“If you cannot measure it, you cannot improve it,” said famed British physicist Lord Kelvin about scientific experimentation over 100 years ago. It’s still pertinent today as we seek to improve ecommerce operations, remain competitive and improve our profitability and customer service.
In order to improve operations, we first need to measure key fulfillment metrics such as total cost per order (CPO), shipped cost per carton, cost per line and cost unit. Once we understand what these metrics show, we can then develop options for processes that reduce steps and cost, or improve service levels such as order turnaround time.
What key fulfillment metrics do you monitor and use to improve your performance? Here are 16 we recommend you use as a starting point:
Cost Per Order
The calculation is the total cost for all warehouse functions divided by the number of orders processed in a given timeframe. The initial measurement should be annual or trailing 12 months, followed by monthly. An efficient total cost per order is $5 to $7.
The components (less shipping, employee benefits and payroll taxes) include:
- Payroll expense: management, direct and indirect labor
- Facilities or occupancy costs: lease or depreciation for the space, utilities and depreciation and amortization for MHE systems and automation
- Packing supply costs
These expenses should be available from your company’s profit and loss statement and make up a high percentage of overall fulfillment expenses. The number of orders may come from marketing or better yet your WMS system.
Our recommendation is to measure the total CPO in two ways, with and without including employee benefits, payroll taxes and outbound shipping costs. These expenses vary widely between operations. The benefits and payroll taxes (health care, PTO, payroll taxes, retirement plans, etc.) are not something an operations executive has direct control over generally. However, they may add 15% to 30% to the total cost per order.
Outbound shipping is the single largest cost in order fulfillment, more than all the others combined. It varies based on volumes shipped and carrier negotiation which is why comparisons to other ecommerce companies can be distorted.
Using the total CPO, you can now drive the calculation to a more granular level, dividing it by marketing orders processed.
Cost Per Carton Shipped
This is derived by dividing the total CPO by the number of cartons shipped. This figure may be 10% to 20% higher than the number of marketing orders because all orders can’t be combined into one carton.
Cost Per Order Line