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The inventory advisor

Aug 17, 2015

Do you know what your fill rate is?

Most businesses have only anecdotal information about their fill rate, relying on gut feel and previous experience. They will say things like “we can fulfil customer orders at least 85% of the time.

They get to that number based on :

  • Feedback from sales
  • Customer back orders
  • A drop in sales

But this approach has problems:

  • Sales people are often very busy and notoriously bad at reporting
  • Often customer’s don’t place a back order, buying from your competitor instead
  • Measuring sales volume is inaccurate, as many internal and external factors can influence sales
  • You may be hearing a small group of very vocal customers

A more scientific method

Here is a more scientific approach to calculating your fill rate for an individual stocked item:

  1. Pick a rolling time frame, such as the last 30 days
  2. For each day, count whether the item was in stock or out of stock
  3. Work out the in stock percentage. For example: if the item was in stock for 20 out of the last 30 days, the fill rate for this item is 66.67%
  4. Do this for every item, or at least your best sellers.

This will give you a more accurate picture of the Fill Rate you’re achieving for every stocked item, and you can rank items from worst fill rate to best. This will allow you to focus on the problem areas first.

Not all items are equal

However, being out of stock of an item that sells very few units and doesn’t add much to profit is much less of a concern than being out of stock of one of your top sellers that contributes significantly to your business.

To assist in prioritising which items are having the biggest negative impact on the business, you need to factor in to the measure the forecast sales at cost, or some equivalent metric.

Now we can rank the items by:

  • Calculating the inverse of the fill rate – the % you are out of stock
  • Multiply this by the forecast value (forecast units x average cost)
  • Sort the items from highest to lowest

Now you have a list that enables you to target the items having the biggest impact on your business due to the stock out. Getting these items back into stock as soon as possible enables you to make more sales and achieve a higher margin.