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Service Level KPIs

Yulia Fedorova

14 May 2024

Service level key performance indicators (KPIs) are vital for businesses aiming to meet and exceed customer expectations efficiently. These metrics provide insights into operational performance and delivery capabilities, directly influencing customer satisfaction and loyalty.

Achieving high service levels is critical for customer retention, indicating your business's ability to consistently satisfy customer needs. Conversely, low service levels can pinpoint areas in need of improvement, guiding strategic enhancements.

Service level KPIs are essential tools for identifying bottlenecks and refining processes. By analyzing these KPIs, businesses can implement changes to boost efficiency, reduce costs, and enhance market competitiveness. This proactive approach ensures agility and the ability to adapt to market shifts.

By closely monitoring and improving service level KPIs, you can achieve strategic benefits like:

  • Customer relationships: Strengthening bonds and fostering loyalty.
  • Revenue: Identifying and addressing service gaps to recover potentially lost sales, thereby boosting overall revenue.
  • Brand reputation: Elevating credibility through exceptional service.
  • Cost-effectiveness: Enhancing operational efficiency to reduce expenses.
  • Market edge: Gaining a competitive advantage through superior service delivery.

Monitoring and improving service level KPIs is a commitment to excellence, customer satisfaction, and operational success. It empowers businesses to make informed decisions, streamline processes, and ultimately secure a sustainable competitive position in the market.

Challenges in tracking and managing service level KPIs

Addressing the challenges of tracking and managing service level KPIs requires businesses to navigate a complex landscape. Firstly, ensuring data accuracy and integrity is vital, as any misstep can skew analysis and lead to poor decision-making. Additionally, integrating disparate systems and processes is necessary to achieve a unified view of service performance, which can be technically demanding.

Setting realistic and relevant targets is also critical to drive meaningful improvements without overburdening staff. Businesses must strike a delicate balance between the efficiency of service delivery and maintaining high-quality standards, all while adapting to swiftly changing customer demands.

Dependencies on external parties like suppliers or logistics providers add another layer of complexity, as their performance directly impacts service levels. Employee engagement and training are pivotal as well; staff must understand the importance of KPIs and be motivated to contribute positively.

Financial constraints may limit the resources available for improvements, and evolving industry standards necessitate a dynamic approach to KPI management. Selecting the right KPIs that align with business objectives is crucial, as is fostering a culture that is committed to continuous improvement.

Furthermore, compliance with legal and regulatory frameworks can present obstacles, especially for industries that are heavily regulated. Global operations must account for cultural differences and varied expectations across markets, making the management of service levels an intricate task.

To overcome these challenges, businesses must prioritize clear communication, invest in robust data management systems, provide ongoing staff training, and remain flexible to adapt to new industry benchmarks and customer expectations.

Order fulfillment framework

The order fulfillment framework is a comprehensive system that businesses use to fulfill customer orders from start to finish. It encompasses every step of the process, from the moment a customer places an order to the final delivery. A well-designed order fulfillment framework is crucial for maintaining high levels of customer satisfaction, ensuring efficient operation of supply chains, and meeting competitive service levels.

Order Fulfillment Framework

Each timestamp represents a checkpoint in the customer's order journey and is an opportunity to evaluate the efficiency and effectiveness of the fulfillment process.

The synchronization of these timestamps with service level KPIs allows businesses to identify bottlenecks, forecast accurately, and improve their supply chain strategy. It serves as a diagnostic tool to analyze performance, ensuring that each phase of the delivery aligns with customer expectations and company objectives. By leveraging this data, companies can enhance process transparency, improve customer communication, and drive continuous improvement in service delivery.

Types of service level KPIs

Service Level KPIs are categorized into various types based on different aspects of service they address.

1. Delivery efficiency
  • On-Time Delivery: Measures the percentage of orders delivered within the promised delivery time frame.
  • Delivery Time: The average time it takes from when an order is placed to when it is delivered to the customer.
  • Same Day Delivery Rate: Tracks the percentage of orders delivered on the same day they were ordered.
2. Delivery accuracy
  • Order Accuracy: The percentage of orders delivered with the correct items, quantities, and specifications as ordered by customers.
  • Damage Rate: Measures the percentage of deliveries that arrive with damaged goods.
  • On-Time In-Full: Measures the percentage of orders delivered within promised delivery time frame and with correct items and quantities.
3. Cost-Related
  • Delivery Cost per Order: Calculates the average cost associated with delivering each order, including fuel, labor, vehicle maintenance, and other logistics costs.
  • Fuel Efficiency: Evaluates the fuel consumption relative to the distance covered or deliveries completed, aiming for lower fuel usage for cost savings and environmental benefits.
4. Customer Satisfaction
  • Delivery Satisfaction Score: A metric derived from customer feedback specifically related to their satisfaction with the delivery service.
  • Rate of Return Due to Delivery Issues: Tracks the percentage of products returned due to delivery-related problems, such as late delivery or damaged goods.
5. Operational Performance
  • Capacity Utilization Rate: Measures how effectively the delivery infrastructure (vehicles, dispatch systems, etc.) is being used relative to its maximum potential.
  • Failed Delivery Rate: The percentage of deliveries that cannot be completed as planned due to various issues, such as incorrect addresses or the recipient not being available.

Definition and importance of delivery efficiency and accuracy KPIs

Next, we aim to dive deep into two primary service level KPIs: On-Time Delivery and On-Time In-Full.

On-Time Delivery (OTD)

Definition: OTD is a critical KPI used to evaluate how well a company manages to fulfill its delivery promises to customers. Specifically, OTD measures the percentage of goods or services provided to customers by the agreed upon delivery date. It is a direct reflection of the reliability and efficiency of a company's supply chain and order fulfillment processes.

Importance: Unlike many operational KPIs that have an indirect impact on customer perception, OTD is one of the few metrics that customers directly experience and judge a company by. The moment an order arrives on time, it validates the customer's trust and sets the foundation for a positive relationship. In contrast, KPIs such as inventory turnover rates or operational efficiency metrics, while important, do not have the same immediate visibility or impact on the customer’s perception.

OTD uniquely influences brand perception because it's a tangible expression of the company's reliability and commitment to customer service. Consistently meeting delivery commitments can elevate a brand above competitors, serving as a critical differentiator in markets where product offerings are similar. This is because timely delivery is often taken as a proxy for the overall reliability and professionalism of a company, influencing customer choices more directly than KPIs related to internal processes or financial metrics like gross margin.

OTD demands a level of operational excellence and coordination across the entire supply chain that few other KPIs do. It requires seamless collaboration between production, inventory management, logistics, and customer service teams. Achieving a high OTD rate necessitates the identification and removal of bottlenecks, optimization of processes, and often, the adoption of innovative technologies. This drives a culture of continuous improvement and operational efficiency that benefits the entire organization, making OTD a catalyst for broader gains in performance.

The importance of OTD extends deeply into the financial health of a company, more directly than many other KPIs. Late deliveries can lead to immediate financial penalties, lost sales, and increased costs for expedited shipping or inventory holding. Moreover, the long-term impact of poor OTD on customer churn and brand damage can have profound, lasting effects on revenue. While other KPIs might influence cost structures or efficiency, OTD directly correlates with both immediate and long-term revenue potential and cost savings.

In increasingly competitive markets, OTD serves as a key competitive advantage. Companies that consistently meet their delivery promises can capture and retain market share more effectively than those that struggle with timeliness. This KPI not only impacts the end customer but also influences B2B relationships, where timely delivery is often a contractual requirement. The reliability signaled by high OTD rates can therefore be a decisive factor in securing contracts and partnerships, setting a company apart in ways that internal efficiency metrics or financial ratios cannot.

Data Required: In order to accurately assess OTD, companies need to collect and analyze a variety of data points:

  • Scheduled delivery dates: These are the promised dates of delivery to customers, which form the baseline for measuring on-time performance.
  • Actual delivery dates: The real dates on which customers received their orders are critical for calculating the OTD rate.
  • Order specifications: Detailed information about each order, including customer information, product details, and order size, is essential for a thorough analysis.
  • Reasons for delivery delays: Collecting data on why deliveries are late can help pinpoint systemic issues that may be correctable, such as production delays or carrier inefficiencies.
  • Logistics details: Information about the delivery process, including carrier performance and any logistical challenges encountered, provides insights into external factors affecting OTD.
On-Time In-Full (OTIF)

Definition: OTIF is a metric that measures the ability of a company to deliver orders to customers on time and in full. It evaluates whether orders are not only delivered by the agreed-upon date but also whether the complete order quantity is fulfilled. OTIF is calculated by dividing the number of orders delivered on time and in full by the total number of orders.

Importance: Unlike traditional metrics that might focus solely on the timeliness of deliveries (On-Time Delivery) or the completeness of orders (Order Accuracy), OTIF combines these dimensions, offering a more comprehensive view of service quality and operational performance.

This dual focus ensures that businesses do not overlook one aspect in favor of the other, promoting a balanced approach to customer service. Delivering orders on-time and in-full directly impacts customer satisfaction as it meets the customers' expectations fully, without compromise. This level of service fosters trust and loyalty, which are crucial for long-term customer relationships.

Tracking OTIF can help identify specific areas within the supply chain that are underperforming, whether it's in manufacturing, warehousing, or transportation. This enables targeted interventions to address issues, improving overall efficiency.

Especially in B2B contexts, failing to meet OTIF requirements can result in financial penalties from customers or partners. High OTIF performance helps avoid these penalties, directly benefiting the company's bottom line.

For businesses operating in a B2B environment, high OTIF rates are often a prerequisite for securing and maintaining contracts. Superior OTIF performance can be a decisive factor in winning new business and retaining existing customers.

Data Required: To accurately assess OTIF, a set of comprehensive data points is required:

  • Order date and time: The exact date and time when an order was placed. This serves as the starting point for measuring the fulfillment process.
  • Customer-requested delivery date and time: The date and time by which the customer expects to receive the order.
  • Actual delivery date and time: The actual date and time when the order was delivered to the customer. This is used to assess whether the delivery was on time according to the customer's expectations.
  • Order Line Items: Detailed information about each item within an order, including product SKUs, descriptions, and quantities ordered. This detail is essential for verifying the ‘In-Full’ part of the KPI.
  • Stock availability at order placement: Inventory levels at the time of order placement to understand if delays or fulfillment issues are related to stock shortages.
  • Order fulfillment date and time: When the order was picked, packed, and ready for shipment. This helps identify bottlenecks in the fulfillment process.
  • Shipping method and carrier information: Details about how the order was shipped, including the carrier and service level. This can affect delivery times and the ‘On-Time’ assessment.
  • Tracking information and milestones: Carrier-provided tracking data, including key shipping milestones. This can help pinpoint where delays occur in the shipping process.
  • Returns and refusals data: Information on any items returned or refused at delivery, including reasons for returns, which can indicate issues not strictly related to timing or quantity but affecting overall OTIF performance.

Customer order dates can typically be found within an ERP system, which integrates various business processes and facilitates the flow of data between them. Shipment and volume data are often stored in a shipment table, which can be part of an inventory management system or a specialized logistics platform. Milestones and proof of delivery dates are usually tracked within a TMS, which helps in planning, executing, and optimizing the physical movement of goods.

On-Time Delivery and On-Time In-Full are indispensable tools for businesses striving to excel in customer service and operational efficiency. These metrics not only provide a snapshot of current performance but also serve as a beacon, guiding companies toward continuous improvement and excellence.

Don't let complex supply chain challenges hold you back from achieving operational excellence and unparalleled customer satisfaction. Embrace numi today and start your journey towards supply chain optimization. With numi, you can transform your service level KPIs from a point of concern to a source of pride and competitive advantage.

Request a demo to learn more about how numi can revolutionize your supply chain management. Let's work together to elevate your business to new heights of efficiency and customer satisfaction.
Service LevelCustomer SatisfactionOperational PerformanceOrder Fulfillment