This guest post is written by Azad Sadr, Dsco’s head of industry research and content development. Dsco is Shippo’s supply chain intelligence partner. Dsco simplifies and standardizes the way trading partners connect and exchange data related to inventory visibility, purchase orders, invoicing, and shipping. Major retailers and brands like Nordstrom, Kate Spade, Clarks and thousands more use Dsco’s state of the art supply chain technology to expand their partner network quickly, build stronger partnerships, and obtain superior operational intelligence and efficiency.
Recently, a client of ours faced a dilemma.
Each time one of their suppliers received a customer order they would send back a carrier tracking code within five minutes, showing that the item had been shipped.
While our client knew this was a nearly impossible turnaround time, there was no way for them to make sure that the supplier had not in fact shipped the order.
The problem was that their metrics were off.
They were asking their supplier for a short average time-to-ship but were in fact measuring shipping code creation times. This incentivised their supplier to create shipping codes as soon as possible in order to meet compliance requirements and avoid penalties.
By giving our client real carrier acknowledgment data from our integration with Shippo, we were able to solve this problem and facilitate a good discussion between them and their supplier.
Their dilemma, however, raises the issue of proper metrics for measuring partnership performance and insuring that the customer experience is not impacted by cancelled, late, or inaccurate shipments.
To shed some light on this I’ll discuss the five most important metrics that we at Dsco use to rate supplier performance.
1. Fulfillment Rate
Let’s start with the most obvious first.
Fulfillment rate is simply the percentage of orders that a supplier has been able to fulfill.
It is a rather straightforward metric to gauge: either the order was fulfilled or it wasn’t.
Most suppliers should be able to meet the minimum industry standard of 98% during the regular season.
When they are unable to do so, this means that they either have internal inventory visibility issues (i.e. they don’t know the actual count of their own inventory), they don’t share their inventory data in a timely manner, or they’re unable to properly manage their drop ship inventory in relation to their other wholesale and direct-to-consumer channels.
Another reason could be that the retailer’s merchandising team or system isn’t updating their ecommerce site fast enough to prevent orders for out-of-stock goods.
Fulfillment rates can also be impacted by seasonal volume increases.
According to a 2010 Accenture study, during the crucial holiday season there could be as much as a 67% rate of online delivery failure.
2. Time to ship
As we’ve seen, the key to this metric is the ability to measure how long it takes a supplier to ship an order once it’s been acknowledged by their system and not how long it takes them to print a tracking code.
Most retailers are unable to do this, however, because they lack both comprehensive carrier data as well as the functionality to correlate it with their own unstandardized inventory and order data.
We’ve been able to offer this type of metrics to our clients through standardizing our data and using double translation, which has allowed easy correlation with the aggregated shipping information that Shippo provides us.
3. Inventory Visibility
Lack of inventory visibility in drop shipping is a major problem for suppliers and retailers alike.
In the United States it is estimated that the accuracy of inventory levels that suppliers give to retailers is only around 55-65%.
Researchers have found that there is a direct correlation between “inventory information misalignment” and its contribution “to the failure of order fulfillment and demand satisfaction.”
There are two aspects to inventory visibility: accuracy of inventory data and frequency of data updates.
We recommend that suppliers only provide inventory data updates when they have high confidence in the accuracy of their data.
While most suppliers don’t have the ability to do this every hour, at least four times a day should be a manageable target.
Be careful, however, about penalizing supply partners for late or infrequent updates. This will only encourage them to send fake “filler” updates in order to meet compliance.
Inaccurate data is often just as bad, if not worse, than no data, and you can often fill in any data gaps through the use of a B2B data solution that auto-decrements.
Inventory data accuracy is somewhat difficult to gauge as only the supplier has access to its own inventory.
Retailers with data solutions that auto-decrement, however, should be able to catch certain inventory blindness patterns that are red flags for inaccurate inventory data. These might include:
- Identical inventory updates: This happens when a supplier sends the same SKU count hour after hour. The most likely cause is that the “update” is a filler number entered by the supplier in order to meet compliance.
- Delayed order recognition update: This happens when an order is sent to a supplier but is not recognized in the inventory updates that it provides back to the retailer. There may be a significant delay between their order recognition and inventory management systems.
The flagging of these types of inventory inaccuracy patterns should be a part of any supplier compliance metrics.
4. Percentage of shipping upgrades
Retailers often allow suppliers to upgrade shipping levels so that orders can reach customers on time.
If an order comes in late and can’t be shipped until the next morning, upgrading it to overnight shipping still allows customers to receive their products within two days.
Upgrading is also useful for making sure that certain products such as chocolate reach a customer quick enough to avoid melting or spoilage.
Since upgrading is expensive it’s expected that this will only be done occasionally as the need arises.
We found some suppliers, however, that upgraded shipments for over 98% of orders, costing their retail partners hundreds of thousands of dollars per year in extra shipping fees.
Such high upgrade rates indicate that these suppliers use shipping upgrades as a routine method of meeting performance standards.
Using this metric therefore allows retailers to flag underperforming suppliers as well as potentially save a significant amount of shipping cost overhead.
It also allows them to recognize products that might often require upgraded shipping levels to maintain quality during transit.
Whatever the case, high upgrade rates should spark a conversation with suppliers to discover and resolve the route cause.
5. Delivery accuracy
This may seem like a straightforward metric that measures two simple things:
- Did the order reach the customer on time?
- Was the order shipped to the right address?
Complications, however, arise from the fact that once a supplier ships an order they no longer have control over what happens to it. Late and incorrect shipments can often be the fault of the carrier, not the supplier.
What should be measured for this metric, therefore, is everything that happens before an order is handed over to a carrier.
This means that the above two questions should be changed to
- Did the supplier ship the order in time to make the delivery window promised to the customer?
- Did the supplier give the correct address and other order information to the carrier?
Keep in mind that this metric will also have seasonal fluctuations. Again, according to Accenture, late deliveries can rise up to 12% due to stock out situations during the Christmas season.
Metrics are about starting conversations (not imposing compliance)
The purpose of metrics in drop shipping is to help improve trading partnerships with the ultimate goal of increasing efficiency, revenue, and customer experience.
This requires a high level of partnership and cooperation.
As a result, metrics should never be used to browbeat suppliers into compliance or as a method for collecting penalties and fees.
Suppliers will always be able to find workarounds for even the best designed metrics, rendering them useless without their willing cooperation.
More importantly, such actions will put a break on the deep coordination and teamwork needed for drop shipping to work at peak efficiency.
Metrics are most impactful, therefore, when they are used to start, inform, and frame conversations on how to improve drop ship processes for the benefit of all parties involved.
Shippo is a multi-carrier API and web app that helps retailers, marketplaces and platforms connect to a global network of carriers. Businesses use Shippo to get real-time rates, print labels, automate international paperwork, track packages and facilitate returns. Shippo provides the tools to help businesses succeed through shipping.