Why Is Fill Rate So Important for Ecommerce Businesses?

As more and more companies implement supply chain digitization, there are many metrics brands can track to analyze the effectiveness of their fulfillment operations. One of the most simple supply chain KPIs to use is fill rate. Read on to find out the types of fill rates brands might want to track, how to calculate fill rate, and how to improve fill rate for customer orders.

Fill rate is one of the most critical metrics for ecommerce businesses to track. But why exactly is monitoring and optimizing your fill rate so important? In this comprehensive guide, we’ll explain what fill rate is, why it matters, how to calculate it, and most importantly – how to improve it.

What is Fill Rate?

Fill rate refers to the percentage of orders that can be immediately fulfilled from available inventory. It measures a company’s ability to meet customer demand with in-stock inventory

Specifically the fill rate formula is

Fill Rate = (Orders Shipped from Stock / Total Orders Received) x 100

A high fill rate means a business is able to fulfill most customer orders promptly without excessive backorders or lost sales.

Conversely, a low fill rate indicates inventory shortages, supplier issues, or inventory mismanagement. This leads to delayed shipments and customer dissatisfaction.

While there is no universal benchmark, a good target fill rate is 95% or higher. Top-performing ecommerce companies often have fill rates exceeding 99%.

Why Is Fill Rate Important?

Maintaining a high fill rate is critical for several reasons:

  • Maximizes sales and revenue – By fulfilling orders from stock, you avoid losing sales to competitors or due to customers abandoning their carts. Even a small increase in fill rate can translate to big revenue gains.

  • Enhances customer loyalty – Customers expect fast, reliable fulfillment. Consistently achieving quick delivery with minimal stockouts earns their trust and loyalty.

  • Reflects supply chain efficiency – Fill rate highlights how well you manage inventory levels, forecast demand, and coordinate logistics. It’s an objective measurement of your end-to-end operations.

  • Identifies problem areas – Drilling down into reasons behind a low fill rate helps you pinpoint issues like inaccurate forecasts, supplier delays, or inventory gaps. You can then focus improvements on those areas.

In short, optimizing fill rate should be a key objective. The rewards include increased sales, happier customers, leaner inventory, and lower logistics costs.

How to Calculate Fill Rate

While the formula is simple, accurately tracking and calculating fill rate involves a few steps:

  • Select a time period – Monthly or quarterly works best for broader trends. Daily or weekly provides insights into peak periods.

  • Count orders and shipments – Pull data on total ecommerce orders received and actually shipped within the period.

  • Split by product – Looking at fill rate by product identifies winners and losers.

  • Factor uncontrollable events – Account for unusual events like weather disruptions that artificially lower fill rate.

  • Compare to targets – Measure against both past periods and industry benchmarks to gauge performance.

Automation and supply chain software make this process seamless. The key is continuously monitoring with consistent methodology.

How to Improve Low Fill Rates

The real value of measuring fill rate is identifying opportunities to improve it. Here are 7 proven tactics:

  • Refine demand forecasting – More precise forecasts mean better aligned inventory levels and fewer stockouts. Look at historical data, sales trends, seasonality, promotions, and other signals.

  • Optimize inventory allocation – Spread inventory across fulfillment centers based on regional demand to maximize availability.

  • Increase safety stock – Pad inventory on high velocity products and during seasonal peaks to fulfill more orders from stock.

  • Improve supplier management – Boost supplier reliability through improved contracts, lead time reduction, and dual sourcing.

  • Tighten operations – Identify and eliminate bottlenecks across receiving, putaway, order picking, packing and shipping.

  • Enhance inventory visibility – Real-time visibility into in-transit and on-hand inventory helps match supply with demand.

  • Consider 3PL partnerships– Outsource logistics to 3PLs with high service levels, expansive facilities and inventory expertise.

With consistent measurement and a focus on continuous improvement, most companies can achieve fill rates exceeding 95%. The incremental revenue and customer satisfaction gains are substantial.

Key Takeaways on Fill Rate Optimization

  • Fill rate directly impacts sales, revenue and customer loyalty for ecommerce businesses. Even small improvements deliver outsized rewards.

  • While formulas are straightforward, accurate tracking requires care and consistency. Automated data collection is ideal.

  • Drill-downs by product, period and channel provide visibility into problem areas. Comparison to targets and peers gives context.

  • Causes of fill rate gaps include forecast errors, supplier issues, inventory misallocation, facility bottlenecks and lack of visibility.

  • Proven tactics to boost fill rate include refining demand forecasts, optimizing inventory, adding safety stock, improving supplier performance and forming 3PL partnerships.

By making fill rate optimization a supply chain priority, ecommerce businesses can delight customers with industry-leading order fulfillment while growing revenue and profitability.

why is fill rate important

Types of Fill Rate

The most common type of fill rate used by brands is order full rate. Still, various kinds of fill rates can give the retailer valuable insights into how efficient their supply chain and order fulfillment operations are.

Order fill rate measures the percentage of total orders that have been filled. This metric gives brands insight into operational efficiency, product demand, and supplier relationships. A brand can also use the order fill rate to find areas for improvement in unloading stock, packing time, and product buying decisions.

Brands generally list individual items as lines on an order, so the line fill rate refers to the percentage of order lines completely filled out of the total number of order lines. For example, a brand could have five orders with 10 total order lines.

This particular fill rate metric is used mostly by wholesalers and distributors. It’s the percentage of product cases that were shipped compared to the total number of product cases that were originally ordered. For example, if a brand sold 10 cases but shipped nine cases, the case fill rate would be 90%.

The warehouse fill rate measures the percentage of orders that a warehouse ships compared to all of the orders received. This metric is similar to the order fill rate but from the perspective of warehouse operations. The warehouse fill rate gives brands insights into the efficiency of their warehouse operations.

Vendor fill rate measures the percentage of vendors who have completed order shipments out of the total number of vendors. This metric allows brands to assess vendor performance.

What Is Fill Rate?

Fill rate is the percentage of orders a brand can fulfill without running out of stock. The item fill rate is a good indicator of order management, fulfillment efficiency and a brand’s ability to meet customer demand with their inventory levels. When a company has a higher fill rate, it is able to minimize lead time and prevent lost sales to items on backorder.

Introduction to Fill Rate

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