Effective order management, underpinned by key metrics such as order accuracy rate, order cycle time, inventory turnover rate, on-time delivery rate, and order fulfillment cost per order, is essential for optimizing operations, enhancing customer satisfaction, and driving long-term business success.
Optimizing order management is the key to short-term and long-term success. However, order management has many moving parts, and understanding which levers to adjust can be challenging with so many variables at play. That’s why tracking key performance indicators (KPIs) and other important order management metrics is crucial.
These figures provide insights into operational effectiveness and can help you identify bottlenecks, improve performance, and give customers a better experience. While every organization is unique, these order management metrics are a crucial addition to your regular performance reports.
Order accuracy rate
Order accuracy rate measures the percentage of orders without any errors. You can determine what constitutes an error for your organization, but it usually refers to incorrect items, quantities, or erroneous deliveries.
Tracking this order management metric maintains customer satisfaction since a high accuracy rate shows customers get what they ask for. However, frequent errors can lose customers and even lead to negative reviews, which will hurt your company.
You can calculate order accuracy rate with this formula:
(Accurate orders / total orders) X 100
For example, if you process 1,000 orders and 980 of them are accurate:
(980/1,000) X 100 = 98%
Track this order management metric in real time to take quick action if there’s a sudden dip in accuracy. Monitoring this metric long-term can also help you pinpoint potential workflow issues.
Order cycle time
Order cycle time is an order management metric that tracks how long it takes to process an order, from the moment a customer places it to when you deliver it. Ideally, you want a short order cycle time because it means customers receive their orders more quickly. It also reflects how well your company meets customer demands for speed and availability.
Use this formula to calculate order cycle time:
Total time for all orders / total orders processed
If it takes you 5,000 hours to process 500 orders:
5,000/500 = 10 hours per order
By tracking this metric, you can identify inefficiencies in specific stages of the process — like delays in order processing or shipping —and take action to streamline operations. It’s also a helpful benchmark when evaluating your performance against industry standards.
Involuntary turnover rate
Inventory turnover rate is a helpful metric for understanding how quickly you can sell and replace inventory over a period of time. Not only will it tell you which products move more quickly, but it also shows how efficiently you manage your inventory.
A high inventory turnover rate is a good indicator of strong sales. A low rate, on the other hand, indicates slow-moving products with low demand, poor sales performance, or overstocking.
You can calculate inventory turnover rate with this formula:
Cost of goods sold (COGS) / average inventory
However, to calculate this, you have to understand average inventory, calculated like so:
(Beginning inventory + ending inventory) / 2
For example, let’s say your COGS for the year is $500,000, and your average inventory is $100,000:
$500,000 / $100,000 = 5
In this example, you turn over your inventory five times a year. Regularly monitoring this metric allows you to adjust purchasing, sales, and marketing strategies to align with demand.
On-time delivery rate
Customers want to receive their orders as soon as possible. Tracking on-time delivery rate tells you the percentage of orders that arrive during the timeframe you promised the customer. This is the order management metric to track if you want to better understand your company’s reliability.
Calculate this order management metric with this formula:
(Number of on-time deliveries / total deliveries) X 100
So, if 900 out of 1,000 orders are on time:
(900/1,000) X 100 = 90%
You want your on-time delivery rate to be as close to 100% as possible. Anything less than that indicates issues in the order management process that must be addressed.
Order fulfillment cost per order
Operational costs can have a tremendous impact on profitability. That’s why tracking order fulfillment cost per order is crucial. This order management metric calculates how much it costs, on average, to process, pack, pick, and deliver each order. It includes all expenses related to fulfillment, including labor, materials, and shipping costs.
A lower cost per order indicates a more efficient workflow and better cost management, while a higher cost signals inefficiencies.
Calculate order fulfillment cost per order with this formula:
Total fulfillment costs / total number of orders fulfilled
If you spent $50,000 on fulfillment costs last month to fulfill 1,000 orders:
$50,000 / 1,000 = $50 per order
Only you can decide whether this is “good” or “bad.” Benchmarking against your historical cost per order, as well as competitor performance, is crucial for designing cost-effective processes.
How to use metrics for continuous improvement
It’s one thing to understand the importance of tracking order management metrics, but it’s another matter entirely to put what you learn from these metrics into practice. Metrics are more than numbers on a dashboard — in many cases, they’re a powerful warning sign that should drive decision-making.
Strategically leveraging order management metrics allows businesses to spot inefficiencies and refine their processes for long-term success. Follow these best practices to transform your order management metrics into measurable change.
Set performance benchmarks
Tracking metrics is important, but they aren’t actionable if you don’t understand whether your performance is acceptable or requires change. Set an appropriate range for each order management metric you track.
Determining these numbers can be difficult, but you can find helpful guidelines by:
- Checking your historical performance
- Seeing if competitor metrics or benchmarks are available
- Reading industry reports to better understand healthy benchmarks
Monitor in real time with technology
Order management software will automatically track and compile your performance in helpful dashboards. Instead of pulling the analytics manually, allow technology to do the heavy lifting for you. In fact, many solutions now automatically generate reports and send them to you via email on a predetermined schedule.
Most OMS solutions also allow you to log in and view order management metrics in real time, making it possible to take action more quickly.
Schedule time for regular review
Business leaders have a lot of responsibilities, but regularly reviewing performance should be a top priority. The frequency of review depends on the size and complexity of your business, but many leaders review performance monthly, quarterly, and annually.
Regardless of the frequency, add these reviews to your calendar to ensure you stay accountable for tracking performance.
Involve employees
Leaders can’t singlehandedly turn around the order management process. Employees at every stage need to understand how their roles affect overall performance — and what they can do to keep the organization on track. Be transparent about performance and share metrics with the team.
If performance is down, engage employees to understand their perspectives and find new ideas for fixing the problem. Since these employees specialize in unique areas, it’s always best to involve them in the turnaround process instead of mandating changes that may not be applicable to their workflows.
Optimizing your order management next steps
Hands-on order management is one of the best ways to optimize your business. Deliver on customer expectations, reduce costs, and improve productivity by following the best practices in this guide. Assess your current practices, evaluate OMS solutions, invest in continuous learning, and be as adaptable as possible.
Following order management best practices will get you far, but having the right tools matters. Whether you sell SaaS subscriptions or ship physical goods to customers, Zuora CPQ software is a must-have addition that makes order management a breeze. Generate accurate quotes, oversee every step of the subscriber lifecycle, and seamlessly manage renewals.
Explore how Zuora’s CPQ software can transform your processes with intelligent tools that simplify workflows and drive better outcomes.
