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Why is order cycle time important?
How to calculate order cycle time
Ways to improve order cycle time
In today’s highly competitive ecommerce market, one of the best ways for businesses to differentiate themselves from the competition is by providing exceptional customer experiences. There are many different ways brands can offer a positive customer experience – one of them is optimizing the order management process to enhance order fulfillment and improve order accuracy rates.
You might be asking, how can I accomplish this?
A key step to optimizing your order management process is by improving the order cycle time. In this post, we’ll take a closer look at what order cycle time is, why it’s important, and how to improve it for your business.
What is order cycle time?
Order cycle time refers to the average time taken to ship out an order from the time it was placed, excluding the actual shipping time. This makes it one of the most important KPIs to track in your order fulfillment process as it helps you measure the efficiency of your operations.
Why is order cycle time important?
Order cycle time is a useful metric for measuring the efficiency of your fulfillment process as it also affects other KPIs like on-time shipping rate and order lead time. The shorter the order cycle time, the more responsive the company is toward customer orders.
Gauging customer satisfaction
Your order cycle time can have a positive or negative impact on customer satisfaction. A long order cycle time often results in fulfillment delays and longer delivery times, which will translate to more dissatisfied customers. On the other hand, a short order cycle time enables you to deliver a seamless fulfillment experience (and even offer 2-day shipping) which can contribute to higher satisfaction levels.
Detecting issues in the supply chain
Knowing your business’s order cycle time can help detect issues in the supply chain that could be causing delays in your order fulfillment process. A long order cycle time is an indicator that you need to review your supply chain process to identify any inefficiencies or unnecessary steps that need to be optimized or removed entirely.
For example, manual order receiving can be time-consuming and is prone to errors, leading to a longer order cycle time.
Measuring readiness to scale
As you scale your business, your order cycle time is a good indicator of whether or not you’re ready for the next step. Scaling your business requires an efficient supply chain that’s capable of handling more orders without affecting your overall performance. A short order cycle time means you’re likely ready to expand your operations.
How to calculate order cycle time
From order date to ship date–there are several elements of your order-to-cash process involved in determining your order cycle time.
It can be calculated using the order cycle time formula below:
Order Cycle Time = (Delivery Date – Order Date) / Total Orders Shipped
The elements in this equation are pretty self-explanatory. The delivery date refers to the day which the customer received the order, while the order date is the day when the order was placed. Businesses may make this calculation for a specific time period such as a month or a quarter. The total number of orders shipped refers to the number of orders you shipped out within a particular time period.
Ways to improve order cycle time
In order to shorten your order cycle time, you may need to optimize different aspects of your supply chain processes.
1. Improve your warehouse flow
Bottlenecks in the warehouse can be a major cause of longer order cycle times. For example, can pickers find items easily? Are shelving racks appropriated spaced out so they’re able to move around quickly? Is your fulfillment bay set up too far from the picking area? All of these roadblocks can slow down the picking and packing process.
By identifying these inefficiencies, you’re able to reduce order cycle time. Start by measuring your warehouse KPIs and looking for opportunities to make improvements. You may need to optimize your warehouse setup and use warehouse slotting to make the most of available space and improve picking efficiency.
2. Set protocols and limits
Setting clear protocols and procedures to guide your fulfillment staff is essential to improving the process. This may involve limiting picking batch size to speed up the process and quickly get orders from the shelves to the packing bay. You may also set up guidelines on how and where to leave returned items so that they can be easily sorted or picked later. Additionally, setting limits on when to place inventory reorders is an essential step to avoiding stockouts and backorders, which can slow down your order cycle time.
Additionally, take a look at how you’re currently handling late deliveries. In addition to providing your staff with real-time ecommerce order tracking, you should set up guidelines on what to do with the information in case of delivery exceptions. For example, have a clear protocol in place about when and how to follow up when an order is stuck at a certain location.
It’s also important to be transparent with your customers about your shipping policies such as shipping cutoff times to set realistic expectations.
3. Continue measuring cycle time
Order cycle time can fluctuate over time, especially with changes or disruptions in the supply chain. For example, an unexpected delivery exception can result in a much longer order cycle time than usual. Or you may notice a much shorter order cycle time after implementing an automated system to improve your warehouse receiving process.
Additionally, your warehouse staff having to deal with a large number of returns may also affect their ability to focus on fulfillment tasks because they’re too busy recording and sorting your ecommerce returns. Throughout your supply chain, there are many variables that can affect this order cycle time.
There are many variables throughout your supply chain that can affect this metric. It’s important to constantly monitor and reassess your order cycle time. This way, you determine whether you need to review your supply chain processes and make improvements that will speed up the process. It’s also a great way to figure out whether the improvements you’ve implemented are effective at speeding up your cycle time.
4. Outsource fulfillment
The easiest way to speed up your order cycle time is by leaving the fulfillment process to the experts. Outsourcing fulfillment to a third-party logistics partner is an effective way to make sure that orders are quickly received, picked, packed, and shipped out. Ideally, look for a tech-enabled 3PL that allows you to automate significant portions of the fulfillment process.
For example, the 3PL should have technology that seamlessly integrates with your online store. This way orders are automatically received in their warehouses and fulfillment centers as soon as they’re placed by customers.
By doing this, you automatically process orders which allows them to quickly move through the fulfillment pipeline so they’re shipped out to your customers in just a few hours. Moreover, automating the process will reduce the need for manual entry, which minimizes the risk of errors while improving order accuracy.
Speed up your order cycle time with ShipBob
Taking advantage of ShipBob’s fulfillment services is the perfect way to speed up your order cycle time. ShipBob manages the entire logistics process, ensuring that orders are delivered effectively and on time, thus improving your order cycle time.
Optimized inventory and order management
ShipBob uses proprietary software so you can efficiently manage your orders and inventory in one place, helping you optimize your logistics systems. ShipBob’s technology integrates with your ecommerce platform so orders are automatically received and processed in our fulfillment centers. This allows orders to get out the door faster, speeding up fulfillment and delivery times.
Moreover, it provides real-time updates on inventory levels. This means your ecommerce store will have accurate information on stock levels so customers can’t place orders for out-of-stock items. As a result, you can prevent backlogs and delayed fulfillment.
Accurate demand forecasting
ShipBob’s software uses your sales history to accurately predict future demand. You can use this information and factor in other details like production lead time to set reorder points for both finished goods and production inventory. That way, you can improve supply chain velocity and prevent issues relating to stockouts and backlogs that can slow down your order cycle time.
Have your own warehouse?
If you’re looking for ways to better understand your order cycle time in your own warehouse but need a more nuanced system, look no further than ShipBob’s WMS.
ShipBob allows merchants to use our best-in-class warehouse management system in their own facility to streamline fulfillment, improve inventory and order management, and more.
If you’re interested in implementing this system for your in-house fulfillment, connect with our team to get started.
Order cycle time FAQs
Here are the answers to the most popular questions about order cycle time.
What is order cycle time in supply chain?
Order cycle time is the time taken to ship out an order from the time it was placed.
How do you calculate order cycle?
Order cycle can be calculated using the formula: Order Cycle Time = (Delivery Date – Order Date) / Total Orders Shipped
What are the benefits of order cycle time?
Calculating your order cycle time is important to gain supply chain visibility and determine any opportunities for optimization. For example, you may notice the need to reduce production lead times if you notice bottlenecks in the inventory procurement stage.
What is the difference between order cycle time and lead time?
While order cycle time considers the average time taken to get orders ready to be shipped, order lead time considers the average time taken for customers to physically receive their orders from the time they were placed.
What is the average order cycle time?
The average order cycle time is the average amount of time it takes to get an order ready for shipping from the time they were placed.
