December 1, 2009
warehouse operations | Commentary

With order fulfillment, "perfection" is in eye of beholder

Aiming to deliver the perfect order? It all starts with knowing what it is.

By Kate Vitasek and Joseph Tillman

For many people, it's not Christmas without watching "A Christmas Story," a movie about a nine-year-old boy named Ralphie who goes to great lengths to make sure Santa brings him a BB gun for Christmas. And not just any BB gun. What Ralphie wants is a Red Ryder Carbine-Action, 200-Shot Range Model BB gun with a compass in the stock and a thing that tells time (a sundial in the stock of the gun).

Ralphie's story is likely to carry some resonance for supply chain professionals. In many ways, it captures the essential challenges of order fulfillment —understanding the customer's expectations, meeting those expectations, and measuring customer satisfaction.

It's clear from the start what it will take for the supplier (Santa) to satisfy his customer (Ralphie). Santa has to make sure the order arrives complete—for example, he can't forget "the compass in the stock and a thing that tells time." He has to deliver it on Christmas morning. And he has to see that the gun comes undamaged and with the instructions (documentation) included.

In the language of order fulfillment, what Ralphie's looking for is the classic "perfect order" —one that arrives on time, complete, and damage free, with the correct documentation and invoice (if applicable). Santa's challenge is to make sure his execution of that order is flawless.

Nothing less than perfection
But how can Santa tell if he's performing to expectations? One way would be to calculate the order's score on the Warehousing Education and Research Council's (WERC) Perfect Order Index (POI). To calculate a POI score, you simply multiply the four key "perfect order" metrics together: percentage delivered on time x percentage shipped complete x percentage shipped damage free x percentage shipped with correct documentation.

Although a number of industry organizations have adopted the POI as their standard for measuring performance, the index also has its critics. Some have challenged the formula's "multiplier" effect, arguing that it inflates the significance of a single failure. A score of 0 on just one of the metrics (say, the order is delivered an hour late) drops the overall POI score down to 0, effectively canceling out the supplier's achievements in the other three areas.

But we argue multiplying is the purest way to look at an order from your customer's —not the shipper's or the supplier's —perspective. If the order doesn't meet all of the customer's expectations, the supplier has failed. Period. You don't get partial credit when you fail the customer.

For example, what if Santa left Rudolph at home and encountered thick fog in Northern Indiana, delaying the order's arrival until after lunch on Christmas day? Regardless of whether Santa got everything else right, Ralphie would be an unhappy customer. That disappointment would be reflected in the order's POI. Santa would get a 0 for on-time delivery, netting him an overall POI score of 0.

The customer-focused measure
In Ralphie's case, it all works out in the end. Santa meets his customer's expectations on all counts, fulfilling both Ralphie's order and his dreams. But not all customers are so lucky. WERC's most recent survey of warehousing and distribution professionals found that respondents only shipped perfect orders 87.5 percent of the time.

Part of the problem may be that not all suppliers are as attuned to their customers' expectations as Santa is. While some companies have worked hard to define their customers' fulfillment requirements, others are still dragging their feet.

If you haven't developed your own definition of your customer's perfect order, we recommend you default to the WERC definition. It's hard to argue with the premise that most customers want what they ordered, when they wanted it, how they wanted it, with an accurate invoice.

If you think this definition is too strict, we urge you to think of Ralphie. Achieving the perfect order is not out of reach. Just ask Santa.

About the Authors

Kate Vitasek
Kate Vitasek is a member of the faculty at the Center for Executive Education, University of Tennessee and founder of the consulting firm Supply Chain Visions. She is a regular blogger for DC Velocity on the topic "You might have a bad warehouse if ..."

More articles by Kate Vitasek
Joseph Tillman
Joseph Tillman is the founder of TSquared Logistics.

More articles by Joseph Tillman

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