
The fill rate is a method of calculating what percentage of your customer orders are shipped in full and on time as a percentage of the total shipments you're making. In other words, it tells you how accurately you are servicing your customers through immediate stock availability. Understanding the fill rate is incredibly important because it has a significant bearing on customer loyalty. Low fill rates mean you haven't got enough stock to fill orders, and you're letting a high percentage of your customers down. Next time, they may order from your competitors over you.
Different Types of Fill Rates
The fill rate is not one metric but many. For example, you can calculate the fill rate for customer orders shipped or per stock-keeping unit, which tells you how often an out-of-stock situation occurs for a specific inventory item. Businesses will often track several fill rates and aggregate the data to find out the cause of the problem. The data should point to what items are frequently out of stock, which items are having the biggest negative impact on order fulfillment and what improvements would translate to greater customer satisfaction and more sales.
How to Calculate the Fill Rate
There is no standardized method of calculating fill rates because there are so many different variables. Generally, you'll start by selecting a rolling time frame such as the last month or two months. Then, for each day during that period, you'll count how many customers received perfect shipments or whether an item of inventory was in or out of stock. The final step is to work out the percentage. For example, if an inventory item was in stock for 35 of the last 60 days, the fill rate for this item is 58.3 percent.
Example of a Fill Rate Calculation
Suppose a customer orders 100 cases of widgets, but you only have 75 cases in your warehouse. So, you ship those. The fill rate for this order equals 75 divided by 100 or 0.75. Some prefer to express the fill as a percentage: 75 percent. If you ship another 10 cases of product tomorrow, the fill rate will rise to 85 divided by 100, or 85 percent. Whether this is a good fill rate depends on your business, industry and competitive environment. Ideally, you should be shooting for 100 percent.
What It All Means
Backorders and stockouts can negatively affect your customer service levels and are a cause for lost sales. Simple tools such as the fill rate can help you improve the efficiency of your inventory management by highlighting some key operational and customer service decisions. How much inventory do you need to hold before release to avoid stock out? How should you respond when inventory drops too low? At a customer service level, the information that fill rate data provides ensure your reps are not selling products that are unavailable, and it helps you to make decisions in conjunction with the customer about whether to substitute product or postpone the shipment until the entire order is ready. The aim is to manage customer expectations and minimize lost sales.