What Is Fill Rate? (Definition, Types and How To Calculate)
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In the wholesale and retail sectors, many companies measure their fill rate. This metric is essential to understanding how efficiently the supply chain operates to fulfill customer orders. Fill rate is also an important indicator of customer satisfaction, as it measures how quickly customers can expect to receive purchases from a business. In this article, we explore what fill rate is and what types there are, why this metric is important, what formula to use when measuring it and how you can calculate it.
What is fill rate?
Fill rate in wholesale and retail business is the percentage of customer orders a company can fulfill without running out of inventory to fill customer orders. You can measure your company's fill rate at any time throughout the year to determine how efficiently supply chain management meets order demands. Companies typically measure the order fill rate, which is a common metric that evaluates the ability of a business to fulfill customer orders immediately from inventory stock without having to place items on back order or miss sales.
To calculate order fill rate, you can use this formula:
Fill rate = (total completed orders / total orders) x 100
Simply divide the number of orders you're able to fulfill completely by the number of total orders customers place. The result gives you a decimal, which you multiply by 100 to arrive at a percentage. This percentage is the fill rate, and most companies aim for fill rates as close to 100% as possible.
Types of fill rates
Although the order fill rate is often the rate most companies measure, there are several types of fill rates that can provide valuable insight into the efficiency of a company's supply chain management processes:
Order fill rate: The order fill rate is the rate that's often the most common to track, as it provides information on how efficiently companies are able to meet customer demands. When companies are able to reach high order fill rates, it signifies the company fulfills customer orders quickly and efficiently.
Line fill rate: When customers place orders, companies record the sales on an order bill as line items. So the line fill rate is the percentage of the order lines a company fills out on the bill out of the total number of order lines.
Case fill rate: The case fill rate applies mainly to distributors and wholesalers and is the percentage of product cases a company initially ships out of all product cases the company orders.
Warehouse fill rate: The warehouse fill rate is the same measurement as the order fill rate. Supply chain managers calculate the percentage of orders they fulfill and ship from their company warehouse out of all customer orders.
Vendor fill rate: In wholesale and distribution, companies that purchase from vendors often calculate vendor fill rate. This measures the percentage of vendors who have completed order shipments out of the total number of vendors from which a company receives its orders.
How to calculate fill rate
The following steps show you how to find your company's order fill rate:
1. Determine the total number of shipped orders
To use the formula, determine the period you want to measure for the fill rate. This can be a monthly, weekly, quarterly or even yearly calculation, where you can evaluate how efficiently your business fulfills customer orders throughout different times of the year. As an example, suppose you want to measure the fill rate for the past quarter. Determine the total number of orders your company shipped to customers during that period. If customers received 2,300 orders during the quarter, use this value in the formula:
Fill rate = (2,300 orders shipped) / (total orders) x 100
2. Divide shipped orders by the total number of filled orders
Determine how many orders customers placed in total for the period you're measuring. Using the example value of 2,300 total completed orders, assume customers placed a total of 2,920 orders. This means the fill rate is the percentage of completed orders out of 2,920 total orders. Substitute these values in the formula and divide:
Fill rate = (2,300 orders shipped) / (2,920) x 100 =
Fill rate = (0.79) x 100
3. Multiply your result by 100
After dividing, you should arrive at a decimal value. Multiply this number by 100 to convert the decimal to a percentage. The percentage represents the fill rate. Using the example values of 2,300 completed orders out of 2,920 total customer orders for the quarter, the fill rate would be:
Fill rate = (0.79) x 100 = 79%
The fill rate for this example is 79%. This can be a positive result, depending on the business. For instance, if a business is increasing its fill rate to 79% from a lower percentage, this metric would be a positive improvement from previous periods. The closer to 100% your fill rate is, the higher your company's customer satisfaction rate is as well.
Importance of understanding the fill rate
The order fill rate is a crucial metric to track in supply chain management, as it tells companies how productive, efficient and quick teams process customer orders and ship them out. For this reason, many companies look for order fill rates as close to 100% as possible. With a higher fill rate, many businesses are able to meet their customers' demands, fulfill orders quickly and maintain positive customer satisfaction rates. Consider several more reasons the fill rate is important to evaluate:
When your company consistently fulfills customer orders and retains a high fill rate, it promotes the company's reputation and establishes trust within its market. This is because customers are likely to feel they can rely on your company to process and ship their orders quickly. First-time customers are also more likely to make future purchases when they have a positive experience ordering and receiving products from your company.
Related: Effective Reputation Management
Encourages customer loyalty
A high fill rate can also indicate your company is establishing lasting relations and retaining loyal customers. Consumers who perceive a company as being able to process and fulfill orders quickly are more likely to continue purchasing from the company. Increasing customer retention, therefore, can depend on improving the fill rate.
Provides operational insight
Tracking order, warehouse, case and vendor fill rates can all help your company determine how effectively the supply chain processes are operating. Lower fill rates can give more insight into which areas of the process require improvements, and a business can better develop strategies when it understands this metric. Additionally, measuring the fill rate allows you to analyze the methods you use to distribute your products to customers.
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