Apr 13, 2014
Do you have any idea what your fill rate is?
Most companies have some kind of anecdotal information about their fill rate. They will say something like "at least 80% of the time my customers come to buy, we can fulfil their order."
They often base that assumption on things like
- Feedback from sales people
- Back orders placed by customers
- A drop in sales
But there are a few problems with this kind of approach
- Sales people are often very busy, and are notoriously bad at reporting
- Often a customer won't place a back order, but instead go and purchase from your competitor
- Measuring sales volume is inaccurate, because many factors can influence sales
- You may be focusing on the small group of very vocal customers, although that may not be the most profitable for your business
So there must be a more scientific approach to measuring fill rate. Here's a good way to measure the fill rate for a specific item:
- Take a reasonable time frame (like the last 30 days)
- For every day, count how many times the item was in stock and how many times the item was out of stock
- Work out the percentage in stock. For example, if the item was in stock for 20 out of the last 30 days, the fill rate for this item is 66.7%
- Repeat this for every item, or at least your best sellers. Pro-tip: Use an Excel spreadsheet for keeping track of this
This will give you much more accurate picture of the Fill Rate you're achieving for every item, and you may want to rank the items from worst to best fill rate. This will allow you to focus on the problem areas first, by replenishing those items.
You want to replenish those items, because you are losing sales on those right now. However, you may be wasting your time trying to replenish items with a very low margin.
What you really want to do is to rank the items with the worst fill rate, but that are also the most valuable. One option is to work out the non-fill rate for every item, which is really just the percentage of the time the item was out of stock and multiply that number by something like the cost price, or the gross margin of the item.
If you now rank from the highest to lowest, you will actually target the most problematic items first, giving you a much higher chance of making more sales and a higher margin.
Written by Barry Kukkuk
Barry comes from a systems architect and application development background. He started his career as the co-founder and chief developer for Icon Retail Management, a full-fledged retail management system that integrated with mainstream ERP. Barry later conceptualized and developed Inventory Optimiza for Barloworld Logistics and provided technical support for the application. It was here where Barry’s passion for Inventory Management solutions began and the industry where he would later return. Barry went on to start his own business in 2008, where he was an avid user of cloud-based apps and would only use online solutions for his business. In 2010 Barry began his journey with NETSTOCK. His enthusiasm for Inventory Management and his strong belief in “all things Cloud” collided, and we saw the release of the Inventory Management solution - NETSTOCK. Barry is the CTO at NETSTOCK, where he is responsible for all customer-facing technologies and systems that keep thousands of NETSTOCK customer instances working correctly.