When is “perfect” just not good enough?
Maybe it’s when you’re talking about actually making money on ecommerce orders.
The concept of a “perfect” order has been around the ecommerce fulfillment world for a while.
The goal is straightforward: how do you measure the success of your fulfillment strategy?
As Ops folks, we have no shortage of metrics. But is there a single, quantitative metric that can be used to understand, and hopefully improve, the success of ecommerce fulfillment operations?
Turns out there wasn’t…until now.
The idea of utilizing attributes of an order to understand how to improve the fulfillment effectiveness is not new.
In 1997, the American Productivity and Quality Center surfaced the idea of a “Perfect Order” in a paper titled “Order Management: A Core Competency”.
The Perfect Order was defined as an order which had the following attributes:
The Perfect Order:
- Arrives on time
- Has all the items ordered
- The items are undamaged
- The box contains the necessary invoice or documentation
“Perfect Order” is great in theory, but as a metric, the Perfect Order is impossible to implement
Since it first became a topic of conversation in supply chain circles, hundreds of articles, papers and blogs have been written about the “Perfect Order”, but it remained mostly a just an academic concept. You really don’t see commercially available solutions delivering a way to report on “perfect” orders, primarily because three out of the four components of a Perfect Order require feedback from the customer.
Robert Novack and Douglas Thomas, professors of supply chain management at Pennsylvania State University, wrote a paper on this in 2004 titled “The Challenges of Implementing the Perfect Order Concept”. One of the biggest challenges they discussed is that – unless you have a programmatic way of getting that feedback from the person who opened the box – you don’t know if the order arrived complete, undamaged and with the necessary paperwork. So you don’t actually know if an order was “perfect” or not.
Sometimes a “perfect” order for the shopper is a disaster for the seller
Beyond not being able to collect real-time, quantitative data, the concept of a “Perfect Order” has another major issue: Sometimes “perfect” for the shopper is a disaster for the seller.
It is far too easy for an order to be “perfect”, but not “ideal”. Consider the following example:
Let’s imagine a customer living in Florida orders a product to be delivered in two days or less from a seller who has fulfillment locations in Atlanta (400 miles from Florida) and Salt Lake City (2300 miles from Florida).
The seller ships the order.
If the order gets there on time, is undamaged, has all the right items and includes an appropriate pick-sheet or invoice, the order would meet the criteria of being a “Perfect Order”.
However what if:
- The seller happens to only have inventory for that order in Salt Lake City and not Atlanta, and as a result…
- The seller fulfills the order from Salt Lake City, then ends up having pay more to for air transport to expedite the shipping to get it to the consumer on time, which…
- Creates a “Perfect Order” that isn’t profitable for the seller, and…
- Adding insult to injury, dramatically increases the mileage and carbon impact of transportation, which increases the carbon footprint of the seller…working against their corporate commitment to sustainable business practices.
In this example, the order would be “Perfect” for the consumer but is far from being “Ideal” for the seller.
“Ideal order” management differs from “perfect” order management.
Both focus on getting the order to the customer in a way that meets the customer expectations. But Ideal Order management also includes measuring fulfillment operations steps that boost – or drain – net income from the order.
Here’s how it works.
Let’s set “Ideal Order” to be an overall attribute of each order. It’s binary, either “True” or “False”. If it’s “True” – congrats! The order was Ideal for both your customer and your bottom line. If “False”, it’s a data point that might be worth digging into
Digging into that data point requires that we establish additional attributes that are also binary.
True or False - Was the order:
- Profitable?
- Shipped from the ideal location?
- Shipped using the ideal packaging?
- Shipped using the ideal carrier?
- Shipped using the ideal service level?
- Shipped on time?
- Shipped in compliance with the sales channel’s service level agreement (SLA)?
- Shipped complete (all items on the order were shipped, although they could be split into different parcels)?
- Delivered on time?
If all these attributes are True, that is the criteria to set the “Ideal Order” attribute to “True”. But if any of these attributes are False, the order is not an “Ideal Order”. By aggregating these attributes across all of our orders – by SKU, by location, by product dimensions, by carrier, by parcel rate choices, by supplier, by 3PL, by time of day or shift (you get the idea) – we can determine where our fulfillment operations are falling short and dragging down both customer satisfaction and profitabililty.
Here's a look at the attributes considered by the Ideal Order methodology compared to the Perfect Order concept.
Ideal Order management adds another function that Perfect Order doesn’t consider: It looks at what should have happened if all the factors involved in fulfilling the order had been perfect – oops, sorry – had been ideal.
Some days, it seems like ecommerce fulfillment is Murphy’s Law in action: If anything can go wrong, it will go wrong.
Inventory isn’t in the ideal location. Packers throw tiny products into huge cartons. Carriers are selected because they are the first choice on the software menu, not the best choice for profitability. The list seems neverending.
Ideal Order software, like Ideal Order Insights from Etail Solutions, gets the package out the door using the best options available at the time, but it also runs and records a simulation on what would have happened if everything had been ideal. Then Ideal Order Insights highlights the cost difference between what actually happened and what, ideally, should have happened.
The ability to perform this simulation and comparison gives you the data you need to understand why the order was not ideal and where to put your attention to reduce the likelihood of that scenario reoccurring.
So what’s the result?
Better Fulfillment Management
Dividing the total number of Ideal Orders by the total number of orders for a given time yields an “Ideal Order Score” – a single, quantitative metric for fulfillment performance that encompasses both customer satisfaction and business profitability.
Improved Margins
Ideal Order Insights highlights where margin is leaking from your order management system and reveals opportunities for margin improvement. Each of the nine Ideal Order criteria is a KPI in-and-of itself. They can be aggregated across all orders and used to uncover areas for improvement such as increased training, automation or tighter workflows.
Optimized Inventory Strategy
Etail’s Ideal Order Insights product assigns a cost to each non-ideal order – usually driven by increased shipping expense caused by not having the right inventory stocked in the right locations to meet customer demand. Using Ideal Order Insights, you can quantify the opportunity cost of not having inventory in the right place, in the right amounts, at the right time. Many times, inventory is shipped from a location not because it is the right thing to do based on the customer location or shipping option, but because the inventory wasn’t in stock at the right – ideal – location. Increase forecast accuracy by understanding actual demand by SKU by location. Model the impact of alternative inventory, replenishment and fulfillment scenarios to maximize cash flow and margins
Enhanced Performance Management
The Ideal Order score provides a quantitative KPI for internal overall performance management while each of the nine individual criteria provides a quantitative KPI for functional improvement. You can establish quantitative metrics. Establish and measure SLAs with 3PLs, dropship suppliers and carriers to ensure performance and claim credits or refunds for breaches. Create internal KPIs with a “single point of truth” to measure departmental or location performance and ensure organizational alignment
So is “Ideal Order” a good KPI for measuring performance of your fulfillment operations?
It’s better than that.
It’s downright…perfect.
Click here to learn more about Ideal Order Insights.
Additional resources
BLOG POSTS
Ideal Order [Infographic] The new standard for order and inventory management
WHITE PAPER
Ideal Order Insights Solutions Overview
The Ultimate Guide to Order Management
INFOGRAPHIC
Ideal Order: The new standard for order and inventory management
