By: Henry F. Camp
Fill rate is from the customer’s point of view, which is the only important one. It measures how fully the orders placed by customers today can be filled immediately from the on hand inventory.
But, ask yourself if fill rate measurements capture all the negative impacts on a customer. For example, a customer calls in and inquires about prices and ship dates for specific quantities of 12 different items. Your representative explains that 11 of the 12 can be shipped that day and the 12th item is expected to arrive and be shipped tomorrow. The customer thanks your representative and hangs up. Is that a lost order? For one item or all 12? Is it a lost customer who will never buy again, because their next call is to a competitor who has all 12 and runs out far less frequently than you? Or was the query for a job that the customer is quoting and doesn’t yet have? Even if asked, the customer may not know the answer yet. And, if you have a perfect fill rate after running off all your customers for products that you sometimes run out of, is that good service from the customers’ points of view?
Availability is from the supplying company or shipping location’s point of view, which is the only measurable one. If you have availability after filling today’s orders, you are in stock. If you are out of stock the goods are not available – simple and measurable. Divide the number of SKUs without inventory by the number of SKUs that are desired to be on hand.
I think you should measure both. In all but the most difficult environments, both measures can and should be very close to 100%. It is quite instructive to compare the two measurements. Be alarmed if fill rate dips below availability, which suggests that the products that you are out of are the important ones that customers buy well. If so, you are certainly losing sales and injuring your reputation.
Customers expect their suppliers to ship orders complete. Anything less is a hassle for them. If a customer orders 12 different SKUs and you have a 97% fill rate, the chance of being able to fill the whole order completely is only 69% (0.97 to the 12th power), which is unlikely to be judged as exemplary by the customer. Using Elucidate, overall shortages typically drop by a factor of 10, with big movers handled better than the average. So, Elucidate should deliver 99.7% availability, in this case. The same 12 item order would be delivered complete over 96% of the time. That means 9 times fewer hassles. Customers notice big improvements. It is enough to win and retain more customers on an ongoing basis.