The journey of a product through the supply chain to a customer has constant movement and activity. Each step holds the potential for delays, wasted money and errors. The odds against fulfilling a “perfect order” is high and depends on the complexities of your supply chain as well as your company’s emphasis — whether you compete on service or compete on price.
Failure to meet just one predefined condition (measurement) results in a less than perfect order. Many companies today that possess the highest perfect order rates boast of carrying less inventory, experience shorter cash-to-cash cycle times, and have significantly fewer stock-outs than their competitors.
Let’s look at what happens when an error occurs. Say, for example, your warehouse picks and ships the wrong item. Once the customer receives the order and notices the error, they typically make contact to notify you of the mistake.
You, in turn, make adjustments; accept a return, issue a credit, issue a correcting invoice, etc. Obviously, there are physical costs* to fix the error and a potential for lost sales — or customers. It is through this “correction process” that you can begin to derive your “perfect order measure.” Most often, a “reason code” is used. Tracking the reason code and assigning them to a category allows you to group them together for a “perfect order measure.” Of course there is other data required that is not related directly to invoice adjustments.
Order entry accuracy: 99.95 percent (that’s five errors per 10,000 order lines)
Warehouse pick accuracy: 99.2 percent
Delivered on time: 98.0 percent
Shipped without damage: 99.0 percent
Invoiced correctly: 99.8 percent
In this example, the “perfect order measure” is:
99.95 * 99.2 * 98.0 * 99.0 * 99.8 = 96.0 percent
From this perspective, it's “a ways from perfect,” isn’t it? PERFECT IS HARD TO ACHIEVE!
There are all kinds of studies out there with data that is all over the place; anywhere from a 50 percent to 85 percent perfect order measure.
WERC (warehouse education & research council) suggests the following quality and consistency attributes as a standard:
99.0 percent — delivered on time
99.7 percent — shipped complete
99.9 percent — shipped without damage
100 percent — invoiced correctly
Perfect Order Measure = 98.6 percent
Note: AMR Research Inc. found a correlation in some key financial indicators, including;
Profit Margin — A three percentage point better perfect order measure correlated with one percent additional profit margin!
Whatever attributes you choose, you might conclude that there is an advantage to looking at the overall impact of the measurement elements, rather than looking at each metric individually. Of course, you can always drill-down as necessary to determine “what’s-up” with the individual factors.
Some companies have developed perfect order measures based on customer segmentation, meaningful categories, such as a “customer’s contribution to profits” or “cost to serve.” This can better align the dedication of resources to clearly set organizational priorities.
To me, this discussion only enhances the importance of maintaining a high focus on “The Imperative of Operational Excellence” (request our recent article at: firstname.lastname@example.org).
Improvement in performance is driven, in large part, by implementing improved processes. The process begins with determining which key performance indicators are most important to your business model, analyzing the relationship between those measures and using the analysis to help drive process improvement, where needed.