What Are On-Time Deliveries? (And Tips To Improve This KPI)
Updated February 3, 2023
Businesses that deliver products to their customers have a responsibility to ensure their shipments arrive on time. While there are several metrics ecommerce businesses can use to improve their delivery and fulfillment processes, one of the most popular methods of tracking their performance is by calculating their on-time delivery rate. If you work in supply chain management, you might be interested in learning how you can use this metric to ensure your customers receive their orders in a timely manner.
In this article, we explain what on-time deliveries are, discuss why this metric is important and provide strategies for improving your on-time deliveries rating.
What are on-time deliveries?
On-time deliveries comprise a key performance indicator (KPI) that ecommerce businesses use to track their delivery performance. Understanding this metric can help companies determine whether they can complete customer orders by a particular delivery date.
It can also help businesses improve their supply chain processes to prepare for future customer demands and estimate realistic delivery dates in the future. Maintaining on-time deliveries can show consumers they can rely on a business and can expect to receive their goods according to the estimated delivery date.
Why is the on-time delivery metric important?
Tracking companies' on-time delivery rates is important because it can help them identify areas to improve their delivery and fulfillment processes to ensure customers receive their orders in a timely manner. Some of the benefits of improving an on-time delivery rate include:
Increased customer satisfaction: When organizations deliver their products on time, they can increase customer satisfaction and brand loyalty. This can encourage customers to make more purchases from a company in the future.
Improved operational efficiencies: Measuring their on-time delivery rate can help companies analyze their delivery and fulfillment processes. This can help them identify areas for improvement to increase efficiency and accuracy.
Better reviews: If a company prioritizes its customers receiving their shipments on time, clients may be more likely to leave the business a positive review online. This can help the business attract future customers and build trust in the brand.
Higher revenue margins: If a company delivers its products on time, customers are more likely to be satisfied with their purchase and keep it. This can decrease the number of product returns the business receives which can improve its revenue margins.
On-time delivery criteria
There are some basic criteria you need to understand about your deliveries to determine your on-time delivery rate. Here are some of the common principles used to assess on-time deliveries:
First, establish the time frame you plan to analyze. Pick a specific start date and end date to begin collecting your data. Depending on the size of your organization and your goals, you may choose to measure your on-time delivery rate every week, month or quarter.
Number of orders shipped
Next, determine how many orders you shipped during this time frame. You can use an order management software program to track how many orders you receive and when you ship them. This can make it easy for you to identify how many orders you fulfill every week, month or quarter. It can also improve your accuracy.
Number of on-time deliveries
Finally, identify how many customers received their orders on time. You can review the tracking information from your shipments and analyze customer feedback to help you determine this number.
You may also establish a delivery window to account for unexpected delays, such as challenging weather conditions. For example, if a customer places an order to be delivered on Sept. 3, you might estimate that it could arrive two days before or after that date and still qualify as an on-time delivery.
How to calculate your on-time delivery rate
One of the reasons so many businesses use the on-time delivery rate metric is that it's quick and easy to calculate. The higher your on-time delivery rate is, the more efficient your delivery and fulfillment processes are. Here's a formula you can use to determine what your on-time delivery rate is:
On-time delivery rate = (Orders delivered on time / Total orders shipped) x 100
You can calculate your on-time delivery rate by following these steps:
Select a time frame.
Identify the total number of orders you shipped during this time frame.
Determine the number of orders you delivered on time.
Divide the number of orders you delivered on time by the total number of orders you shipped.
Multiply your answer by 100 to get a percentage.
Example of how to calculate an on-time delivery rate
Here's an example of how a supply chain manager might calculate the on-time delivery rate of their organization to improve their delivery and fulfillment processes:
Jared works for a large ecommerce store called Mega-Mart. He recognizes that the company's delivery and fulfillment processes could use some improvement, so he decides to calculate Mega-Mart's current on-time delivery rate.
Jared reviews the company's data and sees that over the last month they shipped a total of 5,000 orders. He also sees that during the same time frame, 1,000 customers reported that their packages were late or missing. This means Mega-Mart delivered 4,000 orders on time. Jared uses the formula below to calculate the on-time delivery rate:
(4,000 / 5,000) x 100 = 80
Based on his calculations, Jared determines that Mega-Mart's on-time delivery rate is approximately 80%. He shares this information with the rest of his team and sets a goal to increase their on-time delivery rate to 90% by the end of the quarter.
Over the next few months, Jared implements new strategies to improve Mega-Mart's delivery and fulfillment processes. He also continues to track the organization's on-time delivery rate to make sure the changes he makes are effective.
Strategies to improve on-time deliveries
Here are some strategies you can implement to improve your organization's on-time delivery rate:
Establish realistic deadlines
Assess your supply chain processes and your current on-time delivery rate to determine what a realistic delivery timeline is. Instead of choosing a single date, consider providing customers with a range that spans two or three possible delivery dates. This can increase the likelihood that your shipments arrive on time and improve your customer satisfaction level.
Track your inventory
Carefully track your inventory so you know what products you have available. Compare manual inventory counts with your electronic records to mitigate risks associated with product loss. This can help you ensure you have the correct products in stock to fulfill orders. It can also help you keep your online store updated by displaying only the items you have available.
Determine product demand
Review your previous sales transactions and customer data to determine what types of products are the most popular. This can help you predict product demand. Once you've identified what items are likely to be popular with your customers, you can increase your stock accordingly. This can help you fulfill orders faster and increase your revenue margins.
Open local warehouses
Depending on the size of your company, you may want to consider opening local warehouses. Many large ecommerce stores have multiple storage facilities located throughout the country, which makes it easier for them to distribute their products quickly. Analyze what locations you send the majority of your shipments to first. Then determine whether it makes sense financially to open up warehouses in these locations so you can meet your customers' needs and improve delivery times.
Offer real-time order tracking
Invest in a reliable order management software program to help you track the location of your delivery drivers and shipments. Then provide your customers with the option to check on the status of their delivery online. This can improve communication between you and your customers by showing them where their shipment is at each stage of the delivery journey. It's also a great way to keep your customers informed about unexpected delays.
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