Page 65 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes 3.2.4 Fill Rate

Fill rate measures the magnitude or impact of stockouts over time. Just because a product is out
of stock does not necessarily mean that a customer requirement is going unsatisfied. Before a
stockout affects service performance, it is necessary to confront a customer requirement. Then it
becomes important to identify that the product is not available and to determine how many
units the customer wanted. Fill rate performance is typically specified in customer service
objectives. By measuring the magnitude of stockouts, a firm’s track record in meeting customer
requirements can be determined.

Example: If a customer orders 50 units and only 47 units are available, the order fill rate
is 94 percent (47/50).
To effectively measure fill rate, the typical procedure is to evaluate performance over a specified
time that includes multiple customer orders. Thus, fill rate performance can be calculated for a
specific customer or for any combination of customers or business segment desired.

Fill rate can also be used to differentiate the level of service to be offered on specific products. In
the earlier example, if all 50 products were critical, an order fill rate of 94 percent could result in
a stockout in the customer’s operation and create considerable dissatisfaction. However, if most
of the 50 products were relatively slow movers, a fill rate of 94 percent could be satisfactory. The
customer may accept a back-order or even be willing to reorder the short items. A firm can
identify products that are critical and should have higher fill rates on the basis of customer
requirements. Fill rate strategies can then be developed to meet customer expectations. Stockout
frequency and fill rate both depend on customer order practices.

Example: If a firm places frequent replenishment orders for small quantities, the
probability of stockout frequency will increase as a result of shipment variability. In other
words, each replenishment order represents an equal chance for a delivery delay.
Thus, as the number of orders that impact safety stock increases, more stockouts will occur. On
the other hand, if a firm places fewer large replenishment orders, the potential stockout frequency
will be less and the expected fill rate will be higher.

3.2.5 Orders Shipped Complete

Orders shipped complete are a measure of the times that a firm has the entire inventory ordered
by a customer. It is the strictest measure since it views full availability as the standard of
acceptable performance. Orders shipped complete establishes the potential times that customers
will receive perfect orders, providing all other aspects of performance have zero defects.
These three availability measures combine to identify the extent to which a firm’s inventory
strategy is meeting customer expectations. They also form the basis to evaluate the appropriate
level of availability to incorporate in a firm’s basic service platform.

3.2.6 Operational Performance

The performance cycle was positioned as the operational structure of logistics. Mission, type of
customer being serviced, differentiated performance cycles and the degree of operational variance
experienced over time. Operational measures specify the expected performance cycle in terms
of (1) speed, (2) consistency, (3) flexibility and (4) malfunction/recovery. Operational performance
involves logistical commitment to expected performance time and acceptable variance.

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