Welcome to Chapter 11 of our order management guide. In this chapter, you will learn how to set goals and KPIs and keep track of metrics to gauge your order management performance.
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What Are KPIs and Metrics in Order Management?
Order management KPIs and metrics are something you may spend a lot of time reviewing when working in e-commerce. You may review them daily or at specific periods to reflect on your performance.
KPIs and metrics can sometimes be used interchangeably, but there is a difference. All KPIs are considered metrics, but not all metrics are KPIs.
KPI stands for ‘Key Performance Indicator’ and measures performance based on a specific goal. Metrics are quantitative measurements that track the performance of business processes.
KPIs are more complex, taking into account several factors using formulas that contribute to a goal, while metrics are simpler and might not give any insight into performance alone.
An example of a metric in order management could be the number of orders you receive daily—a simple quantitative number that doesn’t necessarily mean anything. You may need to dig deeper to understand why that number could be higher or lower.
Meanwhile, an example of a KPI could be on-time delivery, which measures how many orders were fulfilled by their expected delivery date (more on this one in a moment).
There are many different KPIs and metrics. Some measure similar things but in slightly different ways, and others are known by multiple names.
KPIs and metrics can be found on your OMS (Order Management System). You may need to configure them to work how you need them, or you may even invent some of your own if you need to measure a specific process or goal.
Why Are KPIs and Metrics Important to Order Management?
KPIs and metrics can be used to set business goals. These goals could include reaching or maintaining a certain service level. Alternatively, they could be used to monitor how efficiently your business performs.
For example, in order management, most KPIs and metrics are related to the time it takes to fulfill orders, the processes involved, and customer satisfaction, and businesses can work towards improving them if they are unsatisfactory or inconsistent.
Maybe processes need to be accelerated, unnecessary steps removed, more staff hired, or tech updated.
However, setting goals is not always straightforward. As mentioned in Chapter 10, consolidating data across multiple channels can be difficult because they measure things differently, so it is vital to have an OMS to consolidate this data.
Furthermore, KPIs and metrics can sometimes be down for reasons beyond your control. For example, seasonality can affect order numbers and fulfillment times.
You should also recognize if you are setting impossible goals. Goals should be based on realistic capabilities, or they will always be low.
However, knowing what is possible without some data beforehand can be hard, especially for young companies that haven’t been operating very long.
Despite the challenges, there are many benefits to utilizing KPIs and metrics to improve performance. For example, it can improve relationships with your suppliers as you will be able to become more efficient.
KPIs and metrics can also help your business become more competitive and grow. Customers will shop elsewhere if you get a reputation for being slow or unreliable. Customers will return if you are fast with limited issues and handle customers well.
Lastly, it’s important to mention that your business’s KPIs and metrics will differ from those of others. They will have different workflows and goals, so don’t compare your company to others.
What Order Management KPIs and Metrics should I Monitor?
The KPIs and metrics you should monitor depend on your business and the goals you have set. That said, there are still some important ones you should be observing.
Bear in mind that there are far more KPIs and metrics that you will encounter in order management. Here are the top order management KPIs and metrics you should monitor:
Top Order Management KPIs
1. On-Time Delivery (ODT)
What does it measure: A KPI that tracks the percentage of orders shipped to customers within the promised delivery time. Ideally, this rate should be 95% or above.
How to improve: Look for faster shipping options to meet delivery timelines.
2. Correct Products Being Shipped
What does it measure: Correct products being shipped ensures that the products shipped match what was ordered by customers.
How to improve: Implement barcode scanning to verify products before shipping and enhance quality control processes in the warehouse.
3. Customer Communications
What does it measure: This metric measures the number of customer communications you respond to (not to be confused with response time). It can help gauge the effectiveness of customer communication throughout the order fulfillment process.
How to improve: Use a CRM (Customer Relationship Management) tool for communication, provide order status updates, and promptly address customer inquiries or concerns.
4. Invoicing
What does it measure: This KPI assesses the accuracy and timeliness of generating and sending invoices to B2C and B2B customers.
How to improve: Automate invoice generation and sending, reconcile invoices with order data to ensure accuracy and establish clear billing processes to mitigate delays.
5. Order Acknowledgments Sent to Sales Channels
What does it measure: Monitors the prompt sending of order acknowledgments to sales channels or customers upon order placement.
For some context, when you receive a marketplace order, you send back an ‘order acknowledgment’ to confirm that you have been notified and accept the responsibility of fulfilling the order.
How to improve: Integrate order management systems with sales channels for automatic acknowledgment.
6. P&L (Profit & Loss) Calculations per Order
What does it measure: A KPI that compares revenue generated and costs incurred for individual orders, helping you calculate order profitability.
How to improve: Ensure your OMS can calculate profit and loss. You can also look for opportunities to reduce order fulfillment costs, such as cheaper shipping options.
7. RMA (Return Merchandise Authorization) Handling
What does it measure: RMA handling tracks how efficiently you process RMA requests for returns, refunds, replacements, and cancellations.
How to improve: Invest in an OMS with RMA functionality and consolidate all your RMAs from different marketplaces to one interface.
You can also review your RMA process, ensure you provide customers with clear instructions, and investigate ways to improve returns handling in the warehouse.
Top Order Management Metrics
1. Accurate Handling Time (AHT)
What does it measure: AHT evaluates the time taken from order acknowledgment to order fulfillment.
How to improve: Improve order processing workflows by adopting an OMS with automation functionality.
2. Correct Quantity of Said Products Being Shipped
What does it measure: This metric ensures that the correct quantity and correct products are shipped.
How to improve: Implement checks at various stages of order fulfillment to prevent errors in quantity shipped.
3. Tracking Sent to Marketplaces
What does it measure: This metric tracks the timely transmission of tracking information to marketplaces and customers.
How to improve: Integrate order management system for real-time tracking updates, automate tracking notifications to customers, and ensure communication channels with marketplaces are not interrupted.
4. LOT/Serial Numbers
What does it measure: Ensures accurate tracking and management of products with LOT and serial numbers throughout the order fulfillment process.
How to improve: Ensure your OMS supports LOT and serial numbers based on workflow and supports FIFO (First In, First Out), LIFO (Last In, First Out), and FEFO (First Expired, First Out).
Curious about metrics and KPIs in e-commerce? Then you should check out Chapter 9 of our Inventory Management guide—What Are Inventory Management KPIs and Metrics? And our blog post on The Ultimate List of E-commerce KPIs Businesses Must Track.
Key Points From Chapter 11
You now know how to set up KPIs, metrics, and goals for order management. Remember these key points.
- In order management, KPIs and metrics are used to keep track of specific goals and processes. You may monitor KPIs and metrics daily or periodically in your OMS.
- KPIs and metrics are important because they can help your business achieve and maintain a desired service level.
- Crafting acceptable KPIs and metrics can be challenging because data may come from multiple channels and be influenced by factors beyond one’s control.
- A handful of the most important include ODT, AHT, ‘correct products being shipped,’ ‘P&L calculations per orders,’ and ‘customer communication’ are five of the most important.
In the next chapter, we will focus on automation in order management.