Page 214 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 11: Physical Distribution and Inventory Management

The order fill rate is a measure of the percentage of orders shipped completely. Notes
Finally, the item fill rate is the ratio of the total number of items shipped divided by the total
number of items ordered. This measure is probably the strictest of the three measures of customer
service fill rates discussed above.
To illustrate these fill rate measures, consider the order where 10 lines of items are ordered, and
of these 10 line items, only 5 of them were filled in their entirety, thus the line item fill rate is:
Line Item Fill Rate = 5/10 = 50 percent
Since, the order fill rate is the percentage of orders filled completely. Clearly, this order counts
in the unfilled category.
Other customer based metrics are On-Time Delivery Percentage and Order-Entry Lead Time.
On-Time Delivery Percentage is generally analyzed over a year. Higher the value, the better is
the customer satisfaction. Generally it has a value between 96-100 percent as a benchmark.
Order-Entry Lead Time measures the time taken to take customer order. Manual systems can be
quite time consuming but with the implementation of the online ordering systems Order-Entry
lead times can be quite short. The benchmark could be set to be less than a day.
In addition to the metrics described above, there are many other measures of success in satisfying
both the customers as well as the organizational objectives. Some of the more common measures
are shown in the table 11.2 below:

Table 11.2: Additional Inventory Metrics

Inventory Metrics Customer Perspective
Order Quantity Reliability
Order processing/Setup cost, Inventory Stockout percentage,
Carrying cost, delays,
Back order cost, loss and paperwork involved.
Excess and obsolete stock cost
Critical Inventory Stock out percentage,
Average Inventory, Percentage of orders fulfilled
EOQ
Industry Ratio Part Count Accuracy Percentage
Comparison with others Quality-Percentage Defects
Price of Non-Conformance (PONC)

Implementing Decisions

Detailed measures of inventory accuracy and availability are very important in order to maximize
manufacturing and non-manufacturing efficiency and financial results. In addition to the measures
described above, inventory obsolescence measures can be very important for items with short
shelf lives, due to aging or technological changes.
Finally, collecting accurate data on which to construct inventory measures can be challenging.
Processes have to be in place to ensure that inventory is counted accurately and on a timely
basis.
In general, supply chain inventories have been declining significantly in all parts of the world.
In 1970, U.S. manufacturers held more than 50 percent of aggregate inventory stocks, but this
share has fallen to about 35 percent in 2000. By sector, the manufacturing share of durable goods

LOVELY PROFESSIONAL UNIVERSITY 209