Fill Rate

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  Formally defined, a fill rate is the percentage of customer orders that a company can ship or, “fill”, immediately from the inventory you have on hand without placing backorders, running out of stock or missing sales.

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Ok, such a valuable measurement must be quite complex to calculate, right?  Actually another powerful aspect of the fill rate is its simplicity to calculate.  The fill rate can be generated at any time to help an organization understand what they can fill.  

What does the output actually tell us?

• To start, the fill rate is interpreted as a percentage of orders filled from the total number of orders.  For example if we fulfilled 10 orders out of 20, that would mean our fill rate is 50%, which is not very good.  This low fill rate may indicate that you don’t have enough stock on hand or that your inventory is not being replenished fast enough.  It may also be an indicator of many other inventory issues like poor organization in the warehouse.  Nonetheless if your fill rate is 80% or less you need to look closer at your inventory and find out what is causing the low fill rate.

Example  

• Assuming we have only one order and one customer we are filling for let’s imagine that K&K manufacturing has an order to fill for 50 bottles of a powerful prescription medication.  K&K is only able to ship 40 bottles of medication.  To get K&K’s fill rate we divide 40 bottles shipped by the complete order of 50 bottles.  K&K’s fill rate is 80%.

Why Measure Fill Rate?

• Without some understanding of how well you are meeting customer demand you are only guessing.  And, as we all know, how well you meet customer demand is critical in inventory management and the overall customer experience.  Fill rate can give you insight into how well you are doing and help you find opportunities if changes are needed.  Another reason that many companies opt to track fill rate is to manage their orders.  For example, if you are not able to fill an order in its entirety, you can inform your customer and find solutions to your problem before the customer becomes frustrated.  One way you may do this is by offering alternatives to a product if you can not fill an entire order or by shipping partials.  Fill rate can also help you manage and improve your inventory fulfillment processes.  For example, if your fill rate has a dropping trend or is always low, you may consider searching for alternative suppliers or revisiting how your reorder strategy is working.  If the item is an in house item you may consider looking at the value stream and removing waste or issues.  This will help you ensure you’re maintaining optimal inventory levels. And that’s it, fill rate. 
  

Challenge

• Let’s say that K&K receives an order for 120 bottles of prescription medication and they are only able to fill 94 bottles of the order.  What is their fill rate and what actions might you take if this was your fill rate?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.