the indicator Fill Rate is an important metric in distribution logistics and has a few different types of measurement that can generate valuable insights to improve operations management. In essence, the indicator is linked to availability and compliance with the service level. When the level of service is not met, several problems arise, such as immediate loss of sales, loss of market share – which will affect future sales -, in addition to causing possible damage to the company's image.
There are a few ways to measure the Fill Rate, the first of which is through the Order Fill Rate, a binary indicator calculated from order fulfillment (takes the value 1) or order not filled (takes the value 0). From this indicator, we were able to measure the percentage of orders fulfilled in relation to the total orders received. in turn the Line Fill Rate specifically evaluates the fulfillment of each SKU (stock keeping unit) on each order line. Finally, it is also possible to calculate volume service using the indicator called Case Fill Rate, which is a non-binary measure calculated by dividing the volume delivered by the total volume ordered for each order.
To illustrate the differences between Order Fill Rate, Line Fill Rate e Case Fill Rate, here's an example:
It is important to measure changes in Fill Rate, as they supplement the analyzes with crucial information. A high rate of Order Fill Rate for example, it can mask some inefficiencies in your operation. On the other hand, even with a lower rate shown by the indicator, a large part of the volume may already have been met in a few orders.
There are still other ways to detail the Fill Rate if we insert some extra information in the database, such as the sales channel used and the region of the order, which can be used as “filters” when analyzing the results. With this data well tied together, it is possible to have an overview of whether the company is managing to meet the requested demand for each SKU, sales channel and region. If the result is not satisfactory, there are some practices that can serve as an alternative to improve it. Some of the main ones are:
- Improve inventory management: As the consultant Fernanda Monteiro wrote in the post “The importance of inventory management", the formation of a finished product inventory guarantees its immediate availability, mainly in times of peak demand when the company does not have enough productive capacity to meet it. Therefore, maintaining adequate levels of stock and using efficient systems for its management are practices that help to comply with orders received and delivery deadlines.
- Improve transport management: The optimization of delivery routes and the use of cargo monitoring technologies are measures that can improve the efficiency of the transport process and, consequently, increase the Fill Rate. In the case of contracting third-party fleets, choosing carriers that are compatible and in line with the proposed level of service is also important to ensure compliance with the plan.
- Improve demand forecasting techniques: The use of more accurate demand forecasting methods helps to reduce the error, that is, the difference between the actual and forecast. In this way, an attempt is made to reduce losses, whether the cost of shortages or excess of products, generated by fluctuations in demand. Forecasting methods can also help in better planning for seasonality moments according to the company's production and logistics capacity.
- Improve supplier relationships: Communication and collaboration between suppliers and distributors can help identify and resolve issues in the supply chain, preventing delays and product shortages.
- monitor performance: The constant monitoring of performance indicators is essential to identify possible flaws in the distribution process and take measures to correct them. In addition to the Fill Rate, another very relevant indicator for this monitoring is the OTIF – On Time In Full, which measures the accuracy of fulfillment of customer orders in two dimensions: punctuality of delivery and quantity requested in the order. For more detailed information on this indicator, read here the post published by consultant Henrique Alvarenga.
- Structure a dedicated area for S&OP: The development of an exclusive area to deal with S&OP with the elaboration of a collaborative planning involving different sectors of the company, such as operations, finance and production, is extremely important to achieve better results, not only for the Fill Rate and OTIF, but for several other indicators that measure both the performance and the service level of the operation. Even though within the S&OP spectrum there are different levels of maturity, structuring an area capable of carrying out a cohesive sales and operations plan is already a starting point and beneficial for the company.
- invest in technology: Investment in more advanced systems and software, which allow continuous monitoring of activities and integrated management of the different areas that participate in the S&OP process, can contribute to improving operational efficiency and reducing errors in the distribution process. The use of more advanced technologies can really change the level of S&OP and S&OE activities, but as long as there are qualified personnel able to use the new technologies and analyze their outputs.
Therefore, there are some alternatives to consider when trying to improve the results of the Fill Rate. Some of the solutions mentioned above, such as improving transport and inventory management, can be used in a timely manner for a positive evolution of the indicator. However, the ideal is to make a structure for the implementation of all of them. In this way, the company will have a consolidated S&OP area capable of preparing operating plans that coincide with its production capacity, and using information from different areas as a basis for its analyses, which, if more accurate demand forecasting techniques are used, should guarantee positive results. Finally, the use of more advanced technologies and software that allow the monitoring and management of the operation in real time could be the next step for those companies that already have a more mature process, but it is important to emphasize that it is necessary to have personnel that know deal with these technologies and analyze their results, being able to act to correct any deviations in the course in an agile way.
References:
- ILOS – The importance of inventory management – ILOS Insights
- ILOS – OTIF – Measure to improve service | ILOS Insights
- ILOS – What is the value proposed by the S&OP process? – ILOS – Specialists in Logistics and Supply Chain
- FLEURY, Paulo Fernando; SOUZA, Luiz Gonzaga de. Business logistics: a Brazilian perspective. São Paulo: Atlas, 2000.
- Delage – What is Order Fill Rate (OFR) and why you should use it in your operation – Delage
- Indeed - What Is Fill Rate? (Definition, Types and How To Calculate) | Indeed.com
- DCL Logistics – What Is Fill Rate? (Definition, Types and How To Calculate) | DCL Logistics (dclcorp.com)
