What is Fill Rate?
If you have ever wanted your hands on the latest PlayStation, you would know how much it hurts to see it so often out of stock. OOS - a 3-lettered customer nightmare. While Sony can pull this lack of supply off, that cannot be said for most sellers.
Thus, it’s most important to make sure your customers leave happy with what they came for. It can be done by monitoring the fill rate that lets you know how well you can meet customer demand at any given time.
More technically put, fill rate is the percentage of customer demand that is met by immediate stock inventory, without placing a backorder or missing a sale.
A low fill rate can lead to loss of sales, poor customer experience, loss of customers, and a bad reputation.
How to calculate a store’s fill rate?
It’s quite easy to calculate the Fill Rate.
Fill Rate = (Number of units provided / Number of units ordered) x 100
Say, a customer asks for 100 hats, and you only have 60 with you at the moment. Your fill rate would be,
Fill Rate = (60/100) x 100 = 60%.
Is the fill rate important, and how can you improve it?
FR is very important, and here’s why - Knowing the fill rate can help you manage your customer demands, inventory levels, and customer experience.
1. Manage customer relationships
If you don’t meet the customer’s demand immediately or, worse, make them wait, then you can impact your long-standing relationship with your customer.
Making sure you are a reliable partner is the best way to inspire customer loyalty; otherwise, multiple stockouts might just push the customer to take his business elsewhere.
In case you already know you won’t provide what the customer has come for, you can inform them in advance or direct them to an alternate product to not lose the sale.
2. Manage inventory levels
Your fill rate can tell a lot about how you have been managing your inventory levels. Having a data-driven accurate forecasting process can go a long way in building a good reputation and brand name.
If your fill rate happens to be consistently low, you can start looking at other suppliers or negotiate with the current ones to maintain an optimal inventory level.
The best way would be to make a reasonable investment in inventory management and optimization software. If you know which of your products sell quickly, you know the optimal time to place new orders with your suppliers and fill in the gaps.
3. Manage the fulfilment process
Poor packaging or an inefficient shipping process can impact your ability to fulfil orders on time. A low fill rate due to packing, forecasting inefficiency, and delivery issues are signs that you need to look at ways to improve the fulfilment processes.
What is the right fill rate (FR)?
The answer would depend on the kind of product you sell and how easy it is for your customers to fulfil their demand elsewhere.
The best-performing companies are able to keep their fill rate at 85-95%. Some may even manage to maintain 98-99%.
A high order FR suggests that you are managing your inventory levels efficiently to avoid stockouts. You are forecasting demand accurately, replenishing your inventory on time, and providing sufficient safety stock. Thus, you are able to fulfil customer orders immediately.
A low FR would mean a loss of sales and reputation, while a very high FR might indicate that you have reached a surplus of inventory and are not optimizing the number of stored goods.
The right fill rate would be one that does not lead to the loss of customers quickly. Improving it by working on inventory management is the entire objective of tracking the rate consistently.