Why Cycle Time is the New KPI for Order Fulfillment

Online retail is growing fast, and when business is booming, it can often be difficult for small to medium-sized retailers to keep up. These retailers are trying to handle an ever increasing amount of orders and maintain customer satisfaction at the same time. This juggling act can be difficult to measure and very complicated to keep track of. Using a more effective KPI to measure the performance of order fulfillment processes helps keep retail businesses on track and aligned with not just the goals of the company, but overall trends in the marketplace. This is why Cycle Time should be the new KPI for order fulfillment processes. You can also read our article on how to select a suitable order fulfillment service.

Cycle time represents the frequency of order shipment. The lower the cycle time, the faster the fulfillment operation is. Cycle time is calculated as the duration between two orders being shipped. A Cycle time KPI is the average of all cycle times of all orders in a specific period. For example, let’s say that your packing stations pack 100 orders in total in an hour. This means your warehouse cycle time is (60 * 60) /100 = 36 seconds, and thus you can ship an order every 36 seconds.

Why Use Cycle Time as KPI

Retailers are fulfilling larger number of orders day after day, so it is important to optimize costs along the way. The ultimate purpose of using cycle time as a KPI is to increase your order fulfillment process with your fixed number of resources, and reduce costs. In order to reduce cycle time, the first solution is to identify bottlenecks in the order fulfillment process and resolve those bottlenecks. Take Henry Ford’s first design of the assembly line, for example. Ford also based his success on syncing the time it took for each part to be made and flow through each station in the assembly line into one seamless push. He thought that if all the times are synced and flow into one single cycle time, then his assembly line is designed successfully. It worked; Ford synced 84 distinct steps on his assembly line to produce Model T’s at a rate of 24 seconds per car. By using a cycle time KPI to measure success, Ford reduced his Model T assembly time by nearly 80%, and reduced his costs by nearly 65%.

Cycle time can be effective in more ways than one for online retail. While in today’s age you may not be working your way down an assembly line in order to sell your product, there are still similar cycles that you tend to follow, whether you know it or not! Here are three of the most common kinds of cycle times you can use to benchmark your success:

Customer Order Actual Cycle Time

The customer order actual cycle time is the average time between an order being placed by a customer to when it is delivered. This, or course, includes every stage in the picking, packing, fulfillment and shipment process, and can therefore show you broadly how well your operations are running in sync with one another.

Cash to Cash Cycle Time

Unlike the above, the cash to cash cycle time is the amount of time between paying for the raw materials you use to make your product to being paid for the final product. It is, in essence, how long it takes from putting your money in to getting your money out. The faster this is, the better your order fulfillment process.

Supply Chain Cycle Time

This is the sum of the longest amounts of lead time that it takes to fulfill a customer’s order per each stage in your sales cycle. It can be valuable to use this as a KPI measure because it forces you to analyze the various stages of your supply chain process. The shorter your cycle, the better.

If retailers measured their success using a cycle time KPI, they would be able to reduce costs and labor time as well. Smart warehouse management systems (WMS) are successful at achieving these goals. For example, WMS systems like Logiwa WMS monitor cycle time in real-time, and identify the bottlenecks in the order fulfillment process, Importantly, the system also makes suggestions instantly to resolve them. Using a warehouse management system to manage your inventory cycle time and reduce costs is a great way to handle order fulfillment for the holiday season and increase customer satisfaction, too. Follow up on this topic by reading our in-depth article on the benefits of leading order fulfillment providers.

Shaun Baker

By Shaun Baker

With 5 years of experience in digital marketing and retail strategy under his belt, Shaun Baker is the resident eCommerce expert at FinancesOnline. A contributor to Entrepreneur, The Atlantic, and other business portals, he has spoken and written about various eCommerce subjects, from AI and headless commerce to the economics of Black Mirror’s “Fifteen Million Credits”. His (highly) opinionated pieces on the ebbs and flows of eCommerce as an industry remain both a dynamic resource of talking points and entertainment in itself.

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